Weimob gets early Christmas ‘gift’ from WeChat

The provider of services to e-commerce merchants on WeChat is expected to benefit from the platform’s new ‘Send Gifts’ program

Key Takeaways:

• Weimob’s share price doubled in four days last month as investors bet the company will benefit from a new gift-giving feature on WeChat
• Sun Taoyong, chairman of the company that provides services to e-commerce merchants, took the opportunity to sell down his stake

By Lau Chi Hang

Santa blessed Weimob Inc. (2013.HK) with a big pre-Christmas present on Dec. 12 last year. After piling up a massive 5.1 billion yuan ($697 million) in losses since its listing in 2019, the provider of services to e-commerce merchants saw its share price double in just four days at that time, sending its market value from HK$5 billion ($643 million) to over HK$10 billion in one fell swoop.

In this case it turns out that Santa was WeChat, the wildly popular instant messaging platform that’s home to many of Weimob’s e-commerce merchant customers. On Dec. 18, WeChat began testing a new feature called “Send Gifts” that allows users to send goods purchased in e-commerce stores within its ecosystem to anyone they designate.

The function is similar to WeChat Red Packets, launched in 2014, which allows users to send cash-filled packets to other users on festive occasions. In this case, goods purchased online replace cash. The price of goods sent through the function cannot exceed 10,000 yuan, and some products, such as jewelry, education and training products, are not included.

Sometimes called China’s “first new economy SaaS stock,” Weimob was founded in 2013 and mainly engaged in offering software as a service (SaaS) that helps e-commerce merchants set up and operate their storefronts on WeChat. Backed up by WeChat owner Tencent (0700.HK), Weimob went public on the Hong Kong Stock Exchange in 2019. It quickly caught investor attention for its enviable position leveraging its WeChat ties to provide services for the platform’s thousands of e-commerce merchants.

Massive losses

Despite its potential, Weimob has so far been unable to turn its position into consistent profits. After posting a profit in the first year of its listing, the company went on to report annual losses ranging from 760 million yuan to as much as of 1.83 billion yuan over the next four years, and it lost another 550 million yuan in the first half of last year. All told, Weimob has lost a whopping 5.1 billion yuan since going public.

Recent years have been especially tough as Beijing pressured major internet platforms to tear down their walls and open their ecosystems. As that happened, SaaS providers like Weimob lost some of their small and medium-sized customers to rivals who could suddenly offer services in WeChat more easily.

As it searched for a way forward, Weimob said it was even considering selling 50% of its Shanghai Weimob Culture Media subsidiary at a starting valuation of 1.8 billion yuan at the beginning of 2024. However, it slammed the brakes on the plan five days later after its stock fell sharply following the announcement.

After that, Weimob started looking for other ways to shore up its finances. In March last year, it paid 31 million yuan to boost its stake in Shanghai Banfan Information Technology, a filmed entertainment producer, distributor and content platform operator, from 24.4% to 53.5%.

Investment banks buy in

Those efforts have done little for Weimob’s share price, which was hovering at low levels before the December spike that finally brought the company back into the market spotlight. Analysts were impressed at what they saw this time.

CICC said it believes the “Send Gifts” feature will boost the number of Weimob customers, since the company is a leading third-party service provider to WeChat-based e-commerce merchants. It added that Weimob could have more space to grow by providing related value-added services to its customers. Sensing the big potential, CICC raised its target price for Weimob by 56% to HK$2.80 and maintained its “outperform” rating.

Goldman Sachs also pointed out that Weimob is expected to be a major beneficiary as “Send Gifts” attracts more merchants to WeChat, driving up gross merchandise volume (GMV). It also upgraded its target price for the company from HK$2.50 to HK$2.70, with a “neutral” rating.

While it’s still too early to say whether “Send Gifts” will be a game-changer for Weimob, speculation is swirling over whether Tencent intends to use the program as a pilot to get a bigger slice of the e-commerce market. Such bigger aspirations could provide a windfall for Weimob. But that said, there may not be too much left for WeChat to feast on in an intensely competitive Chinese e-commerce market already dominated by Alibaba (9988.HK; BABA.US), Pinduoduo (PDD.US) and JD.com (9618.HK; JD.US), as well as newcomer TikTok.

Other analysts believe Tencent is using “Send Gifts” as a tool to drive up traffic in the WeChat ecosystem. If that’s the case, then promoting development of third-party applets and boosting consumption may be secondary to its main objective.

Profit-taking chairman

While “Send Gifts” has big potential to boost Weimob, investors may also want to note the lower-profile actions of Sun Taoyong, the company’s founder and chairman, after the big share gains.

According to information from the Hong Kong Stock Exchange, Sun and two other executive directors reduced their holdings in the company on Dec. 20, Dec. 23 and Dec. 27 as the share price surged. In all, they sold 124 million shares, accounting for 3.68% of the company’s issued total, with average selling prices ranging from HK$2.33 to HK$3.09, cashing out a total of HK$319 million.

Despite their sales, the three all expressed confidence in the company’s future and the long-term investment value of its shares. They promised that they would not sell more shares for the next year from Dec. 27. A look at their holdings shows Sun now holds 7.15% of Weimob, and the other two executive directors only hold 0.16% and 1.26%. That means the three now collectively own less than 9% of the company shares. And even then, they have only committed to not selling their stock for the next year.

While some may criticize Sun and his fellow executive directors for their profit-seeking, these are also the people who know the company’s business and its prospects best. Does that mean they think the shares have peaked, at least for now, or that “Send Gifts” may be mostly hype? Is the market expecting too much from this Christmas gift for Weimob? Investors will need to make that call for themselves.

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