QD.US
Qudian posts big revenue gains for last mile business

The former online lender is trying its hand at last-mile delivery services in Australia and New Zealand, but a heavy cost structure raises questions about the business model’s viability

Key Takeaways:

  • Qudian started generating meaningful revenue from its new last-mile delivery business in Australia and New Zealand in the first quarter
  • The venture represents the cash-rich former online lender’s latest new business model after previous attempts at education and packaged meals failed

  

By Warren Yang

Life after fintech isn’t getting any easier for Qudian Inc. (QD.US), a former online lending pioneer that abandoned its original business when the regulatory environment got too hot. Over the space of just a few years, the company has tried its luck in education and packaged meals since ditching its ground-breaking online consumer lending business. But both of those attempts failed miserably – and quickly.

Now, the former fintech highflyer, which has quite a lot of cash in its coffers, is looking to revive its fortunes with a last-mile delivery business, banking on the proliferation of e-commerce. Such services are especially in demand from local retailers looking to quickly deliver online orders to customers in the same city. Qudian already has limited experience with somewhat similar deliveries from its packaged meal business, so this new logistics venture may not seem as unrelated to its previous experience as its earlier initiatives to reinvent itself.

But what makes this latest transformation gutsy is that it’s unfolding far from Qudian’s familiar terrain in China. It started its last-mile delivery operations under the Fast Horse brand in Australia on a trial basis at the end of 2022 and achieved “meaningful” scale in last year’s second quarter, according to the company’s latest quarterly earnings report released last week. The company has also entered New Zealand. The overseas focus probably owes partly to intense competition in China, whose recent economic slowdown is also leading many companies to look overseas for growth these days.

After more than a year in its new business line, Qudian has finally scaled up its delivery venture enough to generate meaningful sales. In the first quarter of this year, the company earned 53.8 million yuan ($7.4 million) in revenue from Fast Horse, which accounted for most of its revenue for the period. This marks big progress from just 300,000 yuan a year earlier.

But Qudian has a long way to go to reach profitability. Despite its progress, its total loss from operations more than doubled to 72.5 million yuan, dwarfing its revenue. An unprofitable new business isn’t uncommon. But in Qudian’s case, its cost of revenue – the cost to generate every dollar of revenue – exceeds its actual revenue, which means it’s already in the red even before adding in its operating expenses.

This raises questions about the fundamental viability of the company’s latest business model. It runs its last-mile delivery operations out of its own warehouses, which numbered five in Australia and one in New Zealand at the end of March. It pays drivers to deliver its goods, which seems to account for the bulk of its cost of revenue.

With this structure, Qudian may not have much room to reduce its revenue costs. According to Fast Horse’s website, whose landing page is entirely dedicated to recruiting drivers, the company hires drivers individually, rather than using a third-party agency that can quickly scale up the business. It then has those drivers use their own vehicles to make deliveries, similar to how ride-hailing apps like Uber operate. It pays the drivers on an hourly basis.

Rigid cost structure

This kind of business model will make it hard to lower costs even as Fast Horse grows, since it has relatively little room for creating economies of scale. So, unless it can charge its customers more, it could be difficult to achieve a profitable cost structure no matter how much its revenue increases.

As its cost of revenue ballooned in sync with its first-quarter revenue growth, Qudian slashed its marketing spending to almost nothing in the period. That may save costs, but it’s also a red flag for investors who are probably expecting bigger spending to promote the company’s young delivery services.

After just a year in the delivery business, Qudian also continues to hedge its bets with yet another new foray. That gamble lies in aircraft leasing, which Qudian began exploring last September. The company owned three aircraft as of March and leased two to third parties and kept one for its own use. Qudian says it will continue to develop this operation, though it’s not clear how serious it is about this plan.

Aircraft leasing isn’t really related to last-mile delivery, so there won’t be much potential for synergies between the two even if Qudian commits to both. Not to mention, Qudian has little or no experience in the aircraft business, though perhaps some of its financial expertise could help in running this kind of leasing business to assess things like customers’ credit risks.

Its ongoing identity crisis shows just how much times have changed since Qudian emerged as a pioneer among a new generation of online peer-to-peer (P2P) lenders about a decade ago. It prospered at first, before the entire group fell victim to a harsh regulatory crackdown. Most smaller companies didn’t survive, and many that remained have transitioned to loan facilitation. But Qudian decided to quit the sensitive sector completely and leverage its large cash pile by testing out other business areas.

The company’s general approach looks a bit like the proverbial tactic of “throwing spaghetti against a wall to see what sticks.” It has some leeway to do that because of its large cash reserves, built up partly through investment income. At the end of March, Qudian’s cash and cash equivalents amounted to the equivalent of nearly $1 billion, though that’s down somewhat from a year ago as it spends to get its new businesses up and running.

Qudian shares rallied a bit after its earnings release, perhaps because investors were encouraged by revenue growth from its last-mile delivery business. But the company’s stock is still more than 90% down from its IPO price in 2017, trading at a price-to-book (P/B) ratio of just 0.2. That’s far below the 0.6 for former fintech rival FinVolution (FINV.US), and 0.5 for Dada Nexus (DADA.US), China’s leading last-mile delivery specialist, even though multiples for these other two companies are also quite low.

Qudian may want its Fast Horse to gallop soon, even though its heavy cost structure is likely to keep that from happening anytime soon. Until that changes, most investors may take a pass on the company’s stock.

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