The provider of digital sales and marketing tools for fast-moving consumer goods brands is seeking to go public in Hong Kong as sales of its subscription-based services boom
- Plus Digital has filed for a Hong Kong IPO, reportedly seeking to raise about $150 million
- Subscription-based software services have emerged as the new growth driver for the company in the past few years
By Tina Yip
As the Hong Kong IPO market shows signs of revival, Plus Digital Technologies Inc. is wasting no time trying to capitalize on booming demand for subscription-based software services among retailers.
The software-as-a-service (SaaS) provider filed for a Hong Kong IPO last Thursday, joining a string of companies that have handed in applications to list in the city lately following a quiet first half. Plus Digital, which has hired Jefferies Financial Group and Guotai Junan International as co-sponsors for the offering, is reportedly aiming to raise $150 million. Plus Digital plans to use the proceeds to develop products, expand manpower and expand overseas.
Plus Digital specializes in digital sales and marketing tools for large fast-moving consumer goods (FMCG) brands. It currently has 47 clients, including more than two dozens that lead different retail sectors.
The company was founded by marketing industry veteran Sun Guangjun in 2004 as a brick-and-mortar sales and marketing agency. Years later, Sun realized that clients had difficulty finding the right “contact points,” personnel who make initial contact with customers, such as frontline sales staff, business representatives and waiters. Contact points are often key to sales, but many FMCG companies that only focused on offline channels didn’t know how to find them using Internet resources.
Sun saw an opportunity in this. The founder began transforming his company in 2012 by developing what’s called a field marketing ecology system (FMES) platform and two core digital tools named Remotes and MiJob Square. Using these products, Plus Digital clients can find contact points, who then provide services for them in return for monetary rewards.
The platform has accumulated more than 414,000 users and integrated data from more than 4 million terminal data assets, including information on sales capabilities of distributors, terminals and contact points.
And finally, Plus Digital hopped onto the SaaS train in 2019, with services encompassing a network of distributors, terminals and contact points.
The new business has grown fast, unfazed by the Covid-19 pandemic. Plus Digital’s revenue from non-SaaS digital sales and marketing services fell about 10% last year as some brands cut spending, according to the company’s IPO prospectus. By contrast, its revenue from SaaS products more than doubled to account for nearly 18% of its total revenue, compared to a little more than 8% in 2020. Such fast revenue growth suggests that demand for SaaS products among retailers is hot.
The SaaS business, which now has more than 25 clients, continued to shine in the first quarter of this year, driving a 31% increase in Plus Digital’s total revenue as the segment’s revenue share further expanded to about 20%. It helped Plus Digital’s net profit rise more than 9% last year and 22% year-on-year in the following three months.
SaaS services are not just pulling in more revenue but can also contribute to profitability gains for Plus Digital. While investment in product development cut into margins for the SaaS business, its profitability is bound to improve as its average cost decreases with the expansion of its client base. Already, the gross margin for Plus Digital’s SaaS operations increased to about 47% during the three months from about 36% last year.
But there are risks for Plus Digital. For starters, its client base is rather small, with top five customers accounting for more than two-thirds of its total revenue in the first quarter. Also, the company has a minuscule market share of less than 1%, which indicates that competition is fierce, and it can easily lose clients to rivals. Particularly, the loss of a key customer would hit Plus Digital’s revenue hard.
Moreover, increasingly strict regulations for data security can hurt the company’s business one way or another since it deals with big data, although it says its operations haven’t been affected for now.
Market performance of listed SaaS companies isn’t so inspiring either. Ming Yuan Cloud (0909.HK) and China Youzan (8083.HK) have dropped nearly 80% in the past year, while Weimob (2013.HK) has lost about 61%. Among U.S. companies, Salesforce (CRM.US), Shopify (SHOP. US) and Twilio (TWLO.US) have also fallen 27% to 79%.
Given all this and current downbeat moods in stock markets in general, investors have every reason be wary of putting their money in Plus Digital. Still, the quick progress the company has made with its new SaaS business may be noteworthy for those who are seeking a profitable business with ample growth potential.
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