Shulou(Shulou.com)06/02 Report--

2020 is very difficult, industry is difficult, advertising is especially difficult.

On April 15, focus Media released a forecast for the first quarter of 2020, with an estimated first-quarter net profit of 28 million yuan to 42 million yuan, down 87.66 percent from a year earlier.

Net profit fell by more than 80% compared with the same period last year, which is obviously a far cry from the image of focus Media as a "profit harvester". We should know that the net profit of focus Media in its revenue of 10 billion yuan can reach more than 40%, and the net profit margin is often higher than 40%. It can be said to be a proper "profit harvester" in the capital market.

But today is different from the past, focus Media is facing a very grim situation. On the one hand, cyclical fluctuations in the industry, coupled with increased competition in the industry, have made focus even more "beleaguered", making life difficult; on the other hand, the economic downturn and the current menacing COVID-19 epidemic have also lost the money that was easy to earn before.

Revenue and profit plummeted, focus fell off the altar

As a matter of fact, the challenges facing focus are already on the horizon. In the past three years, focus's revenue and net profit experienced "roller coaster" fluctuations and began to dive and sink.

First, revenue is down. According to the 2017-2019 earnings data disclosed by focus Media, focus Media's revenue growth from 2017 to 2018 maintained a year-on-year growth rate of 17.7% and 21.12%, but by 2019, revenue growth slowed directly to a year-on-year growth rate of 16.6%. From growth to decline, focus Media's revenue slipped out of a downward curve from "reaching the top" to "sinking".

At the same time, there are also profits, and the pace of profit diving has accelerated in recent years. According to the results previously released by focus Media, the profit of focus Media in 2017 maintained a year-on-year growth rate of 34.94% and nearly 35%, with a net profit of 6 billion of the total revenue of 12 billion, with a net profit margin of 50%. However, by 2018, focus Media's profit fell 2.9%, plunged 67.8% directly in 2019, and its profit margin was cut off by 2/3.

Net profit also fell from 6 billion to 1.875 billion. Focus Media, which had previously been called a "profit harvester" because of its high profits, has gradually fallen to the altar.

Focus's ability to achieve such a high gross margin has something to do with its monopoly in electronic screen advertising. As focus entered the field of echelon advertising early, it has laid a solid foundation in the industry a long time ago and has the vast majority of market share in the field of echelon advertising.

However, the popularity of ladder advertising has attracted a lot of coveters, some in the industry and some in the external media.

Between Scylla and Charybdis

According to relevant data, as of June 2016, focus has 190000 elevator media resources nationwide, accounting for more than 95% of the elevator media market share. Such a large market share gives focus Media an advantage in the echelon advertising market.

On the one hand, focus Media can make use of its monopoly position to enhance its bargaining power to its customers. One company is dominant, the bargaining power is super, and the sales ability is naturally good, which fundamentally increases the overall performance of focus and improves its overall profit margin.

On the other hand, big customers will choose to hand over the advertising to your family, and there is no need to find others. After all, you are the boss of the industry. For example, some of the big Internet companies we are familiar with in the industry have carried out "brainwashing" advertising with the help of focus. Platforms such as Didi, Guazi and Renche from afar, and the early promotion and marketing of well-known Internet companies such as Luckin Coffee and boss were once planned by focus Media.

Elevator media used to be the world of focus media, but now this situation is changing. at present, as trendy media cuts into the elevator media market, focus's market share is declining. specifically, it mainly reflects that focus has been in a strategic defensive position in the competition for electronic screen media.

From the business model of ladder advertising, the screen size is of great significance to the elevator media company. The ground push team of the echelon media enterprise lays out the advertising screen in the residential area and office building to pay the rent, while the sales team focuses on the B-end enterprise resources, and the enterprise puts the advertisement on the electronic screen to obtain advertising revenue.

At present, focus Media has a greater advantage over newcomers in terms of the number of elevator media screens, but the development speed of the latter is far faster than that of the former.

According to relevant data, the number of screens of focus Media increased by only 7.3% in the first half of 2019 compared with the number of screens at the end of 2018, while New Fashion Media had only 70, 000 "screens + posters" in September 2017. by the first half of 2019, it had reached 700000, an increase of more than nine times in two years, with an annual compound growth rate of 216.22%, equivalent to 108.11% growth of Fashion Media in the past few years, which is significantly faster than the growth rate of focus Media.

Obviously, under the latter's strong attack, focus obviously can't bear it. In the relevant announcement of this disclosure, focus disclosed that the decline in profits was affected by the surge in costs caused by the increase in the number of new electronic screens in 2019. It is understood that the fierce competition among electronic screen manufacturers has led to a "rising tide and a rising boat" in electronic screen rentals. In addition, electronic screen operation and maintenance costs have also skyrocketed because of the launch of new screens, which constitute a reason for its profit decline.

In addition, the new Internet media "grabbing food" is also very obvious. Open media, represented by new media such as Douyin, Kuaishou and live streaming, are developing rapidly because of their obvious advantages such as strong openness, good audience interaction experience and controllable communication effect. quickly grab the market share of echelon advertising represented by focus.

On the one hand, trendy media and other peers are "pressing" step by step, going straight into the screen media hinterland of focus Media; on the other hand, new media such as short videos are scrambling for food, which makes focus Media face the dilemma of "being attacked".

Of course, this is only part of the reason for the decline in focus Media's performance.

The weakness of the advertising industry has affected focus

In its 2019 annual report, focus Media mentioned that due to the macroeconomic impact, China's advertising market demand was weak in 2019 and the industry was not booming. In the customer structure of the company, the Internet advertising mainly reduced the advertising budget due to the market financing environment and other reasons, and the sharp reduction of advertising revenue in the Internet industry constituted the main reason for the decline of the company's operating income during the reporting period.

According to the entire domestic advertising market, in addition to emerging media such as Douyin and Kuaishou, which saw an increase in advertising revenue last year, Internet advertising giants such as Tencent, Baidu and Weibo have all been affected, and focus Media, which focuses on advertising, will naturally be more affected.

Relevant data show that Baidu, which has always been a major advertising company, its advertising revenue fell 5% last year; Sina was not immune, advertising revenue fell 3% compared with the same period last year; Tencent's performance is also poor, advertising growth has been declining.

Combined with the traditional advertisers of focus Media, used car platforms such as Guazi and Renren are facing an industry recession, generally sluggish growth, shrinking profits or even losses, and many Internet companies lay off staff to survive. When the development is not going well and the growth of the company is weak, many companies will first stop the corresponding advertising before layoffs in order to reduce costs.

In addition, there is another "sequela" of the industry recession, that is, the pressure to return money is high. Due to the operating refund pressure of some focus advertisers, the account structure of focus Media has also deteriorated and the risk has increased, resulting in a corresponding increase in bad debt losses and provisions used by focus Media.

Under such circumstances, it is not difficult to understand the shrinking income of the affected focus. But what makes focus even more distressing is the menacing COVID-19 epidemic, which has also affected the orders of many traditional corporate customers.

In the 2019 annual report, focus once disclosed that due to the increasing recognition of traditional companies to the value of corporate advertising and the increase in the contribution of traditional customers' revenue, the decline in revenue in the second half of 2019 improved, but now the COVID-19 epidemic has broken it all.

COVID-19 's difficult Survival under the Black Swan

Focus Media mentioned in its quarterly financial report that COVID-19 's epidemic had a direct impact on its performance, which made the already struggling focus Media even worse and its situation more difficult. Specifically, it can be summarized as the following two aspects.

First of all, affected by the COVID-19 epidemic, the domestic advertising market demand dropped significantly compared with the same period last year, resulting in a decrease in the company's operating income compared with the same period last year. Affected by the epidemic this year, many industries in China have been affected. Tens of thousands of enterprises have closed down and went bankrupt in the epidemic, while traditional industries have been even more affected by stimulus. Focus will naturally be affected.

Secondly, during the domestic shutdown period, advertising was affected. In view of the relatively stringent epidemic prevention and control measures implemented throughout the country, cinemas were closed during the reporting period (which has not yet been resumed), and closed management was adopted in some cities, communities and roads (which has been restored), resulting in restrictions on the normal release of advertisements by the company in some cities and regions.

Focus Media's business is mainly divided into two parts according to the place, one is elevator media advertising, the other is cinema media advertising. Affected by the epidemic, in densely populated places such as cinemas, cinemas are closed early, so the cinema media business, which lives in cinemas, is naturally the most direct impact. ladder media is not much better. Many people affected by the epidemic in the first two months of 2020 are working at home, office buildings are closed, travel control is under control, residential buildings are also affected, the flow of people in cities is sharply reduced, and advertising is naturally limited.

Although the current domestic epidemic situation has been gradually alleviated, the domestic resumption of work and production has been gradually promoted, and the building media advertising market has gradually picked up, focus's cinema advertising business will still be greatly affected for the time being. This means that focus Media's profit decline this quarter may be just the beginning, and focus Media still needs to be prepared for long-term difficult survival for quite a long time in the future.

(official account of Liu Kuang / tr. by Phil Newell) ID:liukuang110

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