Yonyou Network, which has been profitable for 35 years since its establishment and 23 years since its listing, finally disclosed a loss in its 2023 annual report. At the end of that year, Yonyou Network employed 24,949 people, but only half a year later, its workforce had dwindled to 22,658. In six months, Yonyou Network lost 2,291 employees, essentially confirming its strategy of "controlling scale and improving human efficiency."

Yonyou Network, the "king of domestic management software" trapped in the quagmire of losses, has chosen the path that most companies would take – "cost reduction and efficiency improvement."

On the evening of August 23, Yonyou Network disclosed its 2024 interim report. During the reporting period, Yonyou Network achieved revenue of RMB 3.805 billion, representing a year-on-year increase of 12.93%; however, it incurred a net loss of RMB 794 million, a decrease of 6.06% year-on-year, with a basic earnings per share of -RMB 0.24.

It is noteworthy to observe the changes in Yonyou Network's workforce. In its 2023 annual report, Yonyou Network reported having 24,949 employees and indicated that it would "continue to control the overall headcount, enhance capabilities, and improve human efficiency." Six months later, the company's workforce had decreased to 22,658 employees, a loss of 2,291 employees in just half a year. This essentially confirms the company's initial goal of "controlling scale and improving human efficiency."

From a secondary market perspective, Yonyou Network's share price has halved since the beginning of 2024, reaching a new 52-week low of RMB 8.19 per share on August 22. According to "Digital Intelligence Research", without rights adjustments, Yonyou Network's share price has fallen back to the levels seen at the end of 2017. To date, its total market value stands at RMB 28.65 billion.

While focusing on cost reduction and efficiency improvement, investor confidence in Yonyou Network has waned. What can we still expect from Yonyou Network?

Frequent layoffs reported

In its 2023 annual report, Yonyou Network attributed the mere 5.7% growth in revenue to organizational restructuring.

In the first half of this year, Yonyou Network underwent the largest organizational restructuring in its history, shifting its focus from a regional to an industry-based approach for large enterprise customers, while maintaining the existing business organization model for small and medium-sized enterprise customers.

Organizational restructuring, by nature, often involves staff optimization.

At the end of 2022, Yonyou Network employed 25,383 people, an increase of 4,385 from the end of 2021, primarily in research and development and sales. By the time of the 2023 interim report, Yonyou Network had completed its organizational restructuring and employed 25,795 people, an increase of over 400 individuals. Overall, the organizational changes at Yonyou Network were relatively minor.

However, social media has amplified the impact of Yonyou Network's organizational restructuring. Some employees have expressed on social platforms that the tumultuous year of 2023 made them deeply feel the difficulty of being an employee. There have even been reports that Yonyou Network has not spared even fresh graduates.

Although the number of staff optimized was not significant, it undoubtedly affected the overall morale of Yonyou Network's employees, which, to a certain extent, also impacted the company's revenue growth rate.

In 2024, although there has been less buzz about staff optimization, Yonyou Network has already taken the axe to its own employees, as evident from its interim report.

From the perspective of "Digital Intelligence Research," Yonyou Network's transition from a single product model to a platform-based cloud service has been a highlight in recent years, but it is also the core reason behind the turmoil and impact on its development.

Since Yonyou Network began its transition to cloud services with the Yonyou 3.0 strategy in 2016, its revenue growth rate has slowed. From 2018 to 2023, Yonyou Network recorded revenues of RMB 7.703 billion, RMB 8.51 billion, RMB 8.525 billion, RMB 8.932 billion, RMB 9.262 billion, and RMB 9.796 billion, respectively.

Furthermore, the domestic enterprise management market has essentially entered an era of low growth. Forecasts from institutions such as Qianzhan Research Institute indicate that the compound annual growth rate of the ERP market will be only 7% from 2022 to 2025, with the ERP market size reaching only RMB 50.5 billion by 2025.

With a market of this size, Yonyou Network, as the industry leader, can only continuously recruit to compete for market share. However, according to Liu Kuang, "Many of Yonyou Network's long-serving salespeople with over 15 years of experience have left the company. Apart from those who have been with the company for around 10 years, most are new hires with just one or two years of experience. This significant gap in experience leads to poor customer delivery experiences, with senior consultants busy with projects and new salespeople implementing cases."

As a result, Yonyou Network can only resort to rolling layoffs and organizational restructuring.

High sales expenses

Yonyou Network started as a financial software company and has developed into the "king of domestic management software" over the years, forming a north-south confrontation with Kingdee International in the market.

"Digital Intelligence Research" has found that the domestic software market is vastly different from the international market, with domestic enterprises having extremely low willingness to pay for management software. Therefore, companies that focus on enterprise software as their main business have not experienced explosive growth. Realizing this, Yonyou Network promptly began its transition to cloud services.

This occurred in 2015, the same year that Yonyou Network, with 800,000 customers, achieved revenue of RMB 4.45 billion but a meager net profit of only RMB 324 million. From this perspective, the ceiling of the software market is indeed quite low.

To achieve profitability, Yonyou Network had to transform.

The problems brought about by this transformation extend beyond the slowdown in revenue growth. It also led to increased operating costs and sales expenses. As the industry enters an era of low growth, companies like Yonyou Network must continuously recruit more presales personnel to support their business, leading to increased costs such as travel expenses.

Similarly, during this transformation period, Yonyou Network introduced various new products tailored to different customers. Customers require sufficient time to become familiar with these new products, necessitating an increase in sales personnel to address this need.

Overall, due to business development needs, Yonyou Network has increased its operating costs and sales expenses. However, these increased costs have not yielded corresponding output. The rise in operating costs has lowered gross profit margins, while the increase in sales expenses has reduced net profit margins. As a result, Yonyou Network's efforts have ultimately failed to generate profits.

After all, despite its technological innovation and software development capabilities, Yonyou Network's profit-making model still relies on high operating costs and sales expenses rather than so-called technological innovation.