Just months after the corporate spat over star anchors, the e-commerce platform is back in the spotlight after publicly disclosing problems with its live-streaming business.
Highlights:
- Eastby's shares fell to a two-year low after candid comments from the company's CEO and top sales host highlighted the challenges of the livestreaming model.
- The company has tried to diversify and strengthen its business with initiatives such as one-hour delivery service, but uptake has been limited.
Molly Wen
Oversharing information or being too open about challenges in online conversations can come at a cost to your business.
Chinese e-commerce platform Eastby Holdings Co., Ltd. The Hong Kong Stock Exchange (1797.HK) learned this public-relations lesson after careless comments by two of its most prominent figures caused its share price to plummet.
As we approach a key date on the retail calendar, June 18th,Number During Hong Kong's online shopping festival, East Buy's CEO spoke candidly about business issues, and a top livestreaming anchor expressed anxiety about his role as an online salesman. Investors, already nervous about the company's business prospects, were spooked by the apparently unfiltered remarks, sending the stock price plummeting. In the two weeks between May 31 and June 14, East Buy's shares fell 25.6% to a two-year low, wiping out more than HK$5 billion (US$64 million) from the company's market capitalization.
It was a major setback for the company, which had won the support of Hong Kong investors after successfully pivoting from online education to e-commerce, mainly focused on food.
The investor nightmare began on May 31, when Yu Ming-hong, CEO of Eastby and founder of its parent company, New Oriental Yu of East Buy Co., Ltd. (EDU.US; 9901.HK) participated in a livestreaming chat with the head of Chinese supermarket chain WuMart, an industry friend. Discussing business challenges, Yu told WuMart President Zhang Wenzhong that he was not in a position to give advice because East Buy was dealing with its own “turmoil.” Yu, 62, also said he didn't want to keep working nonstop and get caught up in all the problems. He's ready to step back from the business world and spend more time appreciating the beauty of nature.
The remarks did not sit well with nervous investors, and East Buy's shares fell 9.9% the next day. As the selling pressure continued, Yu apologized to customers, shareholders and investors via East Buy's social media platforms in the early hours of June 7, urging them not to read too much into a casual exchange between friends. This damage control measure eased some of the anxiety, and the shares closed up 2.4% that day.
But more trouble was to come. Two days later, East Buy's star anchor Dong Yuhui landed in hot water during a radio show when he offered frank reflections on his job. Dong, a former teacher, spoke of his aversion to online sales and said he had never enjoyed promoting products on livestreaming broadcasts before. Dong's comments caused East Buy's shares to fall again, dropping 9.3% in the next trading session.
The controversy came as top influencers were competing for livestreaming slots ahead of June 18.NumberIt's a period of deep discounts and shopping frenzy that's seen as China's second-most lucrative online retail event after Singles' Day in November each year. But Dong isn't appearing in the livestreaming studio every day, and the sessions last just a few hours.
Tensions between Dong and his colleagues at East Buy surfaced in December and ended with the firing of then-CEO Sun Dongxu. Dong subsequently left the company's official platform but founded his own personal studio, Together with Hui, which became part of East Buy.
In Dong's absence, East By's official streaming platform has lost momentum, losing more than 1 million followers in the past six months. “Together with Hui” now has about 20 million followers on short video platform Douyin, but just over 30 million on East By's streaming platform.
Dong's new livestreaming platform ranked second with sales of 533 million yuan ($73.5 million) in May, while Eastbuy's proprietary platform came in sixth, according to data from third-party performance tracking firm Feigua. Dong has never dropped out of the top three spots in the monthly rankings since the launch of its new platform, while Eastbuy has dropped from fourth place to as low as ninth at one point.
No immediate impact from instant retailers
Investors are concerned about East Buy's prospects under the new relationship and are focusing on Dong as a sales driver. While sales through Dong's new channels still contribute to the company's operating revenue, East Buy's main platform has lost both followers and sales, indicating its diminishing appeal. Meanwhile, East Buy has been keen to diversify its revenue streams, announcing plans for its own smartphone app, live streaming on Taobao marketplace, and a membership store. But so far, none of these efforts have produced any real results.
In April, East Buy revealed that it sold nearly 100 million units of its own branded products on Douyin in one month, covering more than 400 product categories. Excluding sold-out and seasonal products, East Buy's branded products cover more than 200 items. East Buy launched 61 new products in March, but earlier this year the authenticity of its premium foods, Wuchang rice and South American white shrimp were questioned. Two months later, the company defended its shrimp, but before that, the brand's reputation had taken a hit.
Eastbuy also launched an urgent delivery service within one hour in April. This one-hour delivery service covers 80% of the area within Beijing's Fifth Ring Road, and star anchors sometimes work as delivery drivers. However, the service's operating hours have been reduced from eight hours a day at the start to four to six hours. With only 120,000 followers, the service is unlikely to boost sales significantly.
Instant retail has grown rapidly over the past three years. Alibaba (BABA.US; 9988.HK), Meituan (3690.HK), JD.com (JD.US; 9618.HK) and other internet giants can also use these platforms to offer a wide variety of products, backed by well-developed supply chains, warehousing and distribution networks. By comparison, East Buy's branded products are a drop in the bucket, limiting its potential market share.
Eastby's latest price-to-earnings (P/E) ratio is about 21x. to become friends (1450.HK), signaling that the market has some confidence in East Buy's prospects. The company is clearly seeking new growth drivers, but investors will want evidence that the efforts are paying off.
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