China social e-commerce platform Yunji targets US IPO

Eastern Bell Venture Capital is the largest external shareholder with a 13.7% stake, followed by Crescent Point on 10.5%. Trustbridge Partners and CDH Investments each own 5.4%. AVCJ Research’s records show that Eastern Bell provided seed funding in 2015 and then took part in a RMB228 million ($33 million) Series A led by Crescent Point the next year. CDH and Huaxing Growth Capital – a PE arm of China Renaissance – led a $120 million Series B round for Yunji in April 2018.

The company is controlled by Shanglue Xiao, who founded it in 2015. He previously established online cosmetics retailer Xiaoye Perfume in 2003. Xiao said in a letter preceding the IPO prospectus that Yunji was inspired by a recognition of two pain points: an overflow of information is complicating consumer purchasing decisions; and small businesses find it hard to grow on traditional e-commerce platforms due to bias towards well-known and well-resourced brands.

Yunji’s business model is similar to that of Pinduoduo, which listed in the US last year. It is essentially a social e-commerce platform, allowing users to influence what products are made available by sharing information on products they like and then offering discounts for group purchases. The differentiating factor is membership: a new user accepts an invitation from an existing member, buys a flat-rate RMB398 membership package, and receives offers unavailable to non-members.

In 2017, the company was fined for violating restrictions on pyramid selling, which prompted alterations to its model. Membership packages were restructured so that customers bought access to the Yunji app rather than just a set of discounted products, while the incentives offered to existing members for referring new customers became in-app credits that don’t convert into cash. In addition, members no longer received incentives for products sold via links shared by other members they had invited, only for sales on links they personally posted.

There are three sales formats: flash sales, where items are offered at discounts for limited periods of time; an online grocery store selling daily necessities, such as milk, fruits, and snacks; and boutique virtual shops. The latter two formats were introduced relatively recently to increase the size and stickiness of the member base. There are also plans to launch a marketplace, enabling third-party merchants to sell products directly and pay Yunji commissions on their sales.

As of year-end 2018, there were 7.4 million Yunji members, of which 6.1 million completed a transaction through the company’s app over the previous 12 months. There were approximately 23.2 million buyers on the platform, including non-members, in total.

Gross merchandise value for 2018 came to RMB22.7 billion, up from RMB9.6 billion the previous year, with members accounting for approximately two-thirds of that. A total of 153.4 million orders were fulfilled in 2018 through a network of 41 warehouses and distribution centers across 23 cities.

Yunji generated RMB13 billion in revenue, roughly double the 2017 figure, with 87.5% coming from sales and the rest from membership fees. Operating costs outstripped revenue, largely because the company takes on inventory – rather than operating as a marketplace – and so the total rises in line with sales. Fulfillment, sales and marketing, technology development, and other expenses account for less than 20% of overall costs.

Yunji’s net loss narrowed to RMB56.3 million in 2018 from RMB105.7 million the previous year. This was primarily due to an increased return on investments in wealth management products and reduced losses on foreign exchange.

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• Topics
• Greater China
• Technology
• IPO
• China
• TMT
• CDH Investments Management
• Crescent Point
• Trustbridge
• China Renaissance
• Eastern Bell Venture Capital