China's Yunji completes $121m US IPO, gains 29% on debut

The company sold 11 million American Depository Shares (ADS) for $11 apiece, representing the bottom end of the indicative range, according to a filing. Crescent Point and Trustbridge Partners together subscribed for 6.4 million ADS, or 58.2 % of the total, assuming the overallotment option is not exercised. The stock peaked at $17.69 during early trading on May 3 before closing at $14.15.

Yunji’s business model is like that of Pinduoduo, which listed in the US last year. It is essentially a social e-commerce platform, allowing users to influence the product line-up by sharing information on items 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 ($59) 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. There are also plans to launch a marketplace, enabling third-party merchants to sell products directly and pay Yunji commissions on their sales. The company typically works with small-scale retailers that don’t have the resources to compete online.

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. 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.

Shanglue Xiao, who founded the company in 2015 and serves as chairman and CEO, has a 44% equity interest – as well as nearly 90% of the voting power due to a dual-class share structure. Eastern Bell Venture Capital is the largest external shareholder with 13%, followed by Crescent Point on 11.5%, Trustbridge on 6.6%, and CDH Investments on 5.1%.

AVCJ Research’s records show that Eastern Bell provided seed funding in 2015 and then took part in a RMB228 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.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

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