In 2023, the turbulence brought by the capital market to the enterprise service industry will undoubtedly be an opportunity to reshuffle the cards. Only when SaaS companies are deeply involved in the industry, can they find a solution to achieve standardization and seize opportunities in waves.
Author | Sihang
Editor | Pi Ye
Produced | Industrialist
In the first half of 2023, the enterprise service industry is particularly lively in the secondary market.
On April 13, China’s first HR SaaS share was born. After submitting its listing application, “Beisen” finally successfully landed on the Hong Kong Stock Exchange; on June 19, “Jushuitan”, an e-commerce ERP SaaS service provider known as the Table Hong Kong Stock Exchange. In addition, many SaaS companies are going through the IPO process, such as Qiniuyun, Duodianshuzhi, Baiwangyun, and Huisuan.
Among the AI companies, taking advantage of the large-scale models, many companies such as Mobiz, 4Paradigm, Yunzhisheng, Shengtong Technology, and Yingsi Intelligence have also rushed to the secondary market.
Under the IPO, what is hidden is the hope and dilemma of the enterprise.
Behind all kinds of news, it corresponds to the signal of the new stage of the market. On the one hand, many SaaS companies are rushing to the secondary market under the background of the expiration of the gambling agreement. On the other hand, with the initial maturity of China's TO B market, eligible domestic SaaS companies will start the IPO process in the next two years. The Chinese enterprise service market will be reshuffled.
In addition, under the trend of AGI, many AI companies are rushing to IPO-this also leads to another question worth thinking about: whether the big model brings TOB companies opportunities in the primary and secondary markets, or the innovation of tools and competitiveness ?
Where is the industry inflection point of China's TO B enterprises? Based on the prospectuses released by Beisen, Jushuitan and AI company Yunzhisheng, industrialists will analyze the current situation of TOB companies in the IPO node and AGI from multiple indicators such as the company's profitability, customer retention rate, and R&D sales ratio In the current era, what does the large model mean to TO B enterprises?
1. Under the IPO, the hope and dilemma of SaaS companies
Recently, in the secondary market, Jushuitan and Beisen are the two most representative SaaS companies, and their IPO statuses are pending application and listed respectively. The tracks they belong to are e-commerce ERP and HCM respectively, and these tracks have a large market in China. Therefore, profitability will not be affected by the market.
For these two companies, this article will analyze several important indicators one by one from ARR, NDR, gross profit margin, LTV/CAC, R&D sales cost, customer retention rate and proportion of major customers.
Based on the standards and logic of overseas SaaS companies for various indicators, the gross profit rate of conventional SaaS companies must reach 50% to be considered qualified; the gross profit rate of excellent SaaS companies can reach about 70%. Looking at the ratio of R&D and sales, the sales ratio of conventional SaaS companies is 40%, and the ratio of R&D is 20%. In addition, the range of LTV/CAC should be 3-5. Rules such as these can be used as a standard to measure the profitability of domestic SaaS companies.
First of all, according to the prospectus of Jushuitan, its gross profit margins in the past three years were 46.2%, 50.5% and 52.3% respectively. According to the above standards, only when the gross profit rate reaches 50%, can it be considered a real SaaS company.
Jushuitan was established in 2014, and it has been seven years until 2021. Therefore, as a SaaS company with "a lot of investment in the early stage and a big return in the later stage", Jushuitan waited until the seventh year to turn losses into profits, and took the SaaS business as its main source of income.
However, judging from the losses in the past three years, the situation is not optimistic. From 2020 to 2022, the losses of Jushuitan will reach 123.9%, 58.7% and 96.9% respectively.
Behind this, sales and marketing expenses accounted for more than half. In 2020, the sales ratio will be 54%, and in 2022 it will be as high as 60.1%. From the perspective of research and development, the expenditure in the past three years accounted for 22.8%, 44.3% and 44.8% respectively. It can be seen that starting from 2021, the proportion of research and development has risen sharply, and the gross profit margin of this year has also reached the passing line of a SaaS company.
According to the standards of overseas SaaS companies, sales, R&D and administration account for 40%, 20% and 20% respectively. But in fact, this is only for the healthy development of SaaS.
In 2020, Jushuitan has a set of noteworthy data: R&D expenditure is 22.8%, and administrative expenditure is 62.2%. In terms of administration, the figures for 2020 are in stark contrast to the less than 20% in the following two years.
Jushuitan Prospectus: 2020-2022 Specific Profit Situation
Looking at marketing, there are two reasons why Jushuitan has such a high marketing expenditure.
On the one hand, according to the prospectus, the number of employees in Jushuitan is 2,947, of which 890 are in the sales team and 999 in the implementation team. From this point, it is not difficult to see the SLG (sales-driven growth) attribute of Jushuitan. In addition, Jushuitan has such a large marketing team, and its cost is also the main source of marketing. It should be known that the "sales and marketing ratio" given in the financial report also includes the expenses of marketing team personnel.
If calculated on the basis of 520 million yuan in 2022, the company's employee efficiency is only 177,000 per person. Even domestically, this is a relatively low level.
On the other hand, in order to ensure that customers migrate to the SaaS model, Jushuitan minimizes the conversion risk of users. Specifically, all costs such as system fees, development fees, maintenance fees, and implementation fees that users originally had to bear are exempted, and users do not need to purchase servers or configure network management. All are borne by Jushuitan. And this large amount of money is also included in marketing expenses.
Behind these "prices", the exchange is a higher multiple of Jushuitan LTV/CAC. The multiple given in the prospectus is 6.
Under normal circumstances, the LTV/CAC range of a SaaS company should be 3-5. Too high (greater than 5) means that marketing expenses can be increased; too low (less than 1) means serious customer loss. But the situation in Jushuitan is different. An LTV/CAC of 6 shows that the marketing effect is better and the customer retention rate is higher. But whether to increase marketing expenses depends on individual circumstances. After all, the path to SaaS is different for each company.
In addition to a high customer acquisition rate, Jushuitan also has impressive NDR and ARR.
For global SaaS companies, a higher threshold is $100 million ARR. The current ARR of Jushuitan is 615 million yuan, which is close to 100 million US dollars. In addition, in the past, the median NDR of global SaaS companies at the time of IPO was 106%. The NDR of Jushuitan in 2021 and 2022 is 122% and 105%.
It can be seen from the above indicators that the ERP SaaS made by Jushuitan does not follow the conventional route, but from another perspective, most SaaS in China do not follow the conventional route. From the development of traditional software companies to today's SaaS, for the SaaS of the e-commerce track, due to factors such as the domestic Internet ecology and the rise of e-commerce, the route chosen by Jushuitan is to provide relatively standardized SaaS for small and medium-sized enterprises. Through SLG's The method will gradually pay back the cost, although judging from the current profit situation, it is impossible to obtain ideal returns in the short term. But in the long run, if the IPO is successful, there will be more possibilities for profitability in the future, and the road will be broader.
In the past six months, another SaaS company that has attracted much attention in the capital market is none other than "Beisen", the "first domestic HR SaaS stock".
According to the Beisen prospectus, for the fiscal years ending March 31, 2019, 2020, 2021 and 2022 and the six months ending September 30, 2022, the revenue generated by Beisen’s HCM SaaS solutions will be 2 respectively. 100 million yuan, 260 million yuan, 350 million yuan, 460 million yuan and 250 million yuan, accounting for approximately 54.7%, 56.6%, 62.7%, 68.2% and 72.2% of the total revenue for each period.
In Beisen’s prospectus, all its sources of income are divided into two types: SaaS business and professional services. Among them, the professional business includes human resource management services such as local deployment and report interpretation.
Therefore, it can be seen from the proportion of its SaaS business that Beisen is indeed a pure SaaS company in China. Looking at the gross profit margins in recent years, Beisen’s gross profit margins for the fiscal years ending March 31, 2021 and 2022 and the six months ending September 30, 2022 are 66.4%, 58.9% and 54.0% respectively. . This ratio is much higher than the gross profit rate of Jushuitan.
Moreover, from the perspective of fiscal year 2021, Beisen's performance is close to that of an excellent foreign SaaS company.
In terms of customer retention, Beisen is also slightly better. According to the prospectus, as of September 30, 2022, the NDR (subscription revenue retention rate) in the past 12 months was 113%. But in terms of the number of customers, from 4,598 customers in 2021 to 4,963 customers in 2022, the increase in the number of customers is 365. In addition, as of September 30, 2022, about 80% of Beisen's customers have an expected customer life cycle of nearly five years. It can be inferred that the customer churn rate is about 20%.
There is another set of noteworthy data in the prospectus. In 2022, Beisen's ARR will reach 619 million yuan, slightly higher than Jushuitan.
Beisen prospectus: number of customers, ARR and NDR performance
According to the information disclosed in the prospectus, for the six months ended September 30, 2022, sales and marketing accounted for 50.6%, and research and development accounted for 41.3%. According to overseas standards for SaaS companies, sales and R&D should account for 40% and 20%. From this point of view, Beisen's investment in research and development accounts for a relatively large proportion, which is likely to be related to Beisen's heavy PaaS.
Overall, To B is a slow business with thick barriers. In the short term, it is still difficult for SaaS companies to make profits, but in the long run, SaaS is a "potential stock". The gross profit margin of software itself is very high, and standardized SaaS companies will become more and more profitable in the later stage.
It can be said that in the future, only "standardized" SaaS companies in the industry will have more opportunities to enter the secondary market. Because only companies that are deeply involved in the industry are more likely to be recognized by customers.
2. Is the large model an opportunity or a bubble for To B companies?
In the first half of the year, large models set off a wave of AI, and AI companies led by Mobvoi, 4Paradigm, Yunzhisheng, and Yingsi Intelligence flocked to the secondary market. Many of these companies have tried to land on the Hong Kong stock market many times. In addition, it is worth noting that these AI companies planning to go public have released large-scale model products.
On May 24, Unisound, an AI unicorn company, officially released the "Mountain and Sea Model". Subsequently, the company officially submitted a form to the Hong Kong Stock Exchange on June 27, intending to list on the main board.
According to the prospectus of Yunzhisheng, in 2020, 2021 and 2022, its revenue will be 260 million yuan, 456 million yuan and 600 million yuan respectively, with a compound annual growth rate of 51.7%; the gross profit will be 89.248 million yuan and 145 million yuan respectively. 100 million yuan and 240 million yuan, with a compound annual growth rate of 63.9%; the adjusted net losses were 210 million yuan, 172 million yuan, and 183 million yuan respectively, and the adjusted losses were narrowing.
Not only has the loss decreased, but such a high compound annual growth rate has also made this AI company more worth looking forward to. For an accelerating AI company, the R&D investment ratio is extremely important.
Starting from 2020, Yunzhisheng’s research and development expenditures in the past three years have been 189 million yuan, 188 million yuan, and 287 million yuan, respectively, accounting for 72.6%, 41.3%, and 47.8% of revenue, with a compound annual growth rate of 23.1% %.
From this set of data, it is found that in 2020, Yunzhisheng's R&D investment will reach 70%. In December of the same year, the company submitted its prospectus for the first time.
As an AI company, Unisound has long invested in large models. It is reported that shortly after the Google Transformer architecture appeared in 2017 and the BERT algorithm made a breakthrough in natural language processing in 2018, Unisound began to launch the first BERT-based large language model UniCore and related AI solutions for customers in vertical industries.
Finally, in 2023, when the big model came into the public eye, Yunzhisheng restarted its IPO again. In the past, AI companies have been troubled by difficulties in landing and unclear prospects for commercialization. Now, with the help of the big AI model, there seems to be a solution to the commercialization problem. In such an environment, many AI companies are rushing to IPO after releasing large-scale model products.
However, from an objective point of view, although the large model has given great imagination to TO B enterprises, the implementation of this kind of implementation is still progressing slowly. Feng Bo, managing partner of Changlei Capital, told the industry experts, "At present, there are no good projects for large-scale models on the B side."
In Feng Bo's view, the implementation of the current large-scale models mainly revolves around C-end applications. The reason is that the main customer base of major Internet companies is at the C-end, and their applications are more versatile and mature. However, the standardization of SaaS software on the domestic B-side is relatively low. If the large-scale model is to be commercially implemented on the B-side, it is still necessary to wait for the cognition of Party A and Party B to align.
True. The commercialization of large models on the B-side involves two issues, one is the data accumulation on the B-side; the other is the survival of To B enterprises themselves.
First of all, the landing of large models on the B side requires the professional knowledge accumulated by To B companies in a certain industry for a long time, which is also the industry know-how that is often mentioned. In addition, large models, as an underlying capability, require strong service capabilities if they are embedded in B-side applications, which requires companies to have rich industry experience. At present, the software and industry maturity of domestic To B companies still need to be improved.
The second is the survival of To B companies themselves. At present, in China, most SaaS is not just needed, and is used by small companies, and large companies rarely pay. Therefore, when the survival of the product itself is a problem, the landing of the large model on the B side is even more distant.
3. Under the two-sided attack, where is the export of the enterprise service market?
Under the two-sided attack of capital and market, where is the export of the enterprise service market?
Once the conditions are met, SaaS companies will sprint for IPO, because this is the most important exit channel for capital. But right now, SaaS companies are not only facing capital withdrawal, but also the reduction of Party A’s demand. As a management tool, SaaS is not just needed. At present, in most domestic enterprises, the degree of digitalization is still low, and SaaS solves more long-tail needs, which are more common in small and medium-sized enterprises.
Judging from the prospectuses of SaaS companies planning to go public in the first half of the year, most of them are in a state of loss. In fact, the cause of loss cannot be simply analyzed from indicators such as gross profit margin, customer churn rate, and NDR, but also depends on operational issues such as human efficiency and the "distance" between products and sales.
Taking Jushuitan as an example, according to a rough estimate in the prospectus, its human effect is 177,000 per person. And this figure is difficult to cover the cost of employment. More importantly, the sales and implementation personnel in Jushuitan accounted for more than half of the total number. Therefore, it is not difficult to detect the main reason for the loss.
Not only that, it also released another important signal. The prerequisite for SaaS companies to turn losses into profits is that product capabilities must match customer needs and resolve the contradiction between sales and products.
But a reality that has existed in SaaS companies for many years is that customization is an insurmountable "hurdle".
In Feng Bo's view, over the years, Party A's management method in China has not undergone major changes, and at this time, changes in Party B's products will not help. However, Party A's needs cannot be met by standard software, and Party B has no time to make standardized software according to Party A's needs. If things go on like this, the problem of customization is deeply rooted in SaaS enterprises.
However, through long-term observation of SaaS companies, industry experts have found that some SaaS companies that have been deeply involved in vertical industries for many years have been able to achieve standardized delivery for some customers. And these standardizations must be based on long-term roots in a certain industry, such as Beisen, such as Shangyue.
In 2023, the turbulence brought by the capital market to the enterprise service industry will undoubtedly be an opportunity to reshuffle the cards.
Recently, Fenxiang Sales, a leading CRM company, received good news of refinancing. It is reported that with the support of the investor Guiyang Venture Capital, Funshare will make new breakthroughs in the central state-owned enterprise market. These all show that SaaS companies that focus on "standardization" will definitely usher in the opportunity to make a comeback in the future.
Not only that, but the industry data accumulated on the in-depth industry side can also exert greater value under the tuyere of the large model.
The commercialization of large models on the B side requires industry knowledge and service experience, which cannot be realized overnight. Therefore, only when SaaS companies are deeply involved in the industry can they find a solution to achieve standardization and seize opportunities in waves.