Six months later, e-commerce ERP leader Jushuitan has once again submitted an application for a main board listing to the Hong Kong Stock Exchange, with China International Capital Corporation and J.P. Morgan serving as its joint sponsors. As a SaaS that assists e-commerce merchants in their operations, Jushuitan's services primarily encompass inventory allocation, store management, customer service, and numerous other areas. As the largest e-commerce SaaS ERP provider in China, Jushuitan holds a 23.2% market share domestically.

However, as Jushuitan rushes towards its IPO, the profitability challenges and competitive difficulties inherent in the SaaS industry have garnered significant external attention. Jushuitan, as a leading e-commerce SaaS provider, is no exception to this trend.

A Lucky Participant in a Booming Sector

According to data from CIC, the size of China's e-commerce SaaS market has grown from RMB 7.3 billion in 2020 to RMB 10.1 billion in 2022, with projections for it to reach RMB 29.1 billion by 2027. From a market capacity perspective, China's e-commerce SaaS landscape appears promising, but this does not necessarily imply that any individual service provider is indispensable. Rather, the intense competition within the industry, akin to a "red ocean" battle, affects even leaders like Jushuitan. Nevertheless, due to its early entry, Jushuitan can be considered a lucky participant.

On the one hand, Jushuitan entered the e-commerce SaaS space early enough to fully benefit from the high valuations associated with the industry's growth phase. Figures indicate that Jushuitan completed a Series A funding round of RMB 12.9 million in 2015, followed by a combined Pre-A and A round of RMB 37.5 million in 2016 and 2017. In 2019, it secured a combined B1-B3 round of RMB 277 million, and in August 2020, it completed a C round of RMB 286 million, with a post-investment valuation of RMB 6 billion, marking a more than 70-fold increase from its Series A valuation.

The capital behind Jushuitan ranges from Ameba Capital to Blue Lake Capital, Sequoia Capital, and Goldman Sachs, encompassing virtually all prominent investors in the market. In hindsight, Jushuitan's ability to rapidly access funding channels was not solely due to its merits but also because it entered the market early, when SaaS was a booming sector. This timing facilitated rapid funding and valuation increases.

On the other hand, the intense competition within the sector led to significant investments in R&D and marketing, resulting in consecutive years of losses and mounting debts for Jushuitan. According to its prospectus, Jushuitan incurred losses of RMB 254 million, 507 million, and 490 million from 2021 to 2023, respectively, totaling RMB 1.251 billion over three years. So, what caused these losses?

According to the prospectus, Jushuitan's gross profit margins improved significantly from 50.5% in 2021 to 52.3% in 2022 and 62.3% in 2023. While these margins appear respectable at first glance, they pale in comparison to the company's escalating R&D and marketing expenses. Data shows that Jushuitan's R&D expenditures amounted to RMB 192 million, 234 million, and 234 million from 2021 to 2023, respectively. Concurrently, its sales and marketing expenses reached RMB 235 million, 314 million, and 344 million, accounting for approximately 54%, 60%, and 49% of revenue, respectively.

Under the burden of these substantial R&D and marketing expenses, Jushuitan's original funding became insufficient, necessitating continuous borrowing to sustain operations. From 2021 to 2023, Jushuitan's net liabilities were RMB 1.033 billion, 1.513 billion, and 3.673 billion, respectively, while its net current assets were RMB 134 million, -227 million, and -142 million, with asset-liability ratios of 170.24%, 203.74%, and 310.07%, respectively. As the boom fades, Jushuitan faces unprecedented survival challenges.

Internal Issues Lingering and Complex

In fact, as Jushuitan's financial issues emerged, many latent internal problems were also exposed, leading to a concentration of risks.

Firstly, years of losses coupled with obstructed subsequent financing have led to rising equity financing risks. As mentioned earlier, Jushuitan's fundamentals are not optimistic amidst consecutive years of losses. However, an even more concerning issue is that as Jushuitan's performance deteriorates, capital that once chased the industry boom no longer favors it. According to public data, Jushuitan has not secured any funding since 2020.

Unable to access funding in the primary market, Jushuitan's management turned its attention to the secondary market. At the time, as a leading e-commerce SaaS ERP provider, Jushuitan was even compared to Guangyun Technology, which had just gone public. Its founder even declared,

"Jushuitan has the strength to go public, but we will consider the IPO in the first half of 2021." However, due to certain issues, Jushuitan's listing plans remained unfulfilled until the end of 2023, leading to speculation that its plans may have been affected by equity pledges. Public records show that at the end of 2020, due to a divorce dispute, Luo Haidong's 19.65% stake was frozen until the end of 2022. This underscores that without funding or an IPO, Jushuitan faces severe equity financing risks.

Secondly, complicated related-party transactions pose numerous hidden risks. It is understood that Jushuitan's transactions with related parties primarily involve marketing-related expenses or revenues, and the related parties are holding companies or associates with whom it collaborates on business. Yike Technology is one such example. According to public reports, similar to Jushuitan, Yike Technology is an information technology service provider that offers integrated online and offline management tools centered on SaaS cloud systems, albeit primarily targeting merchants and store owners in the apparel industry. In April 2021, Jushuitan completed a strategic investment of RMB 100 million in Yike Technology.

However, the Jushuitan prospectus does not mention specifics about this investment. Yike Technology disclosed its prospectus for listing on the New Third Board in March this year (hereinafter referred to as the "Yike Technology Prospectus"), revealing that Jushuitan once held a 10% stake in the company. At the time of acquisition, both parties agreed to special investment terms implicitly containing a "valuation adjustment mechanism" (VAM). If Yike Technology fails to meet future performance targets, it will be required to repurchase shares based on the corresponding terms.

During this period, to meet performance targets, Yike Technology formed related-party transactions with Jushuitan. The prospectus mentions that under "Transactions with Related Parties," Jushuitan's sales to Yike Technology for "Revenue - Promotion Service Fees" amounted to RMB 8,000, 5,000, and 3,000 from 2021 to 2023 (year-end December 31). These factors may have contributed to the bumpy road towards Jushuitan's IPO.

IPO: A Panacea for Jushuitan's Turnaround?

In fact, from an industry perspective, virtually all SaaS providers face similar issues, and Jushuitan's situation is not uncommon. Resolving such issues often involves either primary market financing or IPO financing. For Jushuitan, the benefits of an IPO are evident, but whether it can solve its problems remains uncertain.

On the one hand, an IPO can indeed alleviate its financing difficulties and high costs, helping to quickly reduce its leverage ratio. As mentioned earlier, by the end of 2023, Jushuitan's asset-liability ratio had soared to 310%. Equity financing can effectively reduce its debt burden and financing costs. Leveraging the capital market's convenience can also simplify the financing process, enabling better business expansion and accelerating corporate transformation.

On the other hand, the SaaS business model itself is unlikely to undergo fundamental improvements solely through an IPO. Across the SaaS industry, companies are characterized by heavy investments in R&D and marketing. Coupled with domestic enterprises' ambivalent attitudes towards SaaS, the entire cost structure remains under pressure, and many SaaS companies have failed to change this situation even after going public.

Taking Weimob, another e-commerce SaaS provider, as an example, its net loss attributable to shareholders reached RMB 1.157 billion, 783 million, and 1.829 billion from 2020 to 2022, respectively. Although Weimob stated in 2023 that it would achieve breakeven, this goal was ultimately unfulfilled. In the first half of last year, it significantly reduced its R&D and sales personnel, with an optimization ratio exceeding 25%. This situation is not unique to Weimob; similar trends can be observed in competitors like Zan and Meideng Technology, indicating that it will not be easy for Jushuitan to quickly turn things around after its IPO.

In the long run, for Jushuitan to fundamentally reverse its fundamental challenges, it needs to exert comprehensive efforts from various aspects. Equity financing alone can only temporarily reduce leverage and alleviate financial difficulties but will not contribute to its long-term profitability enhancement.