Metaverse Startup Circulates On Hong Kong Cloud Listings, Flat R&D Investment Raises Concerns – Pandaily

AR and VR service provider Flowing Cloud was officially listed on the Hong Kong Stock Exchange on October 18 as the first metaverse-linked stock, with an opening price of HK$2.21 ($0.28) per share, equal to the issue price. However, the shares then fell 2.36% to HK$2.07 on October 19, giving a total market value of around HK$3.747 billion.

The Flowing Cloud flyer is quite striking, mentioning “metaverse” more than 300 times. Founded in 2008, Zhangzhong Feitian Technology, the predecessor of Flowing Cloud, was listed on the National Equities Exchange and Quotation (NEEQ) in 2017. It was aimed at the mobile gaming market, then gradually moved into AR and VR, retiring from NEEQ. in 2019. In 2021, when the metaverse concept suddenly became a hit, the company built a new platform and in November changed its name to Flowing Cloud, announcing its strategic disposition in the metaverse space.

AR and VR devices, as front-end entries to the metaverse, are once again full of potential. Flowing Cloud said in its prospectus that augmented reality and virtual reality are the key applications to achieve and enhance the immersive experience of the metaverse, and they are the prerequisites and entry thresholds for its development phase.

Therefore, AR and VR marketing services have become the biggest source of revenue 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 a total market share of 2.6% in 2021.

From 2019 to 2021, its AR/VR marketing services business achieved revenue of 137 million yuan ($18.9 million), 142 million yuan and 376 million yuan respectively, accounting for 54.6%, 41 .9% and 63.2% of its current income. In addition, the AR/VR content business achieved 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 shows that from 2019 to 2021, Flowing Cloud’s revenue was 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, up 316% year-on-year, including gross profit margin from AR/VR content production business reached 55.3%.
Its impressive performance has attracted several key investors for Flowing Cloud. Through its recent listing, Flowing Cloud has introduced leading investors such as Anji State-Owned Assets Management, Qicai Lingfeng, and SenseTime. The three parties subscribed to Flowing Cloud’s stock offering of approximately 167 million yuan in total.

However, sluggish R&D investment that does not match revenue growth has challenged Flow Cloud. In 2019, 2020, 2021 and the first quarter of this year, Flowing Cloud’s R&D expenditure was 11.425 million yuan, 15.046 million yuan, 21.703 million yuan and 8.152 million yuan respectively, only 4.6% , 4.4%, 3.6% and 3.6%. % of total revenue over the same period, showing a downward trend.

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In its prospectus, the company stated that underlying technology is its core competency, and in the past the company has outsourced the development of non-core technologies and interactive content modules to third parties. Its R&D team has 59 full-time employees, including 28 engineers and 21 designers, or approximately 43.1% of all employees.

Although Flowing Cloud appears to be geared squarely in the metaverse realm after a name change, many have doubted the extent to which the metaverse represents its core business. Investors noticed 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.