Newborn Town: The Tinder of the Middle East? Let’s Dive In!
Key Points to Remember:
- Newborn Town’s revenue skyrocketed by over 60% to more than 3.2 billion yuan in the first nine months!
- They’ve crossed 700 million downloads on their apps… Yup, you read that right!
By Lau Chi Hang (and definitely not the ghost of Jimmy Carr!)
It seems like every business in China is on a quest for growth nowadays, hopping on planes and jetting off to far-flung places like they’re scouting for the next big holiday destination. The situation at home? Let’s just say it’s a bit like finding a soggy biscuit at the bottom of a tea tin—less than appetizing. With the U.S. and Europe throwing up trade barriers like they’re trying to win a game of Jenga, where’s a company to go? One option? The Middle East—a place that seems a little more welcoming than what you’d find in your average knock-off superhero movie.
Enter Newborn Town Inc. (9911.HK), which some have dubbed the “Tinder of the Middle East.” Yes, because nothing says “let’s find love” quite like live streaming and audio-visual networking products! The company has been on a financial rollercoaster that would make even Lee Evans’ stage antics look tame. In the first nine months of this year, they reported revenue soaring between 3.24 billion yuan and 3.28 billion yuan—somewhere between your average footballer’s weekly paycheck and a nice cup of coffee in London, which is quite a range!
Update: Downloads Galore!
If you thought your social media app was doing well, let me throw some numbers at you. As of September 30, Newborn Town’s cumulative downloads hit an astonishing 740 million. That’s 740 million! What do they even do with that much data? Is it like the new version of collecting stamps? “Oh, look at my vast collection of social media interactions!” Maybe all the cool kids are doing it now, and we just missed the memo. And all of this comes with a monthly user base of 28.98 million. I don’t even know 29 million people!
The company doesn’t just dive into social media pools; they’ve also got gaming and networking platforms on their roster, including the wildly popular MICO live streaming service and their newly acquired Blued platform catering to LGBTQ+ users. Yes, they’re casting a wide net—let’s hope it’s a big, cozy net, not one of those tiny mesh ones that leave you with more holes than fish.
Stay True to Your Values, Unless It’s Costing You
So, what’s the philosophy behind this ambitious quest for global love and financial glory? It’s as simple as Liu Chunhe, the founder, declaring his intention to maintain the ‘heart’ of his business—from student to startup. And while that’s all well and good, you’ve got to wonder; can you really maintain your heart when your expenses are keeping pace with your profits like a hyperactive puppy chasing its tail?
Despite impressive revenue spikes—including a remarkable quadrupling of profits last year—costs are rising even faster. They’ve seen revenue up 65% in the first half of 2024, but let’s not forget the 69.4% increase in revenue costs. It’s a bit like the old saying: you can’t spend faster than you earn unless you’re a toddler in a candy store!
Investor Love: Gone, But Not Forgotten?
Newborn Town’s journey has been unpredictable, to say the least. Their stock had a dizzying rise post-IPO in 2019, which saw shares shoot up like a firework on New Year’s, only to face a painful crash that left seasoned investors as shocked as a cat in a bathtub. Despite impressive financial strides, the stock remains more rollercoaster than straight road, leaving some investors feeling a bit like a contestant on a bad dating show: confused and questioning their life choices.
Low Valuation: Are They Playing Hard to Get?
With analysts taking a good pass on the company and high-profile investors ghosting them faster than a bad Tinder date, Newborn Town needs to be as charming as a stand-up comedian in a room full of hecklers. They’re trading at a P/E ratio of 6.7—far below Tinder’s parent company, Match Group, which stands at 17. It’s like trying to convince your posh friends that you’re fine with your 6.7 P/E in a world of 17s. Come on, we need better friends!
In a nutshell, Newborn Town is making all the right moves on paper, but the market doesn’t seem too keen on playing matchmaker just yet. They’ll need to charm those investors away from their Netflix binge-watching and back into the world of stock buying before they can see their valuation hit the heights they aim for. So, Liu, keep that heart of yours, just don’t forget—the investors might just need a little more than love to keep their wallets open!
Key points to remember:
- Newborn Town, known for its innovative social networking solutions, saw its revenue soar by an impressive 60.7% to 62.7%, exceeding 3.2 billion yuan in the first nine months of this year.
- The social media operator reached a significant milestone with cumulative downloads of its apps surpassing 740 million during the same timeframe.
By Lau Chi Hang
As China’s economy faces a slowdown and consumer confidence dwindles, numerous companies are actively seeking growth beyond domestic shores, often pursuing pathways of international expansion. However, navigating the complexities of globalization is far from straightforward, and the destinations a company chooses can significantly influence its future success. Once regarded as the most promising markets, the United States and Europe have increasingly turned hostile towards Chinese enterprises, imposing stringent trade barriers across various sectors, including solar energy, semiconductors, e-commerce, and, more recently, electric vehicles.
In stark contrast, the Middle East presents a comparatively favorable landscape for Chinese firms with the right capabilities, exemplified by Newborn Town Inc. (9911.HK), which has been dubbed the “Tinder of the Middle East”. Recent financial figures reveal the company’s remarkable growth trajectory, underscoring the vast potential within the Arabic-speaking regions of the Middle East and North Africa (MENA).
The latest financial results reveal a promising outlook for Newborn Town as it continues to build momentum into 2024, with revenues rising by 60.7% to 62.7% year-over-year, translating to an estimated revenue ranging from 3.24 billion yuan (approximately $454 million) to 3.28 billion yuan in the first nine months of the year.
As of September 30, the cumulative downloads for the company’s diverse social media apps reached 740 million, marking a 6.5% increase from three months prior. Furthermore, the active monthly user base expanded to 28.98 million, up by around 1.5% during the same interval.
Newborn Town is primarily engaged in developing and operating innovative audio-visual networking and gaming products, with its most notable offerings including the popular MICO live streaming platform, the audio-centric YoHo social media application, as well as the engaging TopTop games alongside the SUGO corporate platform. To further enhance its portfolio, the company made strategic acquisitions this past year, adding Blued and Heesay—leading networking platforms tailored for gay and transgender users.
Stay true to your values
Founded by Liu Chunhe, who envisioned leveraging technology to instigate meaningful change while still a graduate student in 2009, Newborn Town was created with deep philosophical roots. Liu’s inspiration is drawn from a quote by Mencius, emphasizing the importance of preserving one’s inherent goodness. With this in mind, he established the brand Newborn Town to reflect a commitment to its foundational ideals while continuously striving for improvement.
Liu began his journey as a coding instructor, where he met Li Ping, a talented student who would later become his business partner. In 2013, the duo embarked on creating products aimed at international markets, with their Solo Launcher receiving accolades from Google as one of the App Store’s top applications globally. During this period, the company shifted focus towards social networking, progressively establishing a solid footprint in the Middle East and Asian regions where their platforms currently lead in user engagement.
Notably, the company secured Egypt’s inaugural social media operating permit early in its journey and achieved a remarkable milestone this year by obtaining a regional headquarters permit from Saudi Arabia, thus becoming the first global social entertainment enterprise to establish operations within the Kingdom. Such accomplishments reflect the strong demand and popularity for the company’s offerings in these regions.
Since making its debut on the Hong Kong Stock Exchange in 2019, Newborn Town has demonstrated robust performance. Despite reporting a loss of 390 million yuan in 2021 attributed to significant stock-based compensation costs, the core operations remained profit-generating. Remarkably, the following year, profits surged to 510 million yuan, marking a fourfold increase. The current year reflects continued growth, albeit at a more moderate pace, with profits rising by 21.3% to reach 225 million yuan in the first half of 2024.
Actions volatiles
Despite a track record of strong performance, Newborn Town’s stock has exhibited volatility. Following the release of the nine-month financial results, share prices experienced a slight uptick as investors reacted positively to the revenue improvements. However, the closing price on that day remained significantly below its peak of HKD 9.42, recorded in 2021.
Investor sentiment surrounding the stock has experienced notable fluctuations since its initial public offering (IPO).
Upon its entry into the market in 2019, the company enjoyed remarkable success, with shares priced at HK$1.68 during its IPO—1,441 times oversubscribed—making it the most sought-after stock of that year. The company experienced a dramatic increase, closing its first trading day with a 93.5% gain. At its peak in 2021, the stock price soared to over HKD 11, only to suffer a rapid decline, plummeting to HKD 1 in 2022.
After a difficult period, the stock regained momentum early the following year, climbing back above HKD 4 before stagnating and falling to HKD 3. While current prices exceed its IPO valuation, they still remain significantly lower than the historical highs the stock once achieved.
Financial pressures are also an ongoing challenge for Newborn Town, as rising costs have begun to outstrip revenue growth. During the first half of the year, revenues surged by 65%, yet this was overshadowed by a 69.4% increase in the cost of revenue (excluding promotional, research and development, and administrative expenses). This trend of escalating expenses could further deter prospective investors from buying into the stock.
Low valuation
In the lead-up to its IPO, Newborn Town attracted attention from prominent investors; however, these stakeholders have gradually divested their positions. The diminishing confidence among investors has correspondingly diminished interest from major banking analysts, thereby impacting the company’s credibility and visibility, likely influenced by its comparatively small market capitalization. The company’s inability to maintain a market capitalization above HKD 5 billion over the past three years has sparked criticism, contributing to its exclusion from the Stock Connect program of the Hong Kong Stock Exchange, which would otherwise broaden accessibility to mainland Chinese investors.
Newborn Town’s stock presently trades at a price-to-earnings (P/E) ratio of 6.7, closely aligned with the P/E ratio of 6 for Yalla (NYSE: YALA) but significantly lower than the 17 ratio of Match Group (NASDAQ: MTCH), the parent entity of Tinder. This disparity raises concerns among some investors regarding underlying issues that may not be reflected in the company’s financial disclosures, leading to a cautious approach towards investment.
Ultimately, investors may require additional time to assess whether Newborn Town can sustain its aggressive growth trajectory. Founding visionary Liu might find it beneficial to adhere to his principles while also considering strategic adjustments to galvanize investor interest and foster renewed excitement surrounding his company’s stock.
, raising concerns about the sustainability of their financial health. This alarming mismatch suggests that while Newborn Town is expanding its user base and generating increased revenues, its cost structure is perhaps more burdensome than anticipated.
In light of these rising costs, the company must strategize effectively to maintain its profitability and investor appeal. The challenge lies not only in controlling costs but also in convincing stakeholders of its long-term potential. Investors are likely looking for more than just impressive growth figures; they want to see a sustainable plan that addresses the fundamental issues within the financial structure.
To capture potential investor interest, Newborn Town might consider several steps. Firstly, enhancing operational efficiencies could lead to reduced costs. This might include investing in technology that automates certain processes or exploring strategic partnerships that could lead to shared resources. Additionally, as they expand internationally, they should tailor their offerings to local markets to increase engagement and revenue while keeping expenditures in check.
Moreover, communicating openly with investors about challenges and plans can help rebuild trust. If the company can articulate a clear vision that balances growth with sound fiscal management, it may be able to attract back the investors who currently seem hesitant.
while Newborn Town has shown remarkable growth in terms of revenue and user engagement, its future will depend significantly on managing its cost structure and restoring investor confidence. Fostering a culture of transparency and accountability, alongside strategic expansion efforts, could ultimately lead to a healthier and more sustainable business model as they navigate the complexities of the social media landscape.
Key Points to Remember:
– Newborn Town has achieved impressive revenue growth, but rising costs pose significant challenges.
– The balance between growth and financial sustainability will be critical for future success, especially as the company seeks to attract investors again.
– Strategic partnerships, market adaptations, and improved operational efficiencies could mitigate costs and enhance profitability in both existing and new markets.