EM.US

The provider of smartphone charging services, better known in China as Energy Monster, said its revenue grew 10% in the first quarter, ending five quarters of contraction

Key Takeaways:

  • Smart Share Global’s revenue fell 21% to 2.8 billion yuan in 2022, including a 28.77% drop in the final quarter of the year.   
  • The provider of rented smartphone chargers said its revenue grew 10.5% in the first quarter, and executives said company will return to non-GAAP profitability this year

  

By Trevor Mo

After powering down in 2022 as many of its signature smartphone chargers sat unused in shuttered shops and restaurants during China’s strict pandemic controls, Smart Share Global Ltd. (EM.US) hopes to roar back to life with a return to non-GAAP profitability this year.

Like many other consumer-facing companies, the power bank charging station operator, better known locally as Energy Monster, cited pandemic disruptions for sapping its strength last year, according to its latest quarterly results released last Friday.

The explanation should come as no surprise. The company makes most of its money by providing smartphone-charging services using power banks placed in shops, restaurants, gyms and other public venues. But constant Covid-related restrictions to curb the spread of the virus led to the closure of many such public spaces, reducing the need for Smart Share Global’s services. And many people were often confined to their homes during frequent lockdowns, further reducing demand for such services.

Such reductions caused the company’s business to wither last year, continuing a trend dating back to the final quarter of 2021 when its revenue dropped for the first time since its founding in 2017. Smart Share Global reported its revenue fell 21% to 2.8 billion yuan ($406 million) last year, and its net loss ballooned nearly five-fold to 711 million yuan.

The final three months of last year were particularly painful, as China imposed some of its toughest Covid restrictions of the year before suddenly scrapping its “zero Covid” policy in early December. But even after that, business remained bleak through January as the nation suffered through a massive wave of new infections. As a result, the company’s revenue dropped 28.8% to 596 million yuan in the fourth quarter, while its loss expanded nearly four-fold to 335 million yuan.

“With the mobility of offline foot traffic being the single largest factor determining the result of our operation, Covid has significantly impacted us both in terms of scale and profitability,” said CEO Cai Guangyuan on the company’s earnings call.

With 2022 now squarely in the past, all eyes will be focused on whether things will take a turn for the better in 2023. Smart Share Global’s executives certainly seem to think so, pitching 2023 as the company’s comeback year after a three-year long pandemic trauma.

“2023 has definitely started on a positive foot for us. We are seeing clear year-on-year growth starting in February, and the growth rate is increasing each month,” said CFO Yi Xin on the call. She predicted the company would return to profits this year on a non-GAAP basis, which excludes stock-based compensation, following two consecutive years in the red. “We currently believe if there are no other external impacts, we are on track to regain profitability for the full year,” she said, adding the company already reached breakeven in March.

Expanding network

CEO Cai said Smart Share Global would use two major ongoing strategies to return the company to growth mode. The first involves expanding its mobile charging service to cover more public venues, especially in smaller cities and towns. To achieve that, the company will continue a policy that emphasizes working with partners to develop and operate its charging station in some of those locations rather than doing everything directly.

At the end of last year, 52.5% of the company’s charging station locations were operated through such partnerships, up from 38% from the end of 2021. Using such a strategy helped to lift the company’s “points of interest (POI),” as it calls its charging station locations, to 997,000 at the end of 2022 from 845,000 a year earlier. 

Its second strategy focuses on “extract(ing) higher levels of operating efficiency,” a term that often implies layoffs. Such headcount reductions lifted the ratio of POIs assigned to each business development representative to 160 by the end of last year, up 35% from a year ago.

Smart Share Global added that improvements in the design to its charging cabinets will also allow it to continue cutting costs. It said its latest generation of cabinets with redesigned features rolled out in last year’s fourth quarter will eventually enable it to cut 40% in capital expenditure per cabinet.

At the end of the day, Smart Share Global’s ability to stage a comeback this year will depend on its effective implementation of policies laid out by CEO Cai. But while Covid disruptions appear to be squarely in the past, one factor that could continue to dog the company is growing competition, especially following a rapid expansion into the space by online-to-offline (O2O) services giant Meituan (3690.HK).

Recovery does appear to be gaining momentum for Smart Share Global based on its business from the past months. Its gross merchandise value (GMV) of service rose by 3%, 14% and 34%, respectively, for the first three months of this year, according to Cai. The company said it expects to generate 815 million in revenues during the first quarter, which would be up 10.5% from the 737 million for the equivalent quarter the previous year.

Still, investors seemed hungrier for better growth. They bid down Smart Share Global’s stock by 6% last Friday after the latest results were released. Over the longer term, the company’s shares have moved steadily downward from their $8.50 IPO price in 2021, closing at $1.06 last Friday. That’s still an improvement from the all-time low of $0.64 where the stock traded last September. But its latest valuation of about $279 million is still a far cry from the $2.1 billion it was worth at the time of its listing.

The stock’s current price translates to an anemic price-to-sales (P/S) ratio of 0.58 and similarly unimpressive price-to-book (P/B) ratio of 0.61, showing that investors have yet to get charged up by the company’s comeback story. By comparison, Meituan trades at far higher ratios of 3.6 for P/S and 5.8 for P/B.

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