1797.HK
Just months after a corporate battle over its star anchor, this e-commerce platform has landed back in the spotlight after airing issues with its livestreaming business.

Just months after a corporate battle over its star anchor, the e-commerce platform has landed back in the spotlight after airing issues with its livestreaming business

Key Takeaways:

  • East Buy’s stock fell to a two-year low after frank comments from the company’s CEO and its top-selling host both pointed to challenges with the livestreaming model
  • The company has been trying to diversify and bolster its business with initiatives such as a one-hour delivery service, but take-up has been limited

 

By Molly Wen

Oversharing in online conversations, or being candid about challenges, can inflict a business cost.

Chinese e-commerce platform East Buy Holding Ltd. (1797.HK) has been learning this public relations lesson after unguarded comments from two of its most prominent figures triggered a stock sell-off.

In the run-up to a critical date in the retail calendar, the June 18th online shopping festival, East Buy’s chief executive spoke openly of business problems, while its top livestreaming anchor expressed misgivings about his role as an online salesman. Investors already nervous about the company’s business prospects took fright at the apparently unfiltered remarks and punished the share price. In the two weeks from May 31 to June 14, East Buy’s shares fell 25.6% to a two-year low, wiping more than HK$5 billion ($64 million) off the company’s market value.

It was a sharp setback for a company that had found favor with Hong Kong investors for making a successful shift from online education into e-commerce, focusing mostly on food products.

The investor relations nightmare began on May 31, when Yu Minhong, the CEO of East Buy and founder of its parent company New Oriental (EDU.US; 9901.HK), took part in a livestreaming chat with an industry buddy, the head of Chinese supermarket chain Wumart.  Discussing business challenges, Yu told his Wumart counterpart, Zhang Wenzhong, that he was in no position to offer advice as East Buy had been dealing with its own “mess”. Yu, 62, also said he did not want to keep working non-stop and get tangled up in all sorts of issues. He was ready to step away from the business world and spend more time appreciating the beauty of nature.

The remarks did not go down well with jittery investors, as East Buy shares tumbled 9.9% the next day. In the face of persistent selling pressure, Yu apologized to customers, shareholders and investors through East Buy’s social media platforms in the early hours of June 7, saying they should not read too much into a humble and casual exchange of views between friends. The damage control exercise did allay some of the fears, and the share price closed with a gain of 2.4% that day.

However, more trouble was in store. In a radio program two days later, East Buy’s star anchor, Dong Yuhui, waded into hot water with some frank reflections on his job. Dong, a former teacher, spoke of an aversion to online selling and said he had never to this day enjoyed promoting goods in livestreamed broadcasts.  Dong’s comments tipped East Buy’s stock into another downward spiral, with a 9.3% drop in the next trading session.

The controversy came as top influencers were competing for livestreaming slots in the lead up to June 18th, a period of sharp discounts and shopping frenzy that has ranked as the second most lucrative online retail event in China after Singles’ Day every November. But Dong has not made daily appearances in his livestreaming studio and his sessions have been just a few hours long.

Strains between Dong and colleagues at East Buy flared into the open last December, in a dispute that ended with the ouster of then-CEO Sun Dongxu. In the aftermath, Dong left the company’s official platform but was set up with a personal studio, “Together with Hui”, that remained part of East Buy.

Without Dong at its core, East Buy’s official streaming platform has been losing traction, shedding more than one million followers in the past six months. “Together with Hui” now commands around 20 million followers on the short-video platform Douyin, compared with just over 30 million followers for East Buy’s streaming platform.

Dong’s new livestreaming outlet ranked second for sales in May, at 533 million yuan ($73.5 million), while East Buy’s own platform came sixth on the list, according to data from the third-party performance tracker Feigua. Dong has never fallen out of the top three in the monthly rankings since the new platform’s launch, while East Buy has slipped from fourth place to as low as ninth at one point.

No quick fix from instant retail

Investors are paying close attention to Dong as a sales driver, concerned about East Buy’s prospects under the new relationship. Dong’s sales through the new channel still feed into the company’s operating revenue, but East Buy’s primary platform is losing both followers and sales, a sign of waning appeal. Meanwhile, East Buy has been keen to diversify its income sources, unveiling plans for its own smartphone apps, livestreams on the Taobao marketplace and membership-based stores. But so far none of these initiatives has yielded substantial results.

East Buy revealed in April that it had sold nearly 100 million units of its own-label products on Douyin in a single month, and its product categories had exceeded 400. Excluding sold-out items and seasonal products, the East Buy labelled range encompasses more than 200 items. East Buy launched 61 new products in March, but earlier in the year faced questions about the authenticity of some premium food products, Wuchang rice and South American white shrimp. Two months later the company came out in defense of its shrimp, but not before its brand reputation had taken a hit.

Since April, East Buy has also started to offer expedited delivery within one hour.  The one-hour service covers 80% of metropolitan Beijing within the city’s fifth ring road, with star anchors sometimes acting as couriers.  But the operating times for the service have been cut from eight hours a day at the launch to between four and six hours. With only 120,000 followers, the service will not offer much of a sales boost.

Instant retail has been booming in the past three years, promoted by the likes of Alibaba (BABA.US; 9988.HK), Meituan (3690.HK), JD.com (JD.US; 9618.HK) and other Internet giants. Those platforms can offer a diversity of products, backed by well-developed supply chains, warehousing and delivery networks. By comparison, East Buy’s branded goods are only a drop in the ocean, limiting its potential share of the market.

East Buy’s latest price-to-earnings (P/E) ratio is around 21 times, higher than the 15 times for Be Friends Holding (1450.HK), another provider of e-commerce livestreaming, indicating some market faith about East Buy’s outlook. The company is clearly seeking new growth drivers, but investors will be looking for evidence that the efforts are bearing fruit.

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