Key takeaways:
- Yeahka’s push into the highly competitive e-commerce space comes as growth slows for its core mobile payments business
- Company’s stock has fluctuated since its 2020 listing, and now trades near its IPO price after a roaring start in early 2021
By Trevor Mo
“Don’t worry. E-commerce in China may be fiercely competitive, but we still see a good chance to make money from it.”
That’s the latest message coming from Hong Kong-listed Yeahka Ltd. (9923.HK), which announced this month it would issue about HK$550 million ($70 million) worth of five-year convertible bonds to diversify beyond its core mobile payment services. The company will use the funds to ramp up newer businesses, including “further accelerating the scale of its in-store e-commerce business,” according to a statement released on July 5.
Just two days later one of the company’s biggest supporters, banking giant JPMorgan, revealed it had sold off a big portion of its stake in the company that it had just disclosed accumulating days earlier, dropping its position to 11.98% from 15.26%. That development appears to be related to the convertible bond issue, since JPMorgan was one of the underwriters of that issue.
We’ll examine the company’s recent e-commerce ramp-up shortly and analyze its chances of success. But first, we’ll look back at Yeahka’s history and what the company does.
Yeahka was founded in 2011 just as the mobile payment business in China was starting to boom. The company later carved out a niche by positioning itself as an independent alternative to Alipay and WeChat pay, the duo that have come to dominate China’s mobile payments space in recent years.
Yeahka developed a series of payment tools – such as QR codes – that allow merchants to use a single unified channel to accept a wide range of payment options, including Alipay and WeChat pay, as well as other smaller providers. The company takes a cut from each transaction its platform helps to facilitate.
Yeahka’s stock has seen its share of ups and downs since its IPO two years ago. Its IPO shares sold for HK$16.64 in June 2020, then roared to a record high of more than HK$80 in early 2021. But it’s been all downhill from there, and their Friday close of HK$17.26 represents just a small gain from the original IPO price.
Even after the retreat, Yeahka still measures favorably compared with its peers. It trades at a price-to-earnings (P/E) ratio of about 15 times and a price-to-sales (P/S) ratio of about 2.5. Its largest rival, Shenzhen-listed Lakala Payment (300773.SZ), trades at a lower P/E ratio of 12 and P/S ratio of 2.21 times. U.S.-based Square Inc. (NYSE:SQ), which has a similar model to Yeahka’s, trades at a P/S ratio of 2.16, though it is losing money and thus has no P/E.
Mounting challenges
Yeahka made its recent e-commerce push after momentum for its core mobile payment business began losing steam over the past few years, against a backdrop of an increasingly saturated market. In 2021, its payment services grew just 24%, compared to 115% in 2019.
The company’s initial e-commerce foray began with its launch of an app called Leshangquan in 2019. But that campaign ramped up more recently after its announcement last November that it would invest 100 million yuan ($14.8 million) in a provider of local lifestyle services called Qianqianhui.
Yeahka targets “in-store e-commerce services,” which center on online marketplaces that connect consumers to providers of local services such as dining. Marketplace operators usually take a cut of transactions done on their platforms.
But gaining a significant presence in the space could prove a big challenge for Yeahka. For starters, the in-store e-commerce market in China is already quite saturated, with Meituan (3690.HK) as the dominant player after winning a brutal subsidy war several years ago. Even e-commerce giant Alibaba (NYSE:BABA) has largely retreated from the space after burning massive amounts of cash to try to entice merchants and consumers to its Koubei platform.
Yeahka’s management has been keen to emphasize it has a major asset for its e-commerce endeavor in its vast network of merchants and consumers built up over the years through its mobile payment services. As of the end of last year, the company had 7.3 million active payment merchants and 945 million consumers in its network.
Persuading some of those merchants to list services on Leshangquan may be possible since most of them already use some of Yeahka’s software tools and other analytics services. But leveraging its 945 million consumers, who have far less ties with the company, could be more difficult because most are unaware of Yeahka and believe they are conducting their purchases directly through the big payment companies like Alipay.
Yeahka has set an ambitious goal of achieving gross merchandise volume (GMV) of at least 2.8 billion yuan for the e-commerce business this year, up by a factor of seven from 398 million yuan in 2021. Such a ramp-up would inevitably require major spending, potentially posing a serious test for the company this year.
Still, the company is trying to sell investors on the e-commerce initiative. Capital markets and corporate development general manager Ben Zhao touted the company’s big data capabilities surrounding consumers as one of its value propositions. “We don’t want to be a platform (but) are more like a tool … we will also display the most relevant content to our members based on their viewing habits or consumption habits,” Zhao told analysts in an earning call earlier this year.
In the same call, Chairman Luke Liu pointed to the big potential of the market, where companies still have space to grow. The local lifestyle service market in China is expected to reach 35 trillion yuan in 2025, said Liu, citing a report from local market research firm iResearch.
One thing that could work in Yeahka’s favor is its track record for squeezing more money from the merchants who are its main revenue source. Over the years, the company has developed a full set of software and analytics tools ranging from customer relationship management to financial management tools. Selling more products and services to its merchant base has helped the company incrementally diversify its businesses.
Of Yeahka’s 3 billion yuan in 2021, about 21% came from its “merchant solutions” category, up from just 1.7% in 2017, according to its annual earnings reports. Most of its 2021 revenues – about 75% – came from sales of mobile payment services, with “in-store e-commerce services” contributing the remaining 4%.
It may take a while still to determine whether Yeahka can get a big new boost from its e-commerce business, the same way it did from software. But it seems at least JPMorgan may not want to wait around to see if that happens.
This story has been updated to show that JPMorgan was one of the underwriters of Yeahka’s convertible bond issue
