F-1/A: Boqii Holding Reports Reduced Losses Amid Revenue Decline and Strategic Shift Towards Profitability

Boqii Holding Limited, a leading pet-focused platform in China, announced a decrease in net loss and operating loss for the first half of fiscal 2025, despite a significant decline in total revenues, as the company focuses on profitability and efficiency.

Summary

• Boqii Holding Limited reported total revenues of RMB249.7 million (US$35.6 million) for the first half of fiscal 2025, a decrease from RMB389.4 million in the first half of fiscal 2024, attributed to a business strategy shift towards profitability over sales volume.
• The company's net loss decreased by 21.6% to RMB29.6 million (US$4.2 million) for the first half of fiscal 2025, down from RMB37.7 million in the prior-year period.
• Operating loss for the first half of fiscal 2025 was RMB27.0 million (US$3.9 million), a 14.7% decrease from RMB31.7 million in the first half of fiscal 2024.
• EBITDA loss improved by 25.4% to RMB25.0 million (US$3.6 million) in the first half of fiscal 2025, compared to a loss of RMB33.5 million in the first half of fiscal 2024.
• Gross merchandise volume (GMV) for the first half of fiscal 2025 was RMB538.2 million (US$76.7 million), a decrease from RMB903.0 million in the first half of fiscal 2024.
• Gross margin increased by 70 basis points to 20.7% for the first half of fiscal 2025, up from 20.0% in the first half of fiscal 2024, primarily due to an increase in higher-margin service revenues.
• Fulfillment expenses decreased by 46.0% to RMB18.6 million (US$2.7 million) for the first half of fiscal 2025, representing 7.5% of total revenues, down from 8.9% in the prior-year period, due to increased utilization of fulfillment centers.
• Sales and marketing expenses decreased by 21.3% to RMB35.8 million (US$5.1 million) for the first half of fiscal 2025, driven by cost-saving efforts, reduced third-party commissions, and employee layoffs.
• General and administrative expenses decreased by 22.5% to RMB24.9 million (US$3.6 million) for the first half of fiscal 2025, due to lower professional fees, a decrease in allowance for expected credit losses, and staff cost reductions.
• The company's private label SKUs increased from 3,088 in H1 fiscal 2024 to 3,546 in H1 fiscal 2025, with their revenue share rising from 27.5% to 29.0%, and gross margin improving from 29.9% to 33.2%.
• Boqii operates a leading pet-focused online retail business in China, connecting 766 brand partners with pet parents and offering approximately 19,946 SKUs as of September 30, 2024.
• The company delivered approximately 29.2 million orders to users and customers during the three years ended March 31, 2024, and the six months ended September 30, 2024.
• Active buyers were approximately 5.3 million for the year ended March 31, 2024, and 2.0 million for the six months ended September 30, 2024.
• The company maintains a dual-class share structure, with Class B ordinary shares holding 20 votes per share compared to one vote for Class A ordinary shares, giving significant control to founders Mr. Hao (Louis) Liang and Ms. Yingzhi (Lisa) Tang.
• The company has a history of net losses and has identified material weaknesses in its internal control over financial reporting, including a lack of sufficient and competent financial reporting personnel and inadequate financial closing policies and loan approval processes.

Sentiment

Score: 4

Explanation: The sentiment is cautiously negative. While the company has shown improvements in reducing net loss and operating expenses, and has a positive outlook on its private labels and strategic shifts, the significant decline in total revenues and GMV indicates a contraction in business scale. The continued net losses and identified material weaknesses in internal controls also contribute to a negative financial health assessment, despite management's positive framing of efficiency gains.

Positives

• Net loss decreased by 21.6% to RMB29.6 million (US$4.2 million) for the first half of fiscal 2025, indicating improved financial efficiency.
• Operating loss decreased by 14.7% to RMB27.0 million (US$3.9 million) for the first half of fiscal 2025.
• EBITDA loss decreased by 25.4% to RMB25.0 million (US$3.6 million) for the first half of fiscal 2025, reflecting better operational performance before non-cash items.
• Gross margin increased by 70 basis points to 20.7% for the first half of fiscal 2025, driven by a strategic shift towards higher-margin service revenues.
• Private label products are showing strong performance, with SKUs increasing from 3,088 to 3,546, revenue share growing from 27.5% to 29.0%, and gross margin rising by 330 basis points to 33.2%.
• Significant reductions in operating expenses: fulfillment expenses decreased by 46.0%, sales and marketing expenses by 21.3%, and general and administrative expenses by 22.5%, demonstrating effective cost-saving measures and efficiency enhancements.
• The company has a large pet-focused online community in China and a broad selection of products (19,946 SKUs from 588 brands) and an expanding offline network (over 15,000 physical pet stores and hospitals).

Negatives

• Total revenues decreased significantly by 35.9% to RMB249.7 million (US$35.6 million) for the first half of fiscal 2025, indicating a substantial decline in sales volume.
• The company continues to incur net losses, with RMB29.6 million (US$4.2 million) in net loss for the first half of fiscal 2025, and a history of net losses in previous fiscal years (RMB106.0 million in FY2023, RMB68.9 million in FY2024).
• Total GMV decreased from RMB903.0 million to RMB538.2 million in the first half of fiscal 2025, reflecting reduced transaction volume.
• The company has a limited operating history across various business initiatives, making future growth rate evaluation difficult.
• Working capital constraints have historically limited, and may continue to limit, the company's ability to grow revenues, especially for emerging brands requiring larger inventory investments.
• The company has identified material weaknesses in its internal control over financial reporting as of March 31, 2024, including a lack of sufficient and competent financial reporting personnel and inadequate financial closing policies and loan approval processes.
• The company relies heavily on third-party e-commerce platforms, which may pose risks if relationships deteriorate or terms become unfavorable.

Risks

• Limited operating history across various business initiatives makes it difficult to evaluate business prospects and future growth rate.
• History of net losses and uncertainty of achieving profitability or continuing as a going concern in the future.
• Inability to diversify monetization channels may materially and adversely affect business and prospects.
• Business, prospects, and financial results may be affected by relationships with third-party e-commerce platforms.
• Business is subject to changing preferences and needs of customers and their pets; failure to adapt offerings may adversely affect results.
• Failure to acquire and retain new customers, or to do so cost-effectively, may materially and adversely affect business.
• Any change, disruption, or discontinuity in major social networks could severely limit customer base growth.
• Funds in PRC/Hong Kong entities may not be available for use outside due to government restrictions on cash transfers.
• Harm to brand or failure to maintain/enhance brand recognition may materially and adversely affect business.
• Significant legal and operational risks associated with having substantially all operations in China, including uncertainties in the PRC legal system.
• Risk that the Chinese government may intervene or influence operations, or exert more control over overseas offerings and foreign investment in China-based issuers, potentially causing securities value to decline or become worthless.
• Permission and approval from CSRC or other PRC government authorities may be required for offshore offerings, and obtaining such approval is uncertain.
• Operating in a relatively new and evolving market (China's pet industry) with potential for slower-than-expected growth.
• Intense competition in China's pet industry, potentially leading to loss of customers and market share.
• Inability to manage and expand relationships with brand partners or cooperate on favorable terms.
• Private label products may not always appeal to customers and may compete with brand partners.
• Reliance on outsourced manufacturing for private label products exposes the company to supply chain disruptions and quality issues.
• Failure to maintain product quality and safety, or significant merchandise returns, could harm reputation and financials.
• Lack of product liability insurance exposes the company to claims if products cause injury or illness.
• Inability to manage business growth or execute strategies effectively could materially and adversely affect prospects.
• Diversifying product offerings (e.g., veterinary drugs) may expose the company to new risks and regulatory requirements.
• Failure to maintain relationships with content creators, especially KOLs, or their inability to produce popular content, could harm user attraction and revenues.
• Changes, disruptions, or discontinuities in major social networks could limit customer base growth.
• Potential liability for false or misleading statements/advice given by KOLs on the online community.
• Negative media coverage could adversely affect business and reputation.
• Counterfeit, unauthorized, or infringing products sold on the platform could damage reputation and business.
• Relationships with offline pet stores may deteriorate or be terminated, affecting business and financials.
• Failure to successfully optimize, operate, and manage the fulfillment network could lead to increased costs and capacity issues.
• Changes or disruptions to delivery arrangements could adversely affect business.
• Results of operations are subject to fluctuations due to seasonality and other events (e.g., e-commerce festivals, Chinese New Year).
• SaaS solutions may not be attractive to offline pet stores and bring additional business/operational risks.
• Reliance on third-party payment service providers; restrictions or unavailability could adversely affect business.
• Disruption to IT systems could materially affect platform performance and service delivery.
• Inability to provide a cost-effective platform that adapts to rapid changes in technology could adversely affect business.
• Subject to liability for placing advertisements with inappropriate or misleading content under PRC laws.
• Improper collection, storage, use, or disclosure of data could harm reputation and business.
• Failure to protect confidential information and network against security breaches could damage reputation.
• Investments in or acquisitions of complementary assets/businesses may fail and result in dilution or adverse financial effects.
• Need for additional capital, which may not be available on acceptable terms or at all.
• Failure of banks where funds are deposited could have an adverse effect.
• Disruption in financial markets and economic conditions could affect ability to raise capital.
• Dependence on continuing efforts of senior management; loss could severely disrupt business.
• Employee or other business misconduct could expose the company to monetary loss, legal liability, and reputational harm.
• Failure to make adequate contributions to employee benefit plans and withhold individual income tax as required by PRC regulations may subject the company to penalties.
• Non-compliance with labor-related laws and regulations of the PRC may have an adverse impact.
• Limited insurance coverage could expose the company to significant costs and business disruption.
• Uncertainties regarding the interpretation and implementation of the newly enacted Foreign Investment Law and its impact on the VIE structure.
• Reliance on contractual arrangements with VIEs may not be as effective as direct ownership in providing operational control.
• Failure by VIEs or their shareholders to perform obligations under contractual arrangements would have a material adverse effect.
• Contractual arrangements are governed by PRC law, and uncertainties in the PRC legal system could limit enforceability.
• Shareholders of VIEs may have actual or potential conflicts of interest with the company.
• Contractual arrangements may be subject to scrutiny by PRC tax authorities, potentially leading to additional taxes.
• Loss of ability to use licenses, approvals, and assets held by VIEs could severely disrupt business.
• Changes in China's economic, political, or social conditions or government policies could have a material adverse effect.
• Business, financial condition, and results of operations depend on consumer confidence and spending in China and may be adversely affected by economic downturns.
• Difficulties in effecting service of legal process, enforcing foreign judgments, or bringing actions in China against the company or its management.
• Reliance on dividends and other distributions from PRC subsidiaries to fund cash requirements; limitations on ability to make payments could have a material adverse effect.
• Fluctuations in exchange rates could have a material and adverse effect on results of operations and investment value.
• Governmental control of currency conversion may limit ability to utilize revenues effectively.
• PRC regulations may make it more difficult to pursue growth through acquisitions.
• PRC regulation of loans to and direct investment in PRC entities by offshore holding companies may delay funding and expansion.
• PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject beneficial owners or subsidiaries to liability or penalties.
• Failure to comply with PRC regulations regarding registration requirements for employee stock incentive plans may subject participants or the company to fines.
• Classification as a PRC resident enterprise for PRC enterprise income tax purposes could result in unfavorable tax consequences.
• Uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by non-PRC holding companies.
• Trading in securities will be prohibited under the HFCAA if PCAOB cannot inspect auditor, potentially leading to delisting.
• Changes in U.S. and international policies, particularly with regard to China, may adversely impact business.
• Trading price of ADSs is likely to be volatile, which could result in substantial losses.
• Dual-class share structure with different voting rights limits influence on corporate matters and could discourage change of control transactions.
• Future issuances of Class B ordinary shares could result in dilution to existing Class A holders.
• Dual-class structure may adversely affect the trading market for ADSs (e.g., exclusion from indices).
• If securities or industry analysts do not publish research or adversely change recommendations, market price and trading volume could decline.
• Sale or availability for sale of substantial amounts of ADSs could adversely affect market price.
• Techniques employed by short sellers may drive down the market price of ADSs.
• Because the company will not pay dividends in the foreseeable future, investors must rely on price appreciation for return.
• Difficulties in protecting interests and limited ability to protect rights through U.S. courts due to Cayman Islands incorporation.
• Certain judgments obtained against the company by shareholders may not be enforceable.
• ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement.
• As an emerging growth company, the company may take advantage of certain reduced reporting requirements.
• As a foreign private issuer, the company is exempt from certain provisions applicable to U.S. domestic public companies, potentially affording less protection to shareholders.
• PFIC status for the year ended March 31, 2024, is uncertain, and there is a significant risk of being a PFIC in the future, which could result in adverse U.S. federal income tax consequences.

Future Outlook

Boqii plans to continue investing in growing content, improving user experiences, and enriching its pet-focused ecosystem. The company foresees a revolution in pet retail and services in China, driven by a seamless convergence of diversified brands and service providers, both online and offline, to deliver targeted user experiences. Boqii believes it is uniquely positioned to drive this revolution for pet parents and businesses in China. The company intends to keep any future earnings to finance business expansion and does not anticipate paying cash dividends in the foreseeable future.

Management Comments

• Mr. Hao Liang, Boqii's Founder, Chairman and Chief Executive Officer commented, 'Despite persistently pessimistic social expectations and increasingly weak consumption in the first half of fiscal 2025, we have demonstrated our resilience. Our private labels are riding a wave of thriving development, showing the effectiveness of our strategic focus on that area. The number of SKUs for our private labels has increased from 3,088 in the first half of fiscal 2024 to 3,546 in the first half of fiscal 2025, the revenue share of our private labels increased from 27.5% to 29.0%, and we also saw the gross margin of our private labels rose by 330 basis points from 29.9% to 33.2%. This gives us a strong foundation and we remain energized for the future.'
• Ms. Yingzhi (Lisa) Tang, Boqii's Co-Founder, Co-CEO and CFO commented, 'Besides fostering the progress of our private labels, we have implemented cost-saving measures and enhanced efficiency by optimizing our supply chain operations and simplifying our organizational hierarchy in the first half of fiscal 2025. The implementation of these measures has resulted in a reduction of our fulfillment expenses as a percentage of total revenue, from 8.9% in the first half of fiscal 2024 to 7.5% in the first half of fiscal 2025. This reduction has underpinned a positive shift in our post-fulfillment profit margin, which saw an increase from 11.2% to 13.3%. Furthermore, there has been a notable decrease in our sales and marketing expenses by 21.3% and our general and administrative expenses by 22.5%, when compared to the corresponding period in fiscal 2024. These adjustments have collectively contributed to a 21.6% decrease in our net loss. We believe the strengthening of our financial results affirms that our business approach and strategic initiatives are effectively aligned with our goals, and we are committed to generating ongoing value for our consumers and investors alike in the time ahead.'

Industry Context

Boqii operates in China's pet industry, which is described as relatively new, evolving, and affected by factors like consumption upgrades, urbanization, and demographic shifts (rising no-kid families, aging population). The company aims to capitalize on the 'pet humanization' trend. The industry is highly competitive, with competition from online and physical retail stores, supermarkets, and general e-commerce platforms. Boqii differentiates itself through its pet-focused platform, content-driven model, diverse product offerings, and personalized customer service. The company's strategic shift towards profitability and private labels aligns with a maturing market where efficiency and higher-margin products become crucial.

Comparison to Industry Standards

• Boqii is identified as a leading pet-focused platform in China in terms of revenue (in 2019) and number of customers (as of December 31, 2019), according to Frost & Sullivan.
• The company operates a leading pet-focused online retail business in China in terms of GMV.
• Boqii's mobile app, Boqii Pet, was the largest pet-focused online community in China in terms of registered users in 2019 and average MAUs in the nine months ended December 31, 2019, according to Frost & Sullivan.
• The company's investment in PetDog (23.6% equity) is noted because PetDog is the largest pet store franchise and largest training center for pet service professionals in China (as of 2019), according to Frost & Sullivan.

Corporate Governance

Legal Proceedings

• The company was fined RMB100,000 by Shanghai Internet Information Office in December 2021 for publishing and transmitting illegal information on its Boqii Pet APP.
• The company was fined RMB5,000 by the Shanghai Pudong New Area Market Supervision Administration in May 2023 for failing to update its system promptly upon receiving customer requests to unsubscribe, resulting in re-sending commercial information.

Related Party Transactions

• From April 2023 to December 2023, the company purchased goods totaling approximately RMB3.89 million (US$0.54 million) from Jiangsu Nanjing Agricultural University Animal Pharmaceutical Co., Ltd., an equity investee until December 2022.
• Advance payments totaling RMB5.4 million (US$0.75 million) were made to Nanjing Animal Pharmaceutical for goods purchases in January 2023 and June 2024, with a balance of RMB18.2 million (US$2.6 million) as of September 30, 2024.
• In September 2023, Shanghai Guangcheng (a VIE) entered into a debt waiver agreement with Chong Li, waiving RMB75.28 million of borrowings payable. Concurrently, the company entered into a debt waiver agreement with Superb Origin International Limited (a shareholder and 100% equity owner of Chong Li), waiving an outstanding investment amount of US$11.25 million payable by Superb Origin. This resulted in an investment loss of RMB1.4 million for the company.

Stakeholder Impact

• **Shareholders**: The significant decline in revenues and GMV, coupled with continued net losses, could negatively impact shareholder value. The dual-class share structure limits the influence of Class A shareholders. Risks related to the VIE structure and potential delisting under the HFCAA pose significant threats to investment value. The resale of ADSs by selling shareholders means no direct proceeds for the company, limiting its ability to fund operations without further capital raises.
• **Employees**: Employee layoffs have occurred as part of cost-saving measures, impacting staff costs. The company's ability to attract and retain talent is crucial, especially given the share-based compensation plans.
• **Customers**: The strategic shift to profitability over sales volume might affect product availability or pricing strategies. However, the focus on private labels and improved gross margin could lead to better quality or more tailored products. Customer satisfaction is critical, and issues with product quality, delivery, or data security could lead to dissatisfaction and loss of trust.
• **Suppliers/Brand Partners**: The company's efforts to optimize product mix and focus on private labels may affect relationships with certain brand partners. Increased bargaining power with brand partners and warehouses could lead to more favorable terms for Boqii but potentially less favorable for partners.
• **Creditors**: Working capital constraints and a history of net losses indicate potential liquidity risks, although the company states current cash and borrowings are sufficient for the next 12 months. The debt waiver agreement with Chong Li impacts the company's debt obligations.

Next Steps

• Continue investing in growing content offerings.
• Improve user experiences on its platforms.
• Enrich the pet-focused ecosystem.
• Optimize product mix to cater to customer demands and drive profitability.
• Further promote private label products and expand their portfolio.
• Improve the profitability of private label products as brands become more established.
• Expand and engage the user base through rich and informative content, intelligent recommendations, and superior user experience.
• Attract more KOLs and produce professionally generated pet-related content.
• Continue to manage relationships with KOLs to ensure content appeals to users.
• Expand offline presence and monetize the online community user base.
• Continue to enhance accounting policies and closing procedures to improve financial reporting quality and accuracy.
• Improve loan approval requirements and procedures.
• Enhance segregation of responsibilities in financial decision-making processes.
• Address material weaknesses in internal control over financial reporting by hiring qualified resources and implementing training programs.

Key Dates

Recommendation

Keywords

Pet E-commerce, China Pet Market, Online Pet Platform, Pet Products, Pet Supplies, Pet Healthcare, Private Label, Boqii Mall, Boqii Community, Variable Interest Entity (VIE), SEC Filing, F-1/A, NYSE American, Chinese Regulations, Cross-border Data Flow, Cybersecurity, HFCAA, PCAOB, Corporate Governance, Financial Results, Net Loss, Revenue Decline, Cost Savings, Efficiency Improvement, Supply Chain Management, KOL Marketing, SaaS Solutions, Emerging Growth Company