(Asian Tech Press) Aihuishou, the JD.com-backed secondhand electronics trading platform, is going to be listed on the New York Stock Exchange, under the banner of "the first ESG stock in China" and in the guise of ESG. Will it be favored by Wall Street?
On May 28, EST, China's leading used electronics trading and service platform, AiHuiShou International Co. Ltd., under the brand “ATRenew”, formally filed an offering with the U.S. Securities and Exchange Commission (SEC).
The company aims to go public on the New York Stock Exchange (NYSE) under the symbol "RERE", with a fundraising of $100 million.
Underwriters for the IPO include Goldman Sachs, Bank of America, CLSA Limited and Tiger Brokers. If things go well, Aihuishou will become the first ESG stock in China.
Aihuishou is backed by online retailer giant JD.com Inc (JD: NASDAQ GS). Before the IPO, JD.com Inc. had participated in several rounds of financing of Aihuishou, and held its 34.7%.
According to the Form F-1 filed with the SEC, even after multiple rounds of financing, Aihuishou, the ten-year-old company, is not in an optimistic financial position. As of March 1, 2021, the company had only $100.3 million in cash and cash equivalents and negative net cash flows from operating activities
The next is a detailed interpretation of Aihuishou based on the Form F-1.
1. IPO in the guise of ESG
According to public information, Aihuishou opened its business through AHS Recycle in 2011. At the end of 2017, the company launched PJT Marketplace. And in 2019, it acquired Paipai Marketplace from JD.com Inc.
As the largest used electronics trading platform in China, Aihuishou has three major business line. First one is AHS Recycle,a C2B platform for used consumer electronics recycling and environmental disposal. Secondly, PJT Marketplace, a B2B trading platform for used electronic products. Thirdly, Paipai Marketplace, a B2C retail platform for used products, primarily consumer electronics.
Form F-1 shows that with the acquisition of Paipai in 2019, Aihuishou has completed a “C2B + B2B + B2C” closed-loop value chain.
In April 2021, the company officially changed its name from Shanghai Yueyi Network Information Technology Co., Ltd., to Shanghai Wanwuxinsheng Environmental Protection Technology Group Co., Ltd. Its business scope also expanded to environmental technology, and it becomes a nominal environmental technology company.
With this IPO, Aihuishou hopes to attract investors with its environmental, social and governance (ESG)-friendly business nature, according to Reuters.
However, looking at the company's major business of second-hand trading, it can be concluded that the company is, by nature, a profit-oriented second-hand electronics trading company.
By changing its name, Aihuishou is trying to sneak second-hand trading into the concept of environmental technology, which is by and large not going to work. Because the real environmental protection of electronic waste, is to sort for dismantling and to reuse recyclables, rather than the second-hand trading operated by Aihuishou.
2. YoY losses and negative cash flow
Form F-1 shows that the GMV of Aihuishou in 2020 is $3.1 billion (19.6 billion yuan), up 60.7% from $1.9 billion (12.2 billion yuan) in 2019. As of March 31, 2021, its GMV is $969.3 million (6.2 billion yuan), up 106.7% from $469 million (3 billion yuan) for the same period in 2020.
However, the high growth in GMV did not bring profitability to Aihuishou. The company stated in Form F-1, "We have not been profitable since our inception in 2011."
According to the filing, the net loss is $32.5 million (207.9 million yuan) in 2018, $110.2 million (704.9 million yuan) in 2019, and $73.6 million (470.6 million yuan) in 2020. It's clear that although the net loss in 2020 is significantly narrower than the previous year, Aihuishou is still in a loss-making status.
The long-term loss may be related to the asset-heavy business model adopted by Aihuishou.
Form F-1 discloses that, as of March 31 this year, the company has operated 755 official stores and over 1,500 self-service kiosks in 172 cities in China. Among them, there are 753 AHS stores and 2 Paipai stores.
Public information shows that Aihuishou has made eight rounds of financing. And in the past three years, by approximate statistics, the company has raised 10 billion yuan and $440 million from its global investors.
However, as of March 1, 2021, the company had only $100.31 million in cash and equivalents, and cash flow has been negative. Such a financial position is not optimistic, and Aihuishou is desperately hoping for a favorable investment from the US to inject funds into the company to sustain its growth.
3. Heavy reliance on JD.com Inc.
In June 2019, Aihuishou acquired a $500 million second-hand business Paipai Marketplace from e-commerce giant JD.com Inc. Through the deal, Aihuishou received traffic support from JD Inc., allowing JD users to access the former's online buying and selling marketplace.
Form F-1 shows that relying on JD's traffic resources, Aihuishou's GMV for online marketplaces surged to $1.3 billion (8.3 billion yuan) in 2019, up 245% year-on-year from $375 million (2.4 billion yuan) in 2018.
In 2020, the company's online market GMV moved further to $2.4 billion (15 billion yuan), up 80.72% year-on-year. Meanwhile, its revenue raised from $510 million (3.26 billion yuan) in 2018 to $615 million (3.93 billion yuan) in 2019 and further to $759 million (4.86 billion yuan) in 2020.
As is known, Paipai Marketplace was acquired in June 2019, which has a limited impact on Aihuishou's financial results in that year.
However, Form F-1 mentions that Aihuishou must meet certain conditions to obtain the support of JD. Once the traffic support from JD is missing, the company's business may be hit hard.
4. An alleged platform for criminals to sell stolen goods
Public information shows that many thieves specialize in stealing smartphones and other electronic products, and then sold by Ahuishou's online marketplaces and other online platforms.
In May 2020, the Shanghai Changning district court concluded a case, in which a suspect surnamed Jin repeatedly stole laptops from the Shanghai branch of FedEx. Jin stole a total of 17 laptops of various types and sold them through Aihuishou.
In November 2020, the Beijing Fengtai district court concluded a case related to Aihuishou. A suspect surnamed Guo burgled Beijing's universities and supermarkets 15 times. All 16 stolen laptops by Jin, were sold on Aihuishou's platform.
In the above case, we can see that even though Aihuishou requires the identity registration of recycled goods, there is a supervisory loophole in the implementation process. Looking at these criminal cases, the suspects can muddle through by fraudulently using other people's identity information, bank cards, and cell phone numbers when selling stolen goods.
Internet platforms for smartphone recycling like Aihuishou, while providing people with more choices, have also been targeted by criminals as their new channel for selling stolen goods.
5. Summary
From the filings submitted by Aihuishou, combined with the actual business situation, Aihuishou is facing faces many skeptics and challenges.
Does Aihuishou, by its nature, meet the criteria of SEG? And its loss-making status in the past few years, will be improved in the future? And will the controversies over its becoming a platform to be used by criminals be resolved?
If the above issues are not properly addressed, investors may be more skeptical and less interested in investing in Aihuishou. In turn, this will hinder the development of the company and discourage investment. As a result, Aihuishou would be caught in a vicious cycle.
Will U.S. investors favor a company in ESG's guise, unprofitable, in negative cash flow, and controversial like Aihuishou?
(US$1 = 6.3961 yuan)
PS: Form F-1 can be seen here: https://www.sec.gov/Archives/edgar/data/0001838957/000119312521176950/d893059df1.htm
