Baofeng TV's model of achieving profitability within 5 years is questionable

Shenzhen Baofeng Tongshuai Technology Co., Ltd. (hereinafter referred to as Baofeng TV), which was established just one year ago, is becoming the focus of investors' attention.

On August 8, Baofeng Group announced that its Baofeng TV received RMB 200 million in Series A financing, with a post-financing valuation of RMB 2 billion. According to the announcement, Ningbo Hangchen Investment Management Co., Ltd. will increase its investment in Baofeng TV, and its shareholding ratio will be 10% after completion.

As an important entrance to Baofeng Group's home entertainment and living room economy, Baofeng TV attempts to break through through the first strategic business of the "Global DT Entertainment Strategy". The model of Baofeng TV is surprisingly similar to that of LeTV and WeTV. Against the backdrop of declining domestic color TV sales year by year, can Baofeng Group make a comeback relying solely on traditional price wars?

Baofeng TV received 200 million yuan in financing

In the capital increase and share expansion of Baofeng TV, a subsidiary of Baofeng Group, Ningbo Hangchen Investment Management Cooperation Enterprise (hereinafter referred to as Hangchen Investment) will increase its capital by RMB 200 million to Baofeng TV, with a shareholding ratio of 10%. Among them, RMB 3.5088 million will be included in the registered capital of Baofeng TV, and RMB 196.4912 million will be included in the capital reserve of Baofeng TV.

According to information, in July 2015, Baofeng Group, together with RRS, Alpha Animation and Culture Co., Ltd. (002292), and Sino Digital, established Baofeng TV, which is also the first strategic business of Baofeng's "Global DT Entertainment Strategy".

According to the reporter, this successful financing is the first round of financing obtained by Baofeng TV one year after its establishment in July 2015, setting a new record for the financing and valuation growth rate of Internet TV, with the valuation increasing fourfold in one year.

Liu Yaoping, CEO of Baofeng TV, said: "In just one year since its establishment, Baofeng TV has rapidly launched a number of innovative products, built online and offline channels, and organized diverse and rich content based on an innovative ecological model. Both its business and team have achieved rapid development. This successful financing will further enhance Baofeng TV's strength, increase investment, and create newer and better home Internet service experiences and products for consumers."

According to the financial reports of Baofeng Video in recent years, the compound growth rate of Baofeng Group's revenue was 27% from 2012 to 2015. Among them, the growth rate of Baofeng Group was the highest in 2015, reaching 34.72%.

"If calculated based on the 63% compound growth rate of the video industry's revenue, the compound growth rate of Baofeng Group has just exceeded half. Although it has rebounded in 2015, it is still unsatisfactory compared with the growth rate of the entire video industry, not to mention the rapidly declining market share." Industry analysts told reporters.

Another industry insider analyzed to the reporter that the reason why Baofeng TV can successfully gain the trust of investors is because Baofeng TV has become the new growth engine of the group.

According to the announcement of Baofeng Group, it is expected that the net profit in the first half of this year will increase by 170%-200% year-on-year, with a profit of 17.9245 million to 19.9161 million yuan. The announcement mentioned that Baofeng Super Internet TV business optimized its product structure and increased its marketing efforts, and the operating income of this business has achieved a substantial increase.

Baofeng TV also told reporters that as of July 2016, Baofeng TV's total sales volume was nearly 500,000 units, and this year's sales target is 1 million units. According to data from Aowei Cloud Network, the retail volume of China's color TV market will reach 49.93 million units this year. If Baofeng TV achieves its target, it will occupy about 2% of the domestic market share.

Development model concerns

Against the backdrop of factors such as the annual decline in domestic color TV sales and the still falling average price of color TVs, the biggest question remains whether Baofeng TV can gain an advantage in the next round of competition.

According to statistics from Aowei Cloud Network, the total sales volume of color TVs in China in the first half of this year was 23.51 million units, a year-on-year increase of 6.9%, but sales revenue decreased by 4% year-on-year to only 71 billion yuan. Among them, the share of Internet brands increased to 16%.

According to the reporter, the capital investment in Internet TV and industry mergers and acquisitions are increasing, and the biggest competitors of Baofeng TV are continuing to make plans.

Data shows that the two biggest competitors of Baofeng TV, Weijing TV and LeTV, are both making efforts. LeTV acquired Vizio, the second largest TV manufacturer in the United States. The new round of Internet TV is backed by different "parents", and the war without gunpowder is starting.

The model adopted by Baofeng TV is not new. It is very similar to LeTV and WeTV. It is a typical Internet TV model that increases revenue through services.

From the perspective of content, each platform has its own advantages and disadvantages. Baofeng TV has the exclusive resources of Baofeng Video, plus the exclusive IP resources of Aofei Entertainment, which includes Douyu, Jiajia Cartoon, Aofei Pictures, etc. LeTV is not to be outdone, with its early accumulated film and television copyrights; Weijing is backed by CMC, whose flagship film and Oriental DreamWorks, etc., all provide support for Weijing's content, and Weijing has begun filming the VR version of "The Voice of China".

"Even though Baofeng TV has received 200 million yuan in financing from investors this time, there is still a big gap compared with the big investments of leading companies such as Weijing's investment in Konka, LeTV's investment in TCL, and the recent acquisition of Vizio to enter the US market." An industry insider who declined to be named analyzed to reporters that even if Baofeng TV continues to fight a subsidy war, its prospects are not optimistic.

Despite this, in the view of Liu Yaoping, CEO of Baofeng TV, subsidies may last for two to three years, but the net income will definitely be over 10 billion yuan in five years, and profitability will definitely be achieved in five years.

"Even though Baofeng TV has achieved certain results in the Internet TV industry through its previous development, facing the current development difficulties of Baofeng Group, it remains questionable whether Baofeng TV alone can support the future development of the group." Another industry insider analyzed to reporters.

"From the current business model and ecosystem building model of Baofeng Group, it is not possible to intuitively see its specific profit points for future development. In particular, the capital game behind this stock may be too fierce, and a detailed analysis will reveal greater risks." A media analyst told reporters bluntly.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.