Jihong Technology, a Chinese company that specializes in cross-border social e-commerce, is facing a significant downturn in its revenue. In the first half of 2024, the company’s revenue fell by 21.7% to 2.45 billion yuan, while its profit plunged by a staggering 62% to 66 million yuan. This decline can be attributed primarily to a steep drop in revenue from its core business segment – cross-border social e-commerce, which contributes more than half of Jihong’s total revenue. This segment saw a dramatic 68.3% decline in the first half of 2024, reaching 1.38 billion yuan.
Jihong’s unique business model revolves around “goods discovering people,” unlike traditional e-commerce platforms that focus on “people discovering goods.” The company leverages its expertise in understanding consumer preferences to guide buyers towards products they will want and purchase. This model relies heavily on advertising, which accounts for a considerable portion of the company’s spending. Jihong places its ads on prominent global online platforms such as TikTok, Facebook, Google, Line, Snapchat, X, and Instagram.
The decline in cross-border social e-commerce revenue can be attributed to several factors, including fierce competition within the industry, fluctuations in exchange rates for the Japanese yen and Korean won, and the impact of trade tensions between China and its Northeast Asian trading partners. Jihong’s Northeast Asia region, which includes Japan and South Korea, is its largest revenue contributor outside of China and historically generates relatively high prices per order. However, revenue from this region has been declining, prompting Jihong to expand into Europe to offset the loss.
Despite the challenges, Jihong is actively working to improve its business. The company is employing cutting-edge technologies, particularly artificial intelligence (AI), to enhance its cross-border social e-commerce application scenarios. Its upgraded AI-powered sales model aims to reduce the time customers spend finding goods and improve their overall shopping experience. Jihong is also utilizing its vast customer data to continuously refine its data analysis capabilities, train models, and optimize its systems to gain a deeper understanding of consumer behavior. This data-driven approach helps the company improve its product sign-up rate prediction abilities and refine its pricing model.
To further support its “goods discovering people” sales model, Jihong is investing significantly in advertising and marketing. The company spent 745 million yuan on advertising in the first half of 2024, generating 1.38 billion yuan in revenue from its cross-border social e-commerce business. The return on investment (ROI) for advertising is a key indicator of its effectiveness, with higher ROI reflecting more effective advertising strategies. While Jihong achieved a 191% ROI in the first quarter of 2024, this is slightly lower than the approximately 200% ROI observed in each of the previous three years.
In addition to its cross-border social e-commerce business, Jihong has also developed its own brands, which are primarily sold on e-commerce platforms and branded websites. The company currently owns six such brands, including Veimia lingerie, Senada electric bikes, Konciwa UV umbrellas, and Pettena pet accessories.
Jihong’s recent financial performance has raised concerns about its cash flow. The company’s cash reserves dropped by about 37% to 666 million yuan by the end of June, from around 1 billion yuan at the end of last year. This sharp decline within just six months may partly explain the company’s eagerness to secure new funding through its upcoming Hong Kong IPO.
