Key Takeaways:
- Integrated marketing services provider Era Jade Media, famous for its self-produced finance programs, has filed for a Hong Kong IPO for a fourth time
- The company is extremely reliant on its CEO, who was behind 64.6% of the company’s revenue in the first half of this year
By Tina Yip
His name may be unfamiliar to most westerners, but Ma Hongman is practically synonymous with investing in China. And even the many Chinese who don’t know Ma’s actual name may still know his internet audio finance program, “Ma’s Daily Talk,” which has attracted over 1 billion clicks over time, has 5.8 million subscribers and averages over 300,000 clicks per episode.
Ma, who has a PhD in political economy from the Shanghai Academy of Social Sciences, also happens to be CEO of Era Jade Media Ltd., an integrated marketing services provider that has just made its fourth filing in the last three years for a Hong Kong IPO, with Innovax Capital as the sole sponsor.
According to its preliminary prospectus filed last week Era Jade Media has original content creation as its core business. It derives its revenue from four sources: video program marketing services; offline PR and other marketing services; new media content marketing services; and advertising placement services. To date the company has produced and released 12 video programs for broadcast on different TV networks, and produced 28 audio programs for broadcast on online audio platforms Ximalaya FM and Dragonfly FM.
But the company’s revenue hasn’t always been as steady as the volume of shows it creates. Instead, the figure is quite volatile, falling from 83 million yuan ($11.9 million) in 2019 to 78.76 million yuan in 2020, before rebounding to 93.3 million yuan last year, only to plunge to just 6.08 million yuan in the first half of this year. The company blamed the recent dive on filming delays caused by the resurgence of Covid-19 in China, including the biggest outbreak that saw the entire city of Shanghai placed under lockdown for the months of April and May.
While its revenue has been volatile, Era Jade Media’s gross margin has steadily deteriorated over the three-and-a-half-year reporting period, dropping from 74.2% in 2019 to 54.8% last year. It then plunged to just 23.4% in the first half of this year, moving the company into the red with an 8.21 million yuan net loss.
Such an unimpressive report card could leave some scratching their heads trying to figure out why the company is trying to list now.
Ticking-down contract
Era Jade said proceeds from the IPO will be used to develop and expand its video programming portfolio, hire more talent, set up its own video studio, and pursue growth through mergers and acquisitions. But a closer look shows the company has a just a single big breadwinner in Ma Hongman, who hosts eight of its video and 18 of its audio programs. The Ma-hosted programs contributed anywhere from 35% to 60% of the company’s revenue for the past three years, and the figure jumped to 64.6% in the first half of the year.
But the bond between the company and its star seems somewhat tenuous. Ma only holds 4.62% of the company, which was granted to him by founder Wang Ying in 2019 on condition that he stay at the company through May 15, 2024. With less than two years left to that agreement, the company could suffer a major blow if Ma fails to renew his contract in 2024. Accordingly, a cynic might argue the company is trying to raise funds while it still has the celebrity host to show investors.
Era Jade’s story is filled with twists and turns. Formerly known as Youera Media, the company was founded in 2013 with just three staff, but produced financial programs that took prime slots at CBN, one of China’s top investment news outlets. In 2016, Youera was listed on the National Equities Exchange and Quotations (NEEQ) board in Beijing, but delisted less than three years later due to extremely low turnover.
In 2020, it received a 23 million yuan investment from Tongfang Finance, Falcon Investment and Flare New Holding, and was valued at approximately 250 million yuan.
Founder Wang Ying has been eyeing a Hong Kong IPO ever since the NEEQ delisting in 2019. After selling shares to Ma at prices way below market value in 2019, she filed to list the company in Hong Kong in November 2020. But that attempt, as well as two more that followed, all failed. Not one to accept defeat, Wang is making her latest attempt in the face of several headwinds, including weak stock market sentiment and an economic downturn in China. So, even if the company finally makes it to market, it’s unlikely to get an impressive valuation.
The biggest longer-term concern for investors will be Ma’s intentions, and whether Wang can convince him to stay when his current deal runs out.
But there’s another hidden danger as well. The big influence enjoyed by Era Jade’s programs is closely tied to its major platform distributors, such as CBN and iQiyi (NASDAQ:IQ), which, to some extent, represents the fruit of years of experience and work by Wang, producer at CBN from 2010 to 2014. But things change, and Wang’s connection with CBN is likely to weaken over time.
Era Jade Media’s prospectus shows that its revenue is highly concentrated in the hands of just a few such major customers whose business can be volatile. One example is its largest customer that contributed 27.7% of total revenue in 2019, only to bring in no revenue in 2020 during the first year of the pandemic. Between 2019 and 2021, the company’s top five customers accounted for between 45% and 53% of revenue, reflecting a lack of diversity in its revenue streams.
What’s more, competition among integrated marketing service providers like Era Jade Media is fierce in China. The top five such companies generated 83.7 billion yuan in total revenue last year, accounting for just 6.6% of the overall market, according to third-party data cited in the prospectus. Thus, Era Jade Media now accounts for just 0.003% of the large and highly fragmented market.
Given its bumpy past and possession of a single trump card in Ma Hongman, Era Jade’s future is far from assured. It really needs to nurture or acquire more talent to grow the business in a longer-term, more sustainable way. But perhaps it’s hoping investors will look past that major shortcoming if it makes it to market this time.
