In its third-quarter report, Yonyou Network stated that during the reporting period, it continued to control its workforce size and optimize its personnel structure, reducing the number of employees to 2,137, achieving certain results in cost control. For comparison, at the end of 2023, Yonyou Network had a total of 24,949 employees. In the first three quarters of 2024, Yonyou Network laid off 3,578 employees.

Time is running out for Yonyou Network. This is the sentiment expressed by the 'Digital Intelligence Research Society' after reviewing the third-quarter report.

On October 30, Yonyou Network released its third-quarter report. The data showed that Yonyou Network achieved revenue of 1.933 billion yuan in the third quarter, a year-on-year decrease of 17.3%, with a net loss of 661 million yuan. For the first three quarters, Yonyou Network achieved revenue of 5.738 billion yuan, a year-on-year increase of only 0.5%, with a loss of 1.455 billion yuan. Yonyou Network attributed the slowdown in revenue growth to a lag in contract signing.

The 'Digital Intelligence Research Society' found that in just three quarters of 2024, the net loss attributable to shareholders of the parent company reached 1.455 billion yuan, exceeding the total loss for the entire previous year.

Interestingly, despite laying off 3,578 employees in the first three quarters, Yonyou Network did not seem to achieve cost savings and efficiency improvements as expected.

What's going on with Yonyou Network?

The pain of Yonyou's 'fall'

With only one quarter left in 2024, Yonyou Network has reported a net loss attributable to shareholders of the parent company of 1.45 billion yuan for the first three quarters.

The 'Digital Intelligence Research Society' found that from 2019 to 2023, Yonyou Network's revenue increased from 8.512 billion yuan to 9.697 billion yuan. Although the growth rate was slow, it was still growing. However, in the first three quarters of 2024, Yonyou Network reported revenue of 5.738 billion yuan. Based on this, the company's revenue for the full year of 2024 is likely to show a year-on-year decrease.

If revenue is still passable, then net profit is truly unimpressive. Describing the decline in Yonyou Network's net profit as a 'fall' would not be an exaggeration. The 'Digital Intelligence Research Society' found that in 2019, Yonyou Network had a net profit attributable to shareholders of the parent company of 1.183 billion yuan. However, from 2020 to 2023, Yonyou Network's net profit growth rates were -16.7%, -28.18%, -69.03%, and -541.28%, respectively, indicating an increasing decline.

In the first three quarters of 2024, Yonyou Network's net loss attributable to shareholders of the parent company reached 1.455 billion yuan, a year-on-year increase of 41.24%.

Regarding the change in performance, Yonyou Network attributed it to an increase of 220 million yuan in the amortization of capitalized intangible assets and a 140 million yuan increase in severance pay.

At the same time, Yonyou Network also stated that its continuous investment in strategic transformation and product upgrades had led to a continuous increase in sales and research and development expenses. The 'Digital Intelligence Research Society' learned that in 2023, Yonyou Network invested 2.106 billion yuan in research and development, a year-on-year increase of 20.1%, while sales expenses also increased by 22.7% to 2.743 billion yuan.

However, despite these increasing investments, Yonyou Network has not seen an increase in market share or competitiveness. Instead, its net profit rate has continued to decline.

The 'Digital Intelligence Research Society' found that from 2019 to the third quarter of 2024, Yonyou Network's net profit rate has declined from 15.53% to -25.79%, with the smooth curve demonstrating the 'flawless' change in its net profit rate. Although the outlook for the entire industry is uncertain and has shown a declining trend, Yonyou Network has completely deviated from the industry situation based on indicators from 2023 and the first three quarters of 2024.

According to the 'Digital Intelligence Research Society', Yonyou has been undergoing transformation in recent years. Around 2010, when cloud computing and big data were booming, Yonyou Network saw the trend of enterprise management software 'moving to the cloud' and thus vigorously implemented a cloud strategy. In early 2015, Yonyou Company changed its name to Yonyou Network to demonstrate its commitment to transformation.

However, despite its early transformation, Yonyou has not been able to break through the revenue margin through cloud computing. In 2023, Yonyou Network's cloud service revenue contributed 7.091 billion yuan, accounting for 72.39% of total revenue. In the first three quarters of 2024, cloud service revenue accounted for 74.7% of the 5.738 billion yuan in revenue, with a year-on-year increase of 8.6 percentage points. While the proportion of cloud service revenue in total revenue is increasing, the growth rate of revenue is slowing down significantly.

In its third-quarter report, Yonyou Network emphasized its 'subscription business.' For example, it adhered to a long-term strategy of subscription priority, with subscription revenue increasing by 27.8% year-on-year in the first three quarters and subscription contract liabilities of 2 billion yuan. However, Yonyou Network did not explicitly mention these figures in its financial data.

However, what concerns the 'Digital Intelligence Research Society' the most is not this but rather the company's 'active promotion of industrialized business strategies for large enterprise customers.' During the reporting period, the company successfully signed contracts with 41 state-owned and central enterprises and industry leaders, including China Chemistry, CNOOC, CGN, and Kailuan Group. In the current environment, where all departments are calling for 'tightening belts,' this model may be more vulnerable to disruptions in the coming years.

Cost reduction without 'efficiency enhancement'

Yonyou Network is a company skilled in capital operation.

In early 2022, Yonyou Network conducted a private placement plan involving 5 billion yuan. Since the private placement, Yonyou Network's cash has dropped to around 3.61 billion yuan, with total income from financial products amounting to approximately 4.8 billion yuan. However, interest-bearing liabilities such as short-term and long-term borrowings exceed 5.6 billion yuan. Therefore, Yonyou Network's net cash has turned negative.

If it were not for the 2022 private placement, Yonyou Network would already be shivering in the cold.

After the private placement, Yonyou Network had to wield the 'cost reduction' axe for future operations. From the end of 2023 to the third quarter of 2024, Yonyou Network reduced its workforce by 3,578 employees. In the third quarter alone, Yonyou Network lost 1,287 employees, averaging more than 40 employees leaving daily. The cost of personnel optimization reached 140 million yuan, with the average cost per layoff exceeding 100,000 yuan.

Interestingly, unlike many other companies that achieve 'efficiency enhancement' through cost reduction, Yonyou Network's performance did not turn around after laying off employees. Instead, it embarked on a path of negative revenue and net profit growth. As a leading software development and cloud service provider, Yonyou Network's performance requires ensuring customer service quality and product quality. The R&D and sales teams are the foundation of Yonyou Network, but current layoffs have essentially hit its 'main arteries.'

It is indeed difficult to earn money in the domestic SaaS industry. However, compared to the foreign SaaS giant Salesforce, Yonyou Network, which ranks among the top in China, cannot even see Salesforce's taillights. In the capital market, Salesforce has a market value of up to 281.7 billion US dollars, while Yonyou Network's market value is only 37.279 billion yuan, not even a fraction of Salesforce's. Moreover, if not for the recent small bull market, Yonyou Network's market value would have fallen below the 30 billion yuan mark.