F-1/A: Boqii Holding Reports Significant Revenue Decline Amid Strategic Shift to Profitability, Reduces Net Losses in Fiscal H1 2025

Boqii Holding Limited, a leading pet-focused platform in China, announced a substantial decrease in total revenues for the first half of fiscal year 2025, while successfully narrowing its net loss and EBITDA loss through strategic focus on profitability and cost-saving measures.

Summary

• Boqii Holding Limited filed an Amendment No. 3 to Form F-1 Registration Statement for the resale of 2,000,000 American Depositary Shares (ADSs) by existing selling shareholders, from which the company will not receive any proceeds.
• For the first half of fiscal year 2025 (six months ended September 30, 2024), total revenues decreased by 35.9% to RMB249.7 million (US$35.6 million) from RMB389.4 million in the prior-year period, attributed to a business strategy shift towards profitability over sales volume.
• Net loss for H1 FY2025 decreased by 21.6% to RMB29.6 million (US$4.2 million) from RMB37.7 million in H1 FY2024.
• EBITDA loss for H1 FY2025 decreased by 25.4% to RMB25.0 million (US$3.6 million) from RMB33.5 million in H1 FY2024.
• Gross margin improved to 20.7% in H1 FY2025, up 70 basis points from 20.0% in H1 FY2024, primarily due to an increase in higher-margin service revenues.
• Operating expenses decreased by 29.3% to RMB79.3 million (US$11.3 million) in H1 FY2025, driven by reductions in fulfillment expenses (46.0% decrease), sales and marketing expenses (21.3% decrease), and general and administrative expenses (22.5% decrease).
• The company's private label products (Yoken, Mocare, D-cat) showed thriving development, with SKUs increasing from 3,088 to 3,546 and revenue share rising from 27.5% to 29.0%, alongside a gross margin increase from 29.9% to 33.2%.
• As of September 30, 2024, the company had approximately 19,946 SKUs from 588 brands, and its online community had approximately 2.0 million active buyers for the six months ended September 30, 2024.
• The company operates through a Variable Interest Entity (VIE) structure in China, which is subject to significant legal and operational risks due to PRC laws and regulations on foreign investment in certain industries.
• Material weaknesses in internal control over financial reporting were identified for the fiscal year ended March 31, 2024, including lack of sufficient financial reporting personnel and documented procedures, and inadequate loan approval processes, with remediation efforts underway.

Sentiment

Score: 4

Explanation: The sentiment is cautiously negative. While the company successfully reduced its net and EBITDA losses and improved gross margins through strategic shifts and cost-cutting, the substantial decline in total revenues and GMV indicates significant top-line challenges. The inherent risks associated with its VIE structure, evolving PRC regulations, and the HFCAA delisting threat add considerable uncertainty and downside potential, outweighing the operational efficiency gains.

Positives

• Net loss significantly decreased by 21.6% for the six months ended September 30, 2024, indicating improved financial efficiency.
• EBITDA loss decreased by 25.4% for the six months ended September 30, 2024, reflecting better operational performance before non-operating items.
• Gross margin increased by 70 basis points to 20.7% for the six months ended September 30, 2024, driven by a strategic shift towards higher-margin service revenues.
• Operating expenses were substantially reduced by 29.3% for the six months ended September 30, 2024, due to effective cost-saving measures and efficiency enhancements across fulfillment, sales & marketing, and general & administrative functions.
• Private label products demonstrated strong performance, with their revenue share increasing from 27.5% to 29.0% and gross margin rising from 29.9% to 33.2% in H1 FY2025.
• The company maintains a positive working capital of RMB182.6 million (US$26.0 million) as of September 30, 2024.
• Boqii has a large pet-focused online community in China and an expanding offline network of over 15,000 physical pet stores and pet hospitals, enhancing customer reach and brand awareness.

Negatives

• Total revenues decreased significantly by 35.9% for the six months ended September 30, 2024, and by 35% for the fiscal year ended March 31, 2024, indicating a substantial decline in top-line growth.
• Product sales, which constitute the majority of revenue, saw a sharp decline of 37.8% in H1 FY2025, with third-party e-commerce platforms experiencing a 46.4% decrease.
• The company continues to incur net losses, reporting RMB29.6 million (US$4.2 million) for H1 FY2025 and RMB68.9 million (US$9.5 million) for FY2024.
• Total Gross Merchandise Volume (GMV) decreased by 40.4% to RMB538.2 million (US$76.7 million) in H1 FY2025, reflecting reduced sales volume.
• The company has a history of net losses and may not achieve profitability or continue as a going concern in the future.
• 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 business is highly dependent on third-party e-commerce platforms, which may become competitors or impose unfavorable terms, potentially affecting financial results.
• The company operates in a relatively new and evolving market with intense competition, which could lead to loss of customers and market share.

Risks

• The company has a limited operating history across its various business initiatives, making it difficult to evaluate business prospects and future growth rates.
• There is a history of net losses, and the company may not achieve profitability or continue as a going concern in the future.
• Inability to diversify monetization channels could materially and adversely affect business and prospects.
• Relationships with third-party e-commerce platforms may negatively affect business, prospects, and financial results due to factors like higher commissions, negative publicity, or termination of cooperation.
• Failure to timely adapt offerings to changing preferences and needs of customers and their pets may adversely affect business and results of operations.
• Inability to acquire and retain new customers, or to do so cost-effectively, could materially and adversely affect business, financial condition, and results of operations.
• Any change, disruption, or discontinuity in the features and functions of major social networks could severely limit the ability to grow the customer base.
• Funds in PRC/Hong Kong entities may not be available for use outside due to interventions or restrictions by the PRC government on cash transfers.
• Any harm to the company's brand or failure to maintain and enhance brand recognition may materially and adversely affect business and results of operations.
• Significant legal and operational risks are associated with having substantially all operations in China, including uncertainties regarding the enforcement of laws and quick changes in regulations.
• The Chinese government may intervene in or influence operations at any time, or exert more control over overseas offerings and foreign investment in China-based issuers, potentially causing securities value to decline or become worthless.
• The company operates in a relatively new and evolving market, and if China's pet industry does not grow as expected, business, financial condition, and operations may be adversely affected.
• Intense competition in China's pet industry may lead to loss of customers and market share if the company does not compete successfully.
• Inability to manage and expand relationships with brand partners or cooperate on favorable terms could suffer business and growth prospects.
• Private label products may not always appeal to customers and may compete with brand partners, potentially harming relationships.
• Reliance on outsourced manufacturing for private label products exposes the company to risks of supply shortages, delivery delays, and reputational harm.
• Failure to maintain product quality and safety, or significant merchandise returns/refunds, could adversely affect reputation and financial results.
• The company does not carry product liability insurance and may be subject to product liability claims.
• Inability to manage business growth or execute strategies effectively could materially and adversely affect business and prospects.
• Diversifying product offerings may expose the company to more risks, including new challenges, additional licensing requirements, and lower profit margins.
• Failure to maintain relationships with content creators, particularly KOLs, or if KOLs fail to produce popular content, could harm online community engagement and revenues.
• The company may be held liable for false or misleading statements or advice given by KOLs on its online community.
• Negative media coverage about the company or its business could adversely affect operations and reputation.
• Counterfeit, unauthorized, or infringing products sold on the platform could adversely impact reputation, business, and results of operations.
• Relationships with offline pet stores may deteriorate or be terminated, affecting business, financial condition, and results of operations.
• Failures to successfully optimize, operate, and manage the fulfillment network could result in excess/insufficient capacity, increased costs, and impairment charges.
• Changes in, or disruptions to, delivery arrangements could adversely affect business, financial condition, and results of operations.
• Seasonality of the business and other events can cause fluctuations in results of operations.
• SaaS solutions bring additional business and operational risks and may not be attractive to offline pet stores.
• Reliance on third-party payment service providers means business may be adversely affected if these services are restricted or unavailable.
• Any disruption to IT systems could materially affect the ability to maintain satisfactory platform performance and deliver consistent services.
• Inability to provide a cost-effective platform that responds and adapts to rapid changes in technology could adversely affect business.
• Liability for placing advertisements with content deemed inappropriate or misleading under PRC laws.
• Improper collection, storage, use, or disclosure of data could harm reputation and have a material adverse effect on business and prospects.
• Failure to protect confidential information of users and customers and network against security breaches could damage reputation and harm business.
• Investments in or acquisitions of complementary assets, technologies, and businesses may fail and result in equity or earnings dilution.
• Need for additional capital, which may not be available on acceptable terms or at all.
• Failure of any bank where funds are deposited could have an adverse effect on business, financial condition, and results of operations.
• Disruption in financial markets and economic conditions could affect the ability to raise capital.
• Dependence on continuing efforts of senior management; loss of services could severely disrupt business.
• Employee or other business misconduct could expose the company to monetary loss, legal liability, regulatory scrutiny, and reputational harm.
• Deficiencies, malfunction, capacity constraint, or operation interruption of platforms and internet infrastructure could harm reputation and business.
• Intellectual property infringement claims may be expensive to defend and disrupt business.
• Inability to prevent others from unauthorized use of intellectual property could harm business and competitive position.
• Liability for information or content displayed on, retrieved from, or linked to platforms, or distributed to users, potentially leading to legal sanctions.
• Subject to claims, controversies, lawsuits, and other legal and administrative proceedings.
• Grant of share options and other share-based incentive awards may result in significant share-based compensation expenses.
• All lease agreements for leased properties have not been registered with relevant PRC government authorities, potentially exposing the company to fines.
• Failure to make adequate contributions to various employee benefit plans and withhold individual income tax may subject the company to penalties.
• Non-compliance with labor-related laws and regulations of the PRC may have an adverse impact on financial condition and results of operation.
• Failure to implement and maintain an effective system of internal control could lead to inaccurate reporting or fraud.
• Increased costs as a public company, particularly after ceasing to qualify as an emerging growth company.
• Limited insurance coverage could expose the company to significant costs and business disruption.
• Substantial uncertainties regarding the interpretation and application of current and future PRC laws relating to the VIE structure, potentially affecting enforceability of contractual arrangements.
• Uncertainties with respect to 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 any of the VIEs or their shareholders to perform obligations under contractual arrangements would have a material and adverse effect.
• Shareholders of VIEs may have actual or potential conflicts of interest with the company.
• Contractual arrangements in relation to VIEs may be subject to scrutiny by PRC tax authorities, potentially leading to additional taxes.
• Loss of ability to use, or otherwise benefit from, licenses, approvals, and assets held by VIEs could severely disrupt business.
• PRC government has significant authority in regulating operations and may influence them, potentially limiting ability to offer securities.
• Permission and approval from the CSRC or other PRC government authorities may be required for offshore offerings, and obtaining such may be uncertain.
• Evolving PRC laws and regulations regarding data security and cybersecurity could have a material impact on business operations.
• 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 and financing requirements, subject to limitations.
• Custodians or authorized users of controlling nontangible assets (chops and seals) may fail to fulfill responsibilities or misappropriate assets.
• 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 the ability to utilize revenues effectively.
• Certain 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 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 the PCAOB determines it is unable to inspect or investigate completely the registered public accounting firm, leading to potential delisting.
• Changes in U.S. and international policies, particularly with regard to China, may adversely impact business and operating results.
• The trading price of ADSs is likely to be volatile, which could result in substantial losses to investors.
• Dual-class share structure with different voting rights will limit influence over corporate matters and could discourage change of control transactions.
• Future issuances of Class B ordinary shares could result in dilution to existing Class A ordinary share holders.
• The dual-class structure may adversely affect the trading market for ADSs.
• If securities or industry analysts do not publish research or reports, or if they adversely change recommendations, the market price and trading volume could decline.
• Sale or availability for sale of substantial amounts of ADSs could adversely affect their 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 a return on investment.
• Difficulties in protecting interests and limited ability to protect rights through U.S. courts due to Cayman Islands incorporation.
• ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement.
• Voting rights of ADS holders are limited by the terms of the deposit agreement.
• Dilution of holdings due to inability to participate in rights offerings.
• Limitations on the transfer of ADSs.
• 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.
• Due to ADS price fluctuations, PFIC status for the year ended March 31, 2024, is uncertain, and there is a significant risk of being a PFIC, leading to 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, online and offline, delivering a targeted user experience. Management believes Boqii is uniquely positioned to drive this revolution. 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 unproven, yet experiencing a 'pet humanization' trend. Chinese pet parents are generally less experienced, more price-sensitive, and less brand loyal compared to their U.S. counterparts. The industry faces intense competition from various retail formats, including online and physical stores, and general e-commerce platforms. Boqii's strategy of building a comprehensive pet ecosystem, focusing on private labels, content-driven sales, and expanding offline presence, aims to differentiate itself in this competitive and evolving market. The company's performance is sensitive to overall economic conditions and consumer spending in China.

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 (Beijing PetDog Technology Development Co., Ltd.) highlights its partnership with the 'largest pet store franchise in terms of number of pet stores and the largest training center for pet service professionals in terms of training service revenue in China as of 2019', according to Frost & Sullivan.

Corporate Governance

Legal Proceedings

• As of the date of this prospectus, the company is not party to any material legal or administrative 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 failure to update its system promptly upon receiving customer requests to unsubscribe, resulting in re-sending commercial information.

Related Party Transactions

• Purchased goods from Jiangsu Nanjing Agricultural University Animal Pharmaceutical Co., Ltd. (an equity investee until December 2022) totaling approximately RMB3.89 million (US$0.54 million) from April to December 2023.
• Made advance payments totaling RMB5.4 million (US$0.75 million) to Nanjing Animal Pharmaceutical for the purchase of goods in January 2023 and June 2024, with a balance of RMB18.2 million (US$2.6 million) as of September 30, 2024.
• Shanghai Guangcheng entered into a debt waiver agreement with Chong Li in September 2023, waiving RMB75.28 million of borrowings payable.
• The company entered into a debt waiver agreement with Superb Origin International Limited (100% equity owner of Chong Li) in September 2023, waiving an outstanding investment amount of US$11.25 million payable by Superb Origin.
• Granted an interest-free loan of up to RMB10 million to Wuhan Chunzhijin Information Technology Co., Ltd. (an equity investee), converting RMB3.4 million of this loan into equity interest in March 2023.
• Granted a short-term loan of RMB33.4 million (US$5 million) to Shanghai Guangcheng Information Technology (limited partnership) in April 2021, which was fully repaid by March 31, 2022.
• Obtained a total loan facility of up to US$5 million from Shanghai Guangcheng Information in April 2021, drawing down US$1.5 million (RMB10.0 million) which was fully repaid by March 31, 2022.
• Granted loans to senior management individuals (Yan Jiang, Fei Wang, Lijun Zhou) and Merchant Tycoon Limited, with varying principal amounts and repayment terms.

Stakeholder Impact

• **Shareholders**: Existing shareholders, particularly those holding Class A ordinary shares or ADSs, face potential dilution from future equity issuances and limited influence over corporate matters due to the dual-class share structure. The resale of ADSs by selling shareholders means no direct proceeds for the company, limiting its ability to fund operations without new capital raises. Significant risks related to the VIE structure, PRC regulations, and potential HFCAA delisting could materially and adversely affect investment value.
• **Employees**: Employee layoffs were implemented as part of cost-saving measures, which could impact employee morale and retention. Share-based compensation plans are in place to incentivize and retain key personnel.
• **Customers**: Customers are impacted by the company's strategic shift to profitability, which may affect product availability or pricing strategies. The focus on private labels and enhanced customer service aims to improve customer experience and loyalty.
• **Suppliers/Brand Partners**: The company's strategic adjustments, including optimizing product mix and focusing on private labels, may affect relationships with existing brand partners. The company aims to build long-term relationships and leverage bargaining power with partners.
• **Creditors**: The company's history of net losses and working capital constraints could impact its ability to repay current liabilities, although it currently maintains a positive working capital position. Future debt financing could increase debt service obligations.

Next Steps

• Continue investing in growing content, improving user experiences, and enriching the pet-focused ecosystem.
• Further optimize product mix and promote private label products to improve profitability.
• Continue to explore and leverage new cost-effective sales and marketing channels.
• Implement measures to address identified material weaknesses in internal control over financial reporting, including hiring qualified personnel, enhancing policies, and improving loan approval processes.
• Monitor and comply with evolving PRC laws and regulations regarding data security, cybersecurity, and foreign investment, including potential future CSRC filing requirements for offshore offerings.
• Manage risks related to the Holding Foreign Companies Accountable Act (HFCAA) and potential delisting from U.S. exchanges.

Key Dates

Recommendation

Keywords

Pet industry, China e-commerce, Online retail, Pet products, Pet services, Boqii, SEC filing, F-1/A, Financial results, Net loss, Revenue decline, GMV, Private label, VIE structure, Risk factors, Corporate governance, NYSE American, ADSs, PCAOB, Cybersecurity, Data security, PRC regulations, Supply chain optimization, Cost-saving, Shareholder structure, Capital raise