Plummeting Stock Prices: Erosion of Market Confidence
From August 28, 2023, to January 31, 2024, Dongfang Zhenxuan's stock price experienced a precipitous 50% decline, wiping out nearly half its market value. This downward spiral has raised significant concerns about the company's future prospects. The sustained drop not only reflects shifting investor sentiment but directly impacts the firm's financing capabilities and brand reputation.
Revenue Growth Without Profit: The Hidden Costs of Expansion
The company's latest financial report reveals a 34.4% year-over-year revenue increase to 2.795 billion yuan ($390 million), while net profits attributable to shareholders plunged 57.4% to just 249 million yuan ($35 million). This "revenue without profit" phenomenon exposes the profitability challenges facing Dongfang Zhenxuan amid rapid expansion, signaling potential risks to enterprise value.
Management attributes the profit decline to rising costs for self-operated product inventories and transportation, increased payroll expenses for expanded product selection and livestream operations, plus significant expenditures for developing and maintaining its proprietary app.
Strategic Pivot: From Platform Dependency to Ecosystem Building
Initially rising to prominence through Douyin's livestream e-commerce platform, Dongfang Zhenxuan has sought greater autonomy by developing its own application to cultivate private traffic pools. However, the substantial technical and financial requirements for app maintenance have exacerbated cost pressures. Current evidence suggests these self-owned platform expenses are gradually depleting company assets.
Content Controversies and Compensation Adjustments: The Price of Talent Strategy
Following the "micro-essay" incident involving popular host Dong Yuhui, the company restructured its compensation system, increasing payouts to top talent by approximately 170%. While this move helps retain key personnel, it further squeezes profit margins, with talent investments unlikely to yield immediate financial returns.
Yu Minhong's Rescue Operation: Confidence or Gamble?
In response to the stock slump, founder Yu Minhong announced plans to purchase 700 million Hong Kong dollars ($90 million) worth of shares through New Oriental and personal investments. This bold move signals management confidence but fails to address core profitability issues inherent in the livestream e-commerce sector.
Yu has publicly rejected scaling back operations or cost-cutting measures, framing current volatility as beneficial for long-term development. Market reception to this unconventional approach remains uncertain.
Path Forward: Scale, Traffic and Innovation
Breaking the revenue-profit paradox requires expanding sales volume to offset rising labor and compensation costs while developing new growth avenues. The company has successfully diversified its influencer portfolio with new IPs like "Journey With Hui," but faces persistent challenges in traffic conversion and sales bottlenecks.
Despite growing private traffic on its proprietary app, monetization remains problematic. Developing breakout products, sustaining growth, and fostering innovation present critical challenges as the company navigates expansion without losing strategic focus.
Expert Analysis: The Road Ahead
Dongfang Zhenxuan's transformation journey presents both challenges and opportunities as it evolves from platform dependency to ecosystem building and from single-influencer reliance to diversified IP matrices. While Yu's massive share purchase provides temporary stability, lasting success depends on strategic execution, operational efficiency, and innovation capacity.
Key priorities include:
Precision Operations: Optimizing cost structures and improving efficiency
Product Innovation: Developing competitive proprietary offerings
Traffic Conversion: Enhancing user engagement and repeat purchases
Diversification: Reducing reliance on livestream sales through new business models
Breakthroughs in these areas will determine whether the company achieves sustainable development or whether Yu's $90 million gamble proves merely a stopgap measure.