Flowing Cloud taps investors for more cash as metaverse halo disappears

The marketing services provider, once billed as Hong Kong’s ‘first metaverse stock,’ plans to raise about $10 million through a share placement to ease its financial pressure

Key Takeaways:

• Flowing Cloud plans to raise $10 million through a share placement, after reporting it lost 120 million yuan in the first half of 2025 as its core marketing services revenue fell 33%
• The share sale marks the company’s second placement in four months, as its cash reserves fell to just 21 million yuan by the end of June

By Lee Shih Ta

Back-to-back stock placements in under half a year can sometimes signal distress, especially when they’re small, showing a listed company lacks confidence that it can find buyers for such shares. Such efforts not only reveal potential financial strain, but also risk angering existing shareholders who face repeated dilution of their stock.

But none of that is stopping Flowing Cloud Technology Ltd. (6610.HK), a provider of AR/VR marketing services, which this month announced its second such share sale since May. The company will issue up to 433.4 million shares at HK$0.174 apiece, representing a roughly 20% discount to the stock’s previous closing price and constituting about 16.67% of the company’s enlarged share capital, according to its Sept. 9 announcement. It expects to raise approximately HK$74.53 million ($9.56 million) net of expenses.

Roughly 60% of the proceeds will be used to acquire traffic using media platforms or agencies, with the balance earmarked for R&D and working capital. The former covers spending on algorithm improvement, data analytics pipelines, digital-human platforms, artificial intelligence, motion-capture tools, and extended reality (XR)-related technology. The placement comes not long after Flowing Cloud placed 361 million shares in May, yielding about HK$71 million in net funds, with identical spending priorities.

Flowing Cloud was riding high at the time of its Hong Kong IPO three years ago, when it captivated investors with the prospect of becoming the exchange’s “first metaverse stock” at a time when that concept was all the rage on hype from Meta, formerly known as Facebook. The AR/VR marketing and content services provider sold shares for HK$2.21 apiece, and saw them rocket to HK$5.21 within a month, as investors bet the company would surf the metaverse wave to lucrative growth.

Unraveling narrative

The thesis has changed radically since then, as gamers and techies who held out big hopes for the metaverse moved on to the next big thing. Flowing Cloud’s own fortunes changed in lockstep with the shift, sending its shares below the psychologically important HK$1 threshold to languish at their current level of barely over HK$0.20 — a spectacular flameout from their earlier highs.

Initially a mobile ad optimizer that profited by arbitraging traffic, Flowing Cloud’s revenue ballooned from 250 million yuan ($35 million) in 2019 to 1.25 billion yuan in 2021 on growing smartphone adoption, earning it a 260 million yuan annual profit in the latter year. In search of a new story around 2015, the company’s engineers pivoted to embedding specialized effects based on augmented and virtual reality (AR/VR) into promotional campaigns, forming an “AR/VR marketing + AR/VR content + SaaS platform” operational model. That positioning eventually became central across the company’s own marketing materials, with the metaverse matrix getting added in later.

Yet such narrative ultimately proved as flimsy and fleeting as the metaverse hype, and the company’s revenue never rose meaningfully from where it stood when Flowing Cloud was simply an ad-tech intermediary. Lacking any exclusive intellectual property (IP) like metaverse hardware or software, the company simply rode the metaverse tide along with countless other companies that jumped on the fleeting bandwagon. Then, when the hype died down, Flowing Cloud’s high valuation collapsed.

Compounding its pain, the company’s key internet and e-commerce customers have been slashing their marketing budgets lately, putting Flowing Cloud in a financial vise as its traffic acquisition costs continued rising even as its clients cut their average ad spend.

Flowing Cloud’s annual revenue of 995 million yuan last year was down 20% year-on-year, dropping the company to a 43.7 million yuan loss, marking a major setback after years of profitability. Underpinning the sagging top line was a big drop in the company’s revenue from its flagship AR/VR campaigns, which dropped to 573 million yuan from 845 million yuan the previous year. As client ad spending fell, Flowing Cloud’s gross margin plunged as well to 20.1% last year from 33.8% in 2023.

The blood-letting continued in the first half of 2025, as the company’s revenue fell 15% year-on-year to 380 million yuan and it recorded a loss of 120 million yuan, reversing a profit of 63.47 million yuan in the year-ago period. Core marketing revenue took a bigger hit, dropping 33.5% year-on-year to just 215 million yuan. Average spending per client fell 24% as Flowing Cloud also lost key clients, including from China’s ailing auto sector. Meanwhile, the company recorded impairments on 85 million yuan worth of accounts receivable.

Urgent need for cash

One of the few bright spots for Flowing Cloud this year was its AR/VR content division, which delivered 12.6% revenue growth and a 60% increase in pricing per project in the first half, driven by emerging areas like digital avatars and short dramas that grew several-fold. But that business remains too small for now to offset the declines in its core business.

For that reason, the company has been forced to rely on selling more shares to replenish its funds. After raising capital with its mid-May share sale, its cash and bank balances still only stood at 21 million yuan at the end of June, indicating it was coming under financial pressure. That could lead to worries that such fundraising could become an endless cycle.

Despite the flood of negative signals, Flowing Cloud ‘s stock actually rose instead of falling on the first trading day after its fundraising announcement, gaining 5.5% to close at HK$0.229. Perhaps it was a relief rally, since the many negative factors were already priced into its stock. And perhaps people were still excited that new funds would be spent on its promising AR/VR content division.

Whatever the reason, the rally can’t mask the company’s fundamental difficulties. There may still be some growth potential in AR/VR applications like digital culture-tourism, immersive exhibitions and AI digital avatars. But with numerous competitors, Flowing Cloud lacks any major IP advantages, both in hardware and software.

At the end of the day, Flowing Cloud remains a marketing company with limited prospects. That may be why its price-to-sales (P/S) ratio stands at just 0.4 times — far below the 1.6 times for New Media Lab (1284.HK). With the metaverse an increasingly distant memory, the company may have difficulty attracting investors with its current business model unless it can make some technological breakthroughs.

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