Chinese Voice Chat App Plans to Go Public in Hong Kong, Grossing Over 1.1 Billion RMB But Also Losing 988 Million RMB in First Half of 2021

In early August this year, it was reported that TT YuYin (A voice chat app for mobile gamers made by Guangzhou Quwan Network Technology Co. Ltd) was considering moving its IPO location from the US to Hong Kong.

On October 20th, TT YuYin officially submitted a prospectus to the Hong Kong Stock Exchange for an IPO on the Mainboard of Hong Kong. The version of the prospectus added the company's data and key operating indicators for the first six months of 2021.

The comprehensive income statement indicates that the company's gross revenue in the first half of this year increased by approximately 95% year-on-year to 1.173 billion RMB, and the adjusted net profit was 4.195 million RMB, compared with 71.398 million RMB in the same period last year.

According to the prospectus, the company's overall revenue growth in the first half of the year was mainly propelled by value-added services and the launch of audio entertainment services in the second half of 2020, as reflected in Quwan's increase in monthly active users and monthly paying users.

The increase in operating costs was primarily due to Quwan's rapid growth and total service sales, which resulted in a significant boost in revenue-sharing fees.

During the first half of the year, the company's gross margin decreased to 58.9% from 67.2% in the same period last year, mainly due to the launch of the company's audio entertainment services in the second half of 2020.

In terms of the composition of income, Quwan group's income mainly comes from value-added services, audio entertainment services, and games.

In the first half of 2021, value-added services contributed 963 million RMB to revenue, up 68% year on year； Music services contributed 186 million RMB in revenue, accounting for 15.8% of the total revenue; Games and other revenue, though, decreased slightly, contributing 24.309 million RMB in revenue during the period.

As for key business indicators related to TT YuYin service, the average monthly active TT users increased 62.0% to 16.2 million in the first half of this year from 10 million in the same period last year. Such growth is mostly due to Quwan's outstanding product features and user experience, as well as successful brand building.

The average monthly paying users on the platform also increased 23.4% to 826,800 from 670,100 in the same period of 2020. This result is due to the company's continuing efforts to cultivate user engagement and pay habits on the platform.

In the first half of 2021, users spent around 158 minutes per day in voice chat rooms, and more than 850,000 rooms were initiated per day on average, according to the prospectus. The gender of paying users is evenly distributed, with approximately 43% of paying customers in June 2021 being female.

Meanwhile, TT YuYin's payment rate indicators have fluctuated. The payment rate in 2018 and 2019 remained stable at respectively 7.3% and 7.1%, while the rate was 7.1% in 2019 and 5.3% in 2020.

The subsequent payment rate dropped from 6.7% in the first half of 2020 to 5.1% in the first half of 2021. This is because the growth rate of monthly active users significantly outpaced that of monthly paying users.

During the period, Quwan successfully gained a vast number of new users through product development planning and marketing, and it may take a while to cultivate the willingness of new users to pay.

As for equity structure, TT YuYin's founder and CEO Song Ke indirectly hold 35.95% of the company's outstanding stock shares through SK Family Trust, Future Exploration, Funplus, and Vanker.

Additionally, Song Ke is in control of the voting rights held by other board members Chen Guangyao, Du Guo, and Qiu Zhizhao through voting entrustment agreements, which means Song Ke by himself can control the company by holding a simple majority of 51.57% of the voting power.