Smart Share Global faces declining revenue following China’s continued lockdown

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A quick overview of Smart Share Global

Global Smart Sharing (NASDAQ:EM) went public in April 2021, raising approximately $150 million in gross proceeds from an IPO at a price of $8.50 per ADS.

The firm offers its members access at mobile device charging points in China.

Given the company’s cash flow dynamics, shrinking revenues, worsening operating losses and uncertain effects of pandemic restrictions, I’m on hold for EM in the near term.

Introducing Smart Sharing

Smart Share, based in Shanghai, China, was founded to develop a network of mobile charging stations for users in mainland China.

Management is led by co-founder, chairman and CEO Mars Guangyuan Cai, who previously served as chief executive of Uber Shanghai.

Company power banks are typically placed in:

  • entertainment centers

  • Restaurants

  • Shopping centers

  • Hotels

  • Transport hubs

  • Public spaces

The company operates a self-managed network in major cities through an internal business development team and works through network partners in smaller cities.

According to a management-commissioned report by iResearch, the company was the largest mobile device charging service provider in China, by gross revenue in 2020.

Smart Share Market and Competition

According to a recent market research report by iResearch, the mobile device charging services market was around $1.3 billion in 2020 and is expected to reach $15.4 billion by 2028.

This represents a projected CAGR of 36.2% from 2020 to 2028.

The main drivers of this expected growth are the continued growth in smartphone usage and consumer reliance on mobile apps.

In addition, the adoption of next-generation 5G technologies will broaden the use cases for mobile phones and is expected to further increase usage.

Major competitors or other industry participants by category include:

  • Internet companies

  • Payment service providers

  • Other fintech companies

  • Small local actors

Recent financial performance of emerging markets

  • Total revenue per quarter has been uneven, but has trended lower in recent quarters:

Total turnover over 5 quarters

Total revenue over 5 quarters (looking for Alpha)

  • Gross profit per quarter also tended to decline, as shown in the chart below:

Gross profit over 5 quarters

Gross profit over 5 quarters (looking for Alpha)

  • Selling, G&A expenses as a percentage of total revenue per quarter have increased over the past 5 quarters, indicating that the business has become less efficient at generating revenue:

Sales over 5 quarters, G&A % of turnover

5 Quarter Sales, G&A % Revenue (Seeking Alpha)

  • Operating profit by quarter has moved into loss-making territory over the past 3 quarters:

Operating result for the 5 quarters

5th Quarter Operating Result (Seeking Alpha)

  • Earnings per share (diluted) also remained negative during the 5 quarters ended March 31, 2022:

5 quarters of earnings per share

5 Quarter Earnings Per Share (Seeking Alpha)

Over the past 12 months, the stock price of emerging markets has fallen 78.2% compared to the US S&P 500 index falling by around 12%, as shown in the chart below :

52 week stock prices

52 week stock price (seeking alpha)

Evaluation Metrics for Smart Share

Below is a table of relevant capitalization and valuation figures for the company:

Measure

Rising

Enterprise value

-$106,620,000

Market capitalization

$297,570,000

Price/Sales (TTM)

0.54

Revenue growth rate (TTM)

4.26%

Operating cash flow (TTM)

$35,680,000

CapEx ratio

0.48

Earnings per share (fully diluted)

-$21.30

(Source – Alpha Research)

Smart Sharing Commentary

In its latest earnings call (Source – Seeking Alpha), covering the first quarter of 2022 results, management highlighted the challenges facing the business due to an ongoing outbreak of COVID-19 in regions that affected its usage. of the network.

This resulted in a reduction in comparable store revenue of 35% year over year.

However, the number of registered users continued to grow, reaching 299 million at the end of the quarter, representing an impressive 25% year-over-year growth.

Notably, management continues to focus on expanding coverage, especially in upper-tier cities, while reducing its incentive fee rates for new listings.

The company is strengthening its channel partner acquisition approach, now with more than 1,300 channel partners across China, which grew 180% year-over-year.

Regarding its financial results, total revenue fell 13% year-over-year, while cost of revenue increased 2.4%.

Sales and marketing expenses were down just 0.3% due to lower user acquisition incentive fees paid to location partners.

Operating losses reached their worst performance in the last 5 quarters, as the company has significant fixed costs against declining revenues.

For the balance sheet, the company ended the quarter with cash and cash equivalents of $151 million, but free cash usage during the quarter was $38.6 million.

At this rate, the company will have to quickly reduce its capital expenditures unless it has access to significant lines of credit.

On valuation, the market has severely punished emerging markets for their patchy and now declining results, as the company continues to invest in expanding its network and continuing to grow despite rising prices. operating losses.

The main risk to the company’s outlook is its declining cash position relative to its capital expenditures.

It looks like something will have to give, although the company may face better terms as major lockdowns ease in some regions.

However, these conditions are very fluid, with fears of further lockdowns in Shanghai and other regions growing.

Given the company’s cash flow dynamics, shrinking revenues, worsening operating losses and uncertain effects of pandemic restrictions, I’m on hold for EM in the near term.