Flowing Cloud, an AR and VR service provider, is officially listed on the Hong Kong Stock Exchange On October 18 as the first metaverse-related stock, at an opening price of HK$2.21 (US$0.28) per share, equal to the issue price. However, the shares saw a 2.36% drop to HK$2.07 on Oct. 19, resulting in a total market value of about HK$3.747 billion.
The Flowing Cloud’s post is rather striking, referring to the “metaverse” more than 300 times. Founded in 2008, Zhangzhong Feitian Technology, the predecessor of Flowing Cloud, was listed on the National Equity and Quotation Exchange (NEEQ) in 2017. It was targeting the mobile game market, then gradually switched to AR and VR, and withdrew from NEEQ in 2019. In 2021, when the metaverse concept suddenly became successful, the company built a new platform and in November changed its name to Flowing Cloud, announcing its strategic planning in the metaverse space.
AR and VR devices, as front entrances to the metaverse, are once again full of possibilities. Flowing Cloud stated in the prospectus that AR and VR are the main applications for achieving and enabling the immersive experience of the metaverse, and that they represent the prerequisites and entry thresholds for the development stage.
Therefore, augmented reality and virtual reality marketing services have become the most important source of income for Flowing Cloud. According to data from iiMedia Research, Flowing Cloud ranks first in the AR/VR content and services market in terms of revenue, accounting for 2.6% of the total market share in 2021.
From 2019 to 2021, the AR/VR marketing services business generated revenue of 137 million yuan (18.9 million US dollars), 142 million yuan and 376 million yuan, respectively, accounting for 54.6%, 41.9% and 63.2% of its current revenue. . In addition, the AR / VR content business generated revenue of 45 million yuan, 115 million yuan and 161 million yuan, accounting for 18.1%, 33.9% and 27.1% of current revenue. In addition to the above business, the company also provides AR/VR SaaS and IP business.
Financial data show that from 2019 to 2021, Flowing Cloud’s revenue reached 250 million yuan, 339 million yuan and 595 million yuan, respectively, and its net profit increased year on year. In the first quarter of 2022, the company’s net profit was 40.2 million yuan, an increase of 316% year on year, and the gross profit margin of the AR/VR content production business was 55.3%.
Its impressive performance has attracted several major investors to Flowing Cloud. With its recent listing, Flowing Cloud has introduced core investors such as Anji State Owned Assets Management, Qicai Lingfeng and SenseTime. The three parties subscribed to the offering stakes in Flowing Cloud of about 167 million yuan in total.
However, stagnating R&D investment out of proportion to income growth has raised questions about Flowing Cloud. In 2019, 2020, 2021 and the first quarter of this year, Flowing Cloud’s R&D expenditures were 11.425 million yuan, 15.046 million yuan, 21.703 million yuan and 8.152 million yuan, respectively, accounting for 4.6%, 4.4%, 3.6% and 3.6 Just. Percentage of total revenue in the same period, showing a decreasing trend.
The company stated in the prospectus that core technology is its core competency, and in the past, the company has subcontracted the development of non-core technology and interactive content modules to third parties. Its R&D team has 59 full-time employees, including 28 engineers and 21 designers, which is about 43.1% of all employees.
Although Flowing Cloud appears to be oriented squarely within the metaverse after the name change, many have questioned how well the metaverse represents its core business. Investors noted many expectations and goals rather than real achievements in the company’s prospectus. Thus, there is still a long way to go from concept to application.