Liu Shuwei released a report: LeTV's model is difficult to sustain
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I started analyzing LeTV (stock code: 300104) in the first half of 2014, but I had no original plan to publish an analysis report on LeTV. On the morning of June 17, 2015, I published an article titled "Strictly Control the Reduction of Holdings by the Actual Controllers of Listed Companies", which specifically mentioned that Jia Yueting, the actual controller, chairman and general manager of LeTV, reduced his holdings and cashed out about 2.5 billion yuan, and suggested that the China Securities Regulatory Commission stipulate that the reduction of holdings by the actual controllers, chairmen and general managers of listed companies should be announced one month in advance. This article immediately caused an uproar, so I decided to publicly publish the analysis report on LeTV. The sustainable operation and profitability of listed companies are the foundation for the healthy development of my country's securities market and the basis for protecting the interests of investors. Based on the periodic reports and announcements publicly released by LeTV on the official website of the Shenzhen Stock Exchange, I analyzed LeTV's sustainable operation and profitability. The sustainable operation and profitability of a listed company first depends on the company's decision-making level (board of directors) and senior management. We first analyze the structure of LeTV's board of directors and senior management. 1. Analysis of LeTV's Board of Directors According to LeTV's 2014 annual report, LeTV's board of directors has five members, including two independent directors. The three directors are Jia Yueting (network technology administrator of the Local Taxation Bureau of Yanqu County, Shanxi Province from September 1995 to July 1996), Liu Hong (reporter of China Radio International from 1997 to 2004) and Deng Wei (teacher at Taiyuan University of Science and Technology from 2002 to 2004 and lawyer at King & Wood Mallesons in Beijing from 2004 to 2008). We then analyze the executive structure of LeTV. The general manager of LeTV is Jia Yueting, and the director Liu Hong is the deputy general manager. There are nine deputy general managers, namely Jia Yuemin (worked at the Linfen Branch of the People's Bank of China from 1989 to 2004), Liang Jun (vice president of product development for the mobile Internet and digital home group of Lenovo Group from April 2010 to December 2011), Gao Fei (deputy editor-in-chief of Ku6.com from July 2008 to May 2009), Lei Zhenjian (editor-in-chief of Sina Entertainment from May 2003 to May 2009), Jin Jie (marketing lecturer of Standard Chartered Bank, vice president of Suzhou Branch and president of Leqiao Branch from September 2007 to 2009), Yang Yongqiang (vice president of Standard Chartered Bank from 2003 to In 2005, he served as the technical director of the Value-added Business Division (mobile streaming media business) of Changtian Technology Group Co., Ltd.), Wu Yazhou (from July 1998 to May 2011, he served as the vice president of Ku6.com operation and maintenance), Liu Gang (from January 2009 to July 2010, he served as the marketing general manager of Ku6.com), and Tan Shu (from March 2004 to October 2011, he served as the national channel director of Sohu.com; from 2012 to January 2013, he served as the company's advertising vice president). LeTV's financial director is Yang Lijie (intermediate accountant), and the secretary of the board of directors is Zhang Te (from April 2007 to November 2011, he served as the senior business director of Ping An Securities Co., Ltd.). By analyzing the structure of LeTV's board members and senior management, we can see that LeTV's advantage lies in the media field, especially online video. For a clearer analysis, we compare and analyze the structure of Huawei's board of directors. The latest annual report disclosed on Huawei's official website is the 2013 annual report. According to Huawei's 2013 annual report, Huawei's board of directors has 17 members, namely Ren Zhengfei (graduated from Chongqing Institute of Architecture and Engineering, founded Huawei after demobilization), Sun Yafang (graduated from Chengdu University of Electronic Science and Technology), Guo Ping (graduated from Huazhong University of Science and Technology), Xu Zhijun (graduated from Nanjing University of Science and Technology), Hu Houkun (graduated from Huazhong University of Science and Technology), Xu Wenwei (graduated from Southeast University), Li Jie (graduated from Xi'an Jiaotong University), Ding Yun (graduated from Southeast University), Meng Wanzhou (graduated from Huazhong University of Science and Technology), Chen Lifang (graduated from Northwest University of China), Wan Biao (graduated from University of Science and Technology of China), Zhang Pingan (graduated from Zhejiang University), Yu Chengdong (graduated from Tsinghua University), Li Yingtao (graduated from Harbin Institute of Technology), Li Jinge (graduated from Beijing University of Posts and Telecommunications), He Tingbo (graduated from Beijing University of Posts and Telecommunications), and Wang Shengli (graduated from Wuhan University). Mr. Ren Zhengfei, the founder of Huawei, said: "I don't understand technology, nor do I understand management." However, Huawei's board of directors is composed of information and communication technology experts, so Huawei has become an international powerhouse in the information and communication field. 2. Analysis of LeTV's Main Business According to LeTV's 2014 annual report, LeTV achieved operating revenue of approximately RMB 6.8 billion in 2014, nearly three times the amount in 2013; LeTV's operating profit was approximately RMB 47.87 million in 2014, compared to RMB 237 million in 2013, a year-on-year decrease of 80%; the operating profit margin was 0.7% in 2014, compared to 10.02% in 2013 (see Table 1). LeTV's 2014 annual report disclosed the revenue structure of its main business, but did not disclose the profitability of each business as other listed companies do (see Table 2). In 2014, LeTV's "cash received from sales of goods and provision of services" was 5.829 billion yuan, a three-fold increase from 2013, equivalent to 85.5% of the current operating income. Such a high proportion of "cash received from sales of goods and provision of services" is rare among listed companies, which shows that LeTV's cash flow is very sufficient. According to LeTV's first quarter report of 2015, during the reporting period, LeTV achieved operating revenue of RMB 2.133 billion, a year-on-year increase of 108%; and achieved operating profit of RMB 23.108 million, a year-on-year decrease of 47% (see Table 3). According to the financial data publicly disclosed by LeTV, we can clearly see that LeTV's operating income has increased significantly, but its profitability has dropped significantly. What is the reason for LeTV's financial situation? According to LeTV's 2014 annual report, LeTV's 58.55%-owned subsidiary, LeTV Zhixin Electronic Technology (Tianjin) Co., Ltd., achieved operating income of 4.1 billion yuan and an operating loss of 500 million yuan in 2014. According to LeTV's 2013 annual report, LeTV Zhixin achieved operating income of 720 million yuan and an operating loss of 68.16 million yuan in 2013 (see Table 4). LeTV's 2014 annual report explained that the reason for LeTV Zhixin's large losses was "due to the massive growth in the sales of LeTV TV super TVs." In 2014, LeTV sold 1.5 million LeTV TVs. In 2014, 70% of LeTV's main business costs were terminal costs. It can be seen that the sales of LeTV TVs are one of the important reasons for the decline in LeTV's profitability. LeTV's declining profitability has continued into 2015. 3. Why do I say that there are problems with LeTV's operating conditions? We allow GEM-listed companies to have operating losses for a period of time, provided that we can predict how long it will take for the company to turn losses into profits. For example, Beijing Bule Cheese Shop is losing money because the cheese shop has just expanded its store. We predict that Bule Cheese Shop will be able to turn losses into profits because its sales volume is steadily increasing. In the World Cheese Competition held in France in June 2015, two cheeses from Bule Cheese Shop won gold medals, which was the first time that Chinese cheese won gold medals in a world competition. If we want to predict whether LeTV can reverse the downward trend in profitability, we must comprehensively analyze the reasons for the decline in LeTV's profitability. The picture below is the "LeTV Business Ecosystem Map" disclosed in LeTV's 2014 Annual Report. According to the "LeTV Business Ecology Map", LeTV's terminal business segment includes Super TV, LeTV Box and Letv UI. Based on the previous analysis, we know that the terminal business is an important reason for the decline in LeTV's profitability. LeTV's 2014 annual report stated: "According to the company's overall operating strategy, the current stage does not rely on the sales of smart terminal products to quickly generate profits, but is more about expanding the user scale and seizing market share, so it has a certain impact on the company's current profits. " "In 2015, the sales volume target of Super TV will reach 3-4 million units, and the number of units in stock will exceed 5 million." "In 2015, the company's overall operating income is expected to exceed 15 billion yuan, and the growth rate of each main business will strive to reach 100%." LeTV's 2014 annual report did not mention the expected profit. Can LeTV expand its user base by selling LeTV TVs? Can this strategy be sustained? 70% of the cost of a flat-panel TV is the display screen. Hisense Electric has spent more than a decade developing screenless displays. Hisense Electric's head, Zhou Houjian, majored in electronics. Influenced by Moore's Law, the technology update cycle of the electronics industry is only 18 months. If LeTV wants to expand its user base by selling LeTV TV, can LeTV TV keep up with the speed of technology updates in the electronics industry? If LeTV continues to implement the strategy of "expanding the user base by selling LeTV TV", how long can this "burning money" model last? Are LeTV's investors willing to continue to provide funds for LeTV's "burning money"? Many companies have been burned to death by the "burning money" model at home and abroad. 4. What are the advantages of LeTV? The "LeTV Business Ecosystem Map" has a "Content" section, including LeTV, Huaer Film and Television, Music and Sports. In modern society, content products are just like food, which people need every day. China is the world's largest content product market, and the market for various types of content products is the largest in the world. The Korean content products "Where Are We Going, Dad?" and "Run, Brothers!" introduced by my country are classic low-cost and high-profit content products. As we have seen above, LeTV's board of directors and senior executives include content production experts and online video experts. In 2014, LeTV's terminal costs were 4.092 billion yuan, accounting for 60% of the current operating income, equivalent to 70% of the current "cash received from sales of goods and provision of services". Assuming that LeTV spent 4 billion yuan of terminal costs on the creation of content products, could LeTV not create low-cost, high-profit content products like "Where Are We Going, Dad?" and "Run, Brothers!"? One day, a friend from a bank talked to me about "Run, Brothers!" I was surprised. My friend said, "Who doesn't watch "Run, Brothers!" on Friday night?!" It can be seen that content products are the killer weapon to expand the user base! According to LeTV's 2014 annual report, in 2014 LeTV paid a total of approximately 188 million yuan in copyright fees for 93 film and television works including "Empresses in the Harem", "Big Times", "Palace", and "If You Are the One", with an average copyright fee of approximately 2.02 million yuan per product. After purchasing the copyrights of these film and television works, can LeTV recover its costs and create profits from the use of the film and television works? 5. Can you invest in “storytelling”? In 1965, when people were still using phonographs to listen to records and enjoy music, a science fiction novel appeared in the United States: a palm-sized electronic device that could store 15,000 songs and play them with you. The US government invested heavily in this science fiction novel, and eight years later, in 1973, the "MP3" was launched. Since the start of this bull market in June 2014, we often hear "stories", "concepts", and the "imagination space" of "stories" and "concepts" among GEM-listed companies. When a listed company borrows money from a bank, it has to pay interest to the bank. Similarly, when a listed company raises funds in the stock market, it has to pay dividends to investors. Whether a listed company borrows money from a bank or raises funds in the stock market, it is not free. There are capital costs. When a listed company uses every penny of the raised funds, it has to consider the investment returns. The raised funds cannot be used as the listed company wants. Whether you are a storyteller or a storyteller, you must first think: Can the "story" and "concept" become reality? Can you recover the investment cost and create profits? If you do not consider this premise and blindly invest in the imagination of "story" and "concept", the result will inevitably be a loss. When a securities market is filled with the imagination of "stories" and "concepts", without mentioning investors' returns at all, and major shareholders arbitrarily reduce their holdings and cash out huge amounts of money under various high-sounding reasons, can this securities market still operate? 6. Why haven’t I published an analysis report on LeTV before? On May 4, 2015, I published an article titled “The Driving Forces of Stock Index Rise and Stock Market Risks”, in which I pointed out that “the lack of financial leverage tools and investment targets are the two major risks of the current stock market.” At present, the stock market is "de-leveraging" and the speed of new stock listings has significantly accelerated. However, there is still a big risk in my country's securities market: using the imagination of "stories" and "concepts" to inflate stock prices. If this continues, both the storyteller and the listener will suffer a catastrophe. This round of bull market is different from previous bull markets. Residents' assets are being reconfigured, and bank deposits are flowing into the stock market. This round of bull market will bring about qualitative changes in my country's financial sector: banks will undertake short-term financing for retail business and enterprises, and long-term financing for enterprises will be transferred to the bond market and stock market. Enterprises will change from indirect financing through banks to direct financing from creditors and investors. Investors' analysis of the investment value of listed companies is not much different from banks' analysis of the repayment ability of borrowing enterprises, because banks must guarantee the recovery of loan principal and interest, and investors must guarantee the recovery of investment principal and income. At present, all new shares can raise funds because, on the one hand, they are reviewed by the Issuance and Examination Committee, and on the other hand, the number of listed companies is relatively small. After the implementation of the stock issuance registration system, not all listed companies will be able to raise funds in the securities market. If investors believe that listed companies cannot create the expected investment returns within a certain period of time, investors will not buy bonds and stocks, and some listed companies may not be able to raise any funds. Before implementing the registration system for stock issuance, we must effectively "deleverage the finances", effectively curb the use of "stories" and "concepts" to inflate stock prices, and curb the arbitrary reduction of holdings and cashing out huge amounts of funds by major shareholders who do not care about investors' returns. Otherwise, we cannot smoothly complete the transition from indirect financing from banks to direct financing from the securities market. The stock index began to pull back on June 5, 2015. This pullback can accomplish two tasks: one is to clear leveraged funds, and the other is to return the stock prices of listed companies that were inflated by the imagination of "stories" and "concepts" to their value. After the pullback basically completed the two tasks, the stock index still returned to the upward channel, rising at a healthy and sustained and stable rate. The stock market "mad cow disease" may be cured ahead of schedule. As a scholar and researcher, if I found problems in listed companies but did not point them out, and let them develop and deteriorate, then I would be violating my professional ethics. However, I was very worried that once I said the word "no", it would immediately cause an uproar. This time it turned out to be just as expected. Before this, I have been thinking about how to publish my analysis and judgment on LeTV and other GEM listed companies in an appropriate manner and time. This time, I suddenly decided to publish the analysis report on LeTV because I was "stimulated". Maybe now is the right time for me to publish this analysis report. 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. |
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