Recently, IPOScoop reported that Chinese corporate learning software provider YXT (YXT.US) plans to list on the Nasdaq in early August, with underwriters including Tiger Brokers and CMB International.

As soon as this news came out, it immediately sparked much investment discussion in the domestic market.

Some investors believe that after so many years, an IPO has finally emerged in the corporate training industry, which is an exciting event.

However, others are surprised. In the current environment, how can YXT easily list on the US stock market?

So, someone flipped through YXT's prospectus and found the answer!

Something doesn't seem right about these financial results...

It seems a bit like going public just for the sake of going public...

With barely any profits, is YXT still worth looking forward to after its IPO?

According to Frost & Sullivan data, YXT is China's largest provider of digital corporate learning solutions based on total revenue, subscription revenue, and the number of subscription customers in 2023.

As of March 31, 2024, it has offered over 8,200 courses covering about 20 industries, with a total of over 20,500 hours of learning, including over 6,800 hours of proprietary courses.

Undoubtedly, YXT has taken the lead in the corporate training industry.

However, even so, the commercial investment value of YXT remains questionable.

Firstly, there has been a continuous decline in revenue and the number of subscription customers.

The prospectus shows that YXT's total revenue in 2022 and 2023 was RMB 431 million and RMB 424 million, respectively. In 2023, revenue decreased slightly by 1.62% year-on-year. As for the first quarter of this year, YXT generated revenue of RMB 83 million, a significant drop of 31.97% from RMB 122 million in the same period in 2023.

Of course, if it's just a temporary decline in revenue, investors aren't unreasonable. But embarrassingly, YXT's "lifeblood" – the scale and retention of subscription customers – has also seen a significant reduction.

In 2022 and 2023, the company had 3,439 and 3,230 subscription customers, respectively, with net revenue retention rates (retention rates) of 118.1% and 101.4%, respectively. However, in the first quarter of 2024, the number of subscription customers plummeted to 2,434.

This almost suggests that there might be a problem with YXT's future value expectations...

In response, YXT explained that the decrease in the number of subscription customers and the decline in net revenue retention rates were mainly due to the company's business expansion strategy focusing on large enterprises with strong and stable demand for corporate profitability solutions.

Honestly, YXT's reason for strategically adjusting its customer structure is somewhat acceptable. After all, it goes without saying how much pressure the macroeconomy and SMEs are under, so YXT can only earn money from corporate training or digitization by targeting larger enterprises with stronger risk resistance.

However, against the backdrop of insufficient confidence in future expansion and the need to reduce costs and increase efficiency, it remains uncertain whether YXT can conquer more large enterprises and reap more benefits from them...

Next, let's look at profitability, which is equally questionable.

In 2022 and 2023, YXT incurred net losses of approximately RMB 640 million and RMB 230 million, respectively.

On the negative side, the cumulative losses over two years reached RMB 870 million; but on the positive side, the losses narrowed. And in the first quarter of this year, YXT successfully turned a profit of RMB 35.039 million amidst declining revenue.

Does this seem like it's back on track? Unfortunately, this profitability is largely a result of cost reduction and efficiency improvements.

In 2023 and the first quarter of this year, YXT's three major expenses (sales, R&D, and administrative expenses) all saw significant reductions.

Specifically, from 2022 to the first quarter of 2024, sales expenses were RMB 345 million, RMB 244 million, and RMB 36.953 million, respectively; R&D expenses were RMB 312 million, RMB 177 million, and RMB 30.052 million, respectively; and administrative expenses were RMB 206 million, RMB 143 million, and RMB 28.215 million, respectively.

With such a significant reduction in expenses, it would be difficult for YXT's profit level not to improve...

Of course, there may be strategic considerations behind this, or it could be to optimize performance for the IPO, but either way, investors who are optimistic should continue to be wary of significant changes in YXT's performance.

In addition, another point where YXT is questioned for "going public just to go public" is that it is indeed a bit short on cash.

According to Tianyancha APP data, although YXT has received a total of 8 rounds of funding since 2013, this has not been enough to stem the continuous losses. The prospectus shows that from 2022 to the first quarter of this year, its cash and cash equivalents were RMB 432 million, RMB 320 million, and RMB 219 million, respectively, continuing to decrease.

In addition, YXT's current assets decreased during the same period, from RMB 598 million to RMB 423 million to RMB 306 million, and the overall scale was roughly equivalent to the corresponding amount of current liabilities. This means that its financial operating safety margin is relatively limited.

Naturally, this is related to the previous consecutive losses. So the corresponding cash flow from operating activities was RMB -457 million, RMB -257 million, and RMB -58 million...

Perhaps due to the pressure on performance, after the completion of all transactions in the E-round of financing, YXT had already become a unicorn company with a valuation exceeding USD 1 billion.

But unexpectedly, based on YXT's specific IPO terms, this offering of 2.75 million shares has a price range of USD 11 to USD 13. Some media outlets calculated based on the median of this price range and found that it seems challenging for YXT to achieve a market value of USD 1 billion upon listing.

This thoroughly exposes the commercial investment value of YXT in the past and present...

When will YXT, born at the wrong time, finally see a market recovery?

To some extent, as a digital corporate learning solutions provider, YXT offers a business model with much imagination through its SaaS model that integrates software and content to help clients deploy corporate learning platforms and provide content courses.

After all, corporate training is beneficial for improving the overall management efficiency of enterprises.

Different employees have different ways of receiving information about the company's products, sales strategies, and market changes at different stages, such as digital transformation. There are significant cognitive differences in these areas, which can easily lead to inconsistencies in understanding and directional deviations in actual implementation.

In this regard, even "Yonyou," a company in the software technology industry featured in YXT's case studies, faces challenges such as employees quickly adapting to strategic transformations and effectively communicating strategies.

On the other hand, corporate training also helps maintain corporate competitiveness.

From a developmental perspective, even if all newly recruited employees are talented, business developments are constantly changing. Without continuous training opportunities, will they still be talented tomorrow?

Regarding the practice of relying on "poaching" talent, when will a company have its own stable team? Remember, without a stable team, corporate competitiveness and resilience will suffer significantly.

Therefore, from a talent development perspective, YXT is undoubtedly valuable!

Unfortunately, YXT seems to have been born at the wrong time. This is not its fault.

As a service provider to enterprises, YXT's level of imagination is related to the development of its "clients" and the performance of the macroeconomy.

However, due to the overall market pressure, many SMEs have directly slowed down or suspended their digital transformation processes, leaving them with little extra money to upgrade corporate training.

As for large enterprises, while they may still have substantial financial resources, many have suspended strategic expansion and instead sought financial certainty or breakthroughs, i.e., cost reduction and efficiency improvements, amid market uncertainty and lack of confidence in the future.

Therefore, even if large enterprise clients choose YXT at this time, they will undoubtedly demand tangible and quantifiable training results rather than merely psychological comfort for management.

However, the problem is that market-oriented corporate training products cannot guarantee 100% improvement in performance and efficiency. Moreover, due to the large number of employees with different responsibilities in large enterprises, even if YXT provides training content and services, it is difficult to continuously track learning outcomes, and training effectiveness is even harder to measure. This is by no means reflected solely by a systematic learning quiz.

In such circumstances, corporate training services, while important in the enterprise service sector, are not urgent and are likely to be temporarily shelved...

This represents a significant contradiction between the strong demand for quantifiable training results from enterprise clients and the difficulty in ensuring quantifiable management from corporate training SaaS platforms.

Having said that, business is inherently challenging, requiring a morning cheer to boost morale and evening scrutiny of meager profit margins, repeating day after day.

Judging from this shift in customer structure, YXT clearly intends to shift its development focus to large enterprises, offering more personalized and customized corporate training solutions.

The benefit of this approach is that it makes YXT more attractive to large enterprise clients and helps build commercial barriers externally. After all, under personalized demand, the replacement costs for both large enterprises and YXT continue to rise.

However, the bad news is that costs may become harder to control, potentially exacerbating the risk of losses.

After all, corporate training needs vary across different industries and companies. Moreover, corporate training has an educational aspect that requires more than just tools but also content support, which relies on practical experience. Therefore, YXT needs to invest more effort in deeply understanding its clients' businesses and achieving a deep integration of training with enterprise application scenarios...

After a series of operations, YXT is indeed prone to the embarrassing situation of losing money while trying to attract customers.

Unfortunately, given the current circumstances, this is arguably the best way for YXT to break the deadlock. As for the IPO, it is also aimed at obtaining more funds to gain a greater advantage in this protracted battle against time...

Disclaimer: This article comments based on the company's statutory disclosures and publicly available information, but the author does not guarantee the completeness or timeliness of this information. Additionally, investing in stocks involves risks, and investors should proceed with caution. This article does not constitute investment advice, and investors must make their own decisions.