Since its listing on October 16, Qiniu Intelligent (02567) has been on a downward trajectoryAs of December 4, the stock closed at HKD 0.99, giving the company a market capitalization of approximately HKD 19.77 billionIn stark contrast to its issue price of HKD 2.75, Qiniu’s stock price has plummeted by a staggering 64%, resulting in a total market value loss of about HKD 3.5 billion.

Before the Initial Public Offering (IPO), Qiniu was valued at USD 682 million, around RMB 4.8 billion

The company’s founder, Xu Shiwei, holds a direct stake of 17.96%, making him the largest shareholder; Alibaba, through Taobao China, owns 17.69%, ranking as the second-largest shareholder; co-founder and president Guihua Lyu possesses 5.88% of the shares.

With star-studded shareholders backing it, what could be causing Qiniu Intelligent’s persistent decline?

From Pinnacle to Plunge? Core Investors Face a Loss of HKD 113 Million

The phrase "peak at listing" aptly describes the trajectory of Qiniu Intelligent.

On the first day of trading, Qiniu's stock price dropped a shocking 40% right from the opening, followed by an alarming plunge of more than 60% within the first hour

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Although there was a brief period of recovery, with a closing loss of 50%, post-lunch selling pressure resumed, leading to a dramatic end-of-day closure at a loss of 56.73%, with a closing price of HKD 1.19 per share and a trading volume of HKD 166 million.

Data from LiveReport shows that the highest net purchases came from BOC International, HSBC Securities, and Futu Securities, acquiring 5.942 million shares, 4.585 million shares, and 4.293 million shares, respectivelyMeanwhile, the largest sellers included CCB International, Zheshang International, and Fuchang Securities, selling 7.351 million shares, 3.933 million shares, and 2.195 million shares

Notably, CCB International, the largest net seller, was one of the joint sponsors of Qiniu Intelligent.

After this initial plunge, Qiniu struggled to regain momentum, as both trading volumes and turnover rates began to declineBetween October 31 and December 3, the stock dropped by 16.53%, enduring 17 consecutive days of declines, with a total turnover rate of only 2% over 24 trading days and traded volumes amounting to 39.873 million shares, averaging less than 1.7 million shares per day.

Analysis of capital flow data reveals that Qiniu has faced outflows, continuously experiencing net capital outflows

In the past 20 days alone, it saw a net outflow of HKD 7.9699 million, and over the past 60 days, this number rose to HKD 24.447million.

Investors inevitably question who is offloading their shares.

Recent trading data sheds light on the major sellers: over the past 20 days, the top five selling entities were Tiger Brokers, Standard Chartered (Hong Kong), Shenwan Hongyuan, Bank of China (Hong Kong), and Dongfang Securities, with sales of 1.233 million, 1.228 million, 1.109 million, 746,000, and 736,000 shares, respectively

When looking at the last 10 days, the top five sellers were Standard Chartered (Hong Kong), Dongfang Securities, Shenwan Hongyuan, Bank of China (Hong Kong), and Hang Seng Securities, with sales of 1.334 million, 731,000, 499,000, 404,000, and 137,000 shares respectivelyThis indicates a significant overlap among the leading sellers.

A notable concern is that as year-end inspections approach, due to new regulations requiring assessment, Qiniu's average market value has dropped to only HKD 21.07 billion, significantly below the HKD 59.37 billion threshold essential for inclusion in the Hong Kong Stock Connect

With the upcoming month—17 trading days remaining—this average market cap must soar to HKD 139.28 billion, which means that by December 31, a price of HKD 6.97 per share would be necessary for consideration during the review.

Additionally, data indicates that Qiniu's foundational investor, Hesun Limited Partnership, is enduring notable lossesUnder the agreement, Hesun managed by the Jiaxing State-owned Assets Supervision and Administration Commission committed to purchase 63.9 million shares at the issue price, translating to approximately HKD 1.757 billion, representing about 3.20% of total post-IPO equity (excluding the overallotment). If calculated at the issuance price and total outstanding shares (1.996 billion), Qiniu’s market capitalization would roughly stand at HKD 54.91 billion

As of December 4, Hesun is facing a paper loss of approximately HKD 113 million.

At the current price of HKD 0.99, only MPCs, Qiming Venture Partners, and CBC seem to retain some profit margin, with per-share costs of HKD 0.5253, HKD 0.6303, and HKD 0.7637, respectivelyNotably, Yonglu has suffered a loss of HKD 260 million, while Magic Logistics has lost approximately HKD 190 million.

Accumulated Losses Exceed HKD 900 Million Over Three Years: How Will Qiniu Overcome Its Profitability Predicament?

Founded in 2011, Qiniu focuses on providing audio and video cloud services

Such services involve the production, storage, handling, distribution, analysis, auditing, retrieval, and recommendation of multimedia formats of unstructured audio and video content, including recordings, short films, live videos, music, and images.

However, Qiniu's performance has increasingly showcased a decline in profitabilityFrom 2021 to the first quarter of 2024, Qiniu's reported revenues were RMB 1.471 billion, RMB 1.147 billion, RMB 1.334 billion, and RMB 342 million, showcasing considerable fluctuations

Concurrently, the net losses recorded were RMB 220 million, RMB 213 million, RMB 324 million, and RMB 148 million, echoing a significant total loss of around RMB 900 million over the last three years.

Regarding its persistent non-profitability over the years, Qiniu explained in its offering prospectus that business expansion takes precedence over short-term profits, asserting that the losses align with general trends within the industryThe decision made in 2022 to scale down its integrated server business further impacted overall revenue and gross profit

To control costs, Qiniu opted for layoffs, resulting in severance payments totaling around RMB 56 million from 2021 to the first quarter of 2024.

Not only has Qiniu continued to incur operational losses, but it has also been evoking consistent “cash hemorrhaging” from its operational cash flowsThe cash flows from operating activities from 2021 to the first quarter of 2024 were -RMB 91.493 million, -RMB 71.344 million, -RMB 3.837 million, and -RMB 6.269 million, aggregating to approximately -RMB 173 million

This indicates that Qiniu has never generated actual operational cash flow, instead enduring a net outflow totaling over RMB 170 million.

From the operational perspective, Qiniu mainly handles business lines like MPaaS and APaaSRevenues arising from MPaaS have been reported as RMB 1.37 billion, RMB 875 million, RMB 975 million, and RMB 249 million, contributing to 93.1%, 76.3%, 73.1%, and 72.9% of total revenue respectively, ensuring its status as the company’s primary business pillar.

It's noteworthy that over the past three years, the average income contribution from MPaaS paid clients was RMB 19,905, RMB 10,420, and RMB 10,537. The number of quality clients has dwindled from 185, 105, to 67, reflecting a significant decrease in both customer spending and clientele

In the face of such challenges, one must wonder how Qiniu can navigate its way back to profitability.

Furthermore, Qiniu’s current standing in the industry has raised concerns regarding its growth trajectory.

According to the data from iResearch, in 2023, the top five audio and video PaaS service providers in China secured a combined market share of 39.2%, with Qiniu generating approximately RMB 1.33 billion in revenue, placing it in third position

However, when considering year-on-year growth rates, Qiniu appears to be lagging behind, with an average annual compound growth rate of 7% over the past three years, far below the industry average of 15.36%.

As per iResearch’s insights, the audio and video cloud service market in China is expected to experience a compound annual growth rate of 21.3% between 2023 and 2028, projecting a market scale to reach RMB 240.5 billion by 2028. Given this accelerated growth within the industry, can Qiniu actually align its revenue growth with the expanding market?