20-F/A: Boqii Holdings Faces Revenue Plunge, Internal Control Weakness

Boqii Holding Limited reported a significant revenue decline and a material weakness in internal controls for fiscal year 2025, following a reverse stock split and ADS program termination.

Summary

• Boqii Holding Limited filed an amendment to its annual report for the fiscal year ended March 31, 2025, primarily to reflect a 160-for-1 reverse stock split and the termination of its American Depositary Share (ADS) program, with Class A ordinary shares now trading on NYSE American.
• The company reported a net loss of RMB 58.6 million (US$8.1 million) for FY2025, a 15.0% decrease from RMB 68.9 million in FY2024, continuing a trend of losses.
• Total net revenues significantly decreased by 33.9% to RMB 468.9 million (US$64.6 million) in FY2025 from RMB 709.4 million in FY2024.
• Product sales, which constitute 92.0% of total net revenues, declined by 36.6% to RMB 431.3 million (US$59.4 million) in FY2025.
• Conversely, online marketing and information services revenue increased by 28.7% to RMB 37.6 million (US$5.2 million) in FY2025, with its gross margin improving to 78.2%.
• Overall gross margin slightly increased to 21.5% in FY2025 from 19.8% in FY2024, driven by the higher-margin service revenues.
• Operating expenses decreased by 21.2% to RMB 160.7 million (US$22.1 million) in FY2025, with reductions across fulfillment, sales & marketing, and general & administrative costs, partly due to employee layoffs.
• A material weakness in internal control over financial reporting was identified for FY2025, specifically concerning period-end logistics expenses cut-off and accruals, and vendor rebate accruals.
• The company completed a private placement in February 2025, issuing 2,000,000 ADSs for an aggregate of $2,400,000.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a concerning report due to the significant decline in overall revenue and product sales, coupled with a material weakness in internal controls and the highly unusual circumstances surrounding the dismissal of the previous auditor and their concerns about substantial payments. While net loss decreased and service revenue grew, the overall financial health and governance issues present significant risks.

Positives

• Net loss decreased by 15.0% to RMB 58.6 million (US$8.1 million) in FY2025, indicating some improvement in loss management.
• Online marketing and information services revenue grew by 28.7% to RMB 37.6 million (US$5.2 million) in FY2025, demonstrating growth in a higher-margin segment.
• The gross margin for online marketing and information services improved significantly to 78.2% in FY2025.
• Overall gross margin increased to 21.5% in FY2025, suggesting a shift towards more profitable revenue streams.
• Operating expenses decreased by 21.2% to RMB 160.7 million (US$22.1 million) in FY2025, reflecting successful cost-cutting measures including employee layoffs.
• The company maintains a positive working capital of RMB 176.5 million (US$24.3 million) as of March 31, 2025.
• Successfully completed a private placement in February 2025, raising $2,400,000, indicating continued access to capital.
• The 160-for-1 reverse stock split and transition to trading Class A ordinary shares on NYSE American may improve stock liquidity and appeal to a broader investor base.

Negatives

• Total net revenues experienced a substantial decline of 33.9% to RMB 468.9 million (US$64.6 million) in FY2025.
• Product sales, the primary revenue driver, decreased significantly by 36.6% to RMB 431.3 million (US$59.4 million) in FY2025.
• Product sales gross margin continued to decline, reaching 16.5% in FY2025.
• The company has a history of net losses and continues to incur them.
• Cash and cash equivalents decreased by 46.8% from RMB 72.7 million in FY2024 to RMB 38.7 million (US$5.3 million) in FY2025.
• A material weakness in internal control over financial reporting was identified for FY2025, specifically regarding logistics expenses cut-off and accruals, and vendor rebate accruals.
• The former auditor, PwC, was dismissed after raising concerns over the substance of approximately US$6 million in payments during their audit for FY2024, which included a deposit for M&A, a loan to an individual, and financial advisory fees.
• Working capital decreased from RMB 206.2 million in FY2024 to RMB 176.5 million (US$24.3 million) in FY2025.

Risks

• Substantial uncertainties exist regarding the interpretation and application of current and future PRC laws, regulations, and rules relating to the Variable Interest Entity (VIE) structure, which could affect the enforceability of contractual arrangements and financial condition.
• Uncertainties exist with respect to the interpretation and implementation of the newly enacted Foreign Investment Law and how it may impact the business, financial condition, and results of operations.
• Reliance on contractual arrangements with VIEs and their respective shareholders for business operations may not be as effective as direct ownership in providing operational control.
• Any failure by any of the VIEs or their shareholders to perform their respective obligations under contractual arrangements would have a material and adverse effect on the business.
• The company's contractual arrangements are governed by PRC law, and any disputes would be resolved in accordance with PRC legal procedures, which may involve more uncertainty than in other jurisdictions.
• The shareholders of the VIEs may have actual or potential conflicts of interest with the company, which may materially and adversely affect the business and financial condition.
• Contractual arrangements in relation to the VIEs may be subject to scrutiny by PRC tax authorities, potentially leading to additional taxes.
• The company may lose the ability to use, or otherwise benefit from, the licenses, approvals, and assets held by the VIEs, which could severely disrupt the business.
• Changes in China's economic, political, or social conditions or government policies could have a material adverse effect on the business and operations.
• The PRC government has significant authority in regulating operations and may intervene or influence operations at any time, potentially limiting the ability to offer or continue to offer securities to investors.
• The business, financial condition, and results of operations depend on the level of consumer confidence and spending in China and may be adversely affected by a downturn in the global or Chinese economy.
• Uncertainties with respect to the PRC legal system could adversely affect the company.
• Permission and approval from the CSRC or other PRC government authorities may be required in connection with an offshore offering under PRC law, and obtaining such permission or approval is uncertain.
• PRC laws and regulations regarding data security and cybersecurity are evolving and could have a material impact on business operations.
• Any failure or perceived failure to comply with Anti-monopoly Guidelines for Internet Platforms and other anti-monopoly laws and regulations may result in governmental investigations or enforcement actions.
• Difficulties may be experienced in effecting service of legal process, enforcing foreign judgments, or bringing actions in China against the company or its management based on foreign laws.
• It may be difficult for overseas regulators, such as the PCAOB, to conduct investigations or collect evidence within China.
• The company relies on dividends and other distributions from PRC subsidiaries, and any limitation on the ability of PRC subsidiaries to make payments could have a material and adverse effect.
• The custodians or authorized users of controlling non-tangible assets, including chops and seals, may fail to fulfill their responsibilities, or misappropriate or misuse these assets.
• Fluctuations in exchange rates could have a material and adverse effect on results of operations and the value of investment.
• Governmental control of currency conversion may limit the ability to utilize revenues effectively and affect the value of investment.
• PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject PRC resident beneficial owners or PRC subsidiaries to liability or penalties.
• Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject PRC plan participants or the company to fines and other legal or administrative sanctions.
• If classified as a PRC resident enterprise for PRC enterprise income tax purposes, such classification could result in unfavorable tax consequences to the company and its non-PRC shareholders.
• Uncertainty exists with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
• Trading in the company's securities will be prohibited under the Holding Foreign Companies Accountable Act (HFCAA) if the PCAOB determines it is unable to inspect or investigate completely the registered public accounting firm for two consecutive years, leading to potential delisting.
• Changes in U.S. and international policies, particularly with regard to China, may adversely impact the business and operating results.
• The trading price of Class A ordinary shares is likely to be volatile, which could result in substantial losses to investors.
• The dual-class share structure with different voting rights will limit the ability of Class A ordinary shareholders to influence corporate matters and could discourage change of control transactions.
• Future issuances of Class B ordinary shares could result in dilution to existing holders of Class A ordinary shares.
• The dual-class structure of ordinary shares may adversely affect the trading market for Class A ordinary shares (e.g., exclusion from indices).
• If securities or industry analysts do not publish research or reports about the business, or if they adversely change their recommendations, the market price and trading volume could decline.
• The sale or availability for sale of substantial amounts of Class A ordinary shares could adversely affect their market price.
• Techniques employed by short sellers may drive down the market price of Class A ordinary shares.
• Because the company will not pay dividends in the foreseeable future, investors must rely on price appreciation for a return on investment.
• Investors may face difficulties in protecting their interests, and their ability to protect rights through U.S. courts may be limited, because the company is incorporated under Cayman Islands law.
• Certain judgments obtained against the company by shareholders may not be enforceable.
• As a foreign private issuer, the company is exempt from certain provisions applicable to U.S. domestic public companies, which may afford less protection to shareholders.
• If classified as a passive foreign investment company (PFIC), United States taxpayers who own Class A ordinary shares may have adverse United States federal income tax consequences.
• Limited operating history across various business initiatives makes it difficult to evaluate business prospects and future growth rate.
• History of net losses and may continue to incur losses.
• Significant working capital requirements and historical working capital deficits; if these continue, liquidity, financial condition, and results of operations may be materially and adversely affected.
• Inability to diversify monetization channels could 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 the changing preferences and needs of customers and their pets; failure to adapt may adversely affect business.
• Failure to acquire and retain new customers, or to do so cost-effectively, may materially and adversely affect business.
• Reliance on assumptions and estimates to calculate certain key operating metrics (e.g., GMV) may lead to inaccurate interpretation.
• Increasing focus on environmental, social, and governance (ESG) matters may impose additional costs or expose the company to additional risks.
• Risks related to natural disasters, health epidemics, civil and social disruption, and other outbreaks could significantly disrupt operations.
• Any harm to or failure to maintain and enhance brand recognition may materially and adversely affect business.
• Intense competition in China's pet industry; failure to compete successfully may lead to loss of customers and market share.
• Inability to manage and expand relationships with brand partners, or failure to cooperate at favorable terms, may suffer business and growth prospects.
• Private label products may not always appeal to customers and may compete with brand partners.
• Outsourcing the manufacturing of private label products exposes the company to issues relating to manufacturers.
• Failure to maintain the quality and safety of products and significant merchandise returns or refunds could have a material and adverse effect on reputation.
• Inability to manage the growth of the business or execute strategies effectively may materially and adversely affect business.
• Failure to maintain relationships with content creators, particularly Key Opinion Leaders (KOLs), or if KOLs fail to produce popular pet-focused content, may harm revenues.
• Any change, disruption, or discontinuity in the features and functions of major social networks could severely limit the ability to continue growing the customer base.
• The company may be held liable for any false or misleading statements or advice given by KOLs on its online community.
• Negative media coverage could adversely affect the business and reputation.
• Reputation, business, and results of operations would be adversely impacted by any counterfeit, unauthorized, or infringing products sold on the platform.
• Business, prospects, and financial results may be affected by relationships with offline pet stores.
• If the company does not successfully optimize, operate, and manage its fulfillment network, business, financial condition, and results of operations could be harmed.
• Delivery is a critical part of the business, and any changes in, or disruptions to, delivery arrangements could adversely affect the business.
• Results of operations are subject to fluctuations due to the seasonality of the business and other events.
• SaaS solutions bring additional business and operational risks and may not be attractive to offline pet stores.
• Customers use third-party payment service providers; if these services are restricted or become unavailable, business may be materially and adversely affected.
• The proper functioning of online platforms is essential; any disruption to IT systems could materially affect ability to maintain satisfactory performance.
• Business may be adversely affected if unable to provide a cost-effective platform that responds and adapts to rapid changes in technology.
• The company may be subject to liability for placing advertisements with content deemed inappropriate or misleading under PRC laws.
• The business generates and processes a large amount of data, and improper collection, storage, use, or disclosure of such data could harm reputation.
• Failure to protect confidential information of users and customers and network against security breaches could damage reputation.
• Investments in or acquisitions of complementary assets, technologies, and businesses, or strategic alliances, may fail and result in equity or earnings dilution.
• The failure of any bank in which funds are deposited could have an adverse effect on business.
• Disruption in the financial markets and economic conditions could affect the ability to raise capital.
• Business depends substantially on the 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.
• Reliance on proper operation and maintenance of platforms and internet infrastructure and telecommunications networks in China; any deficiencies could harm reputation.
• May be subject to intellectual property infringement claims.
• May not be able to prevent others from unauthorized use of intellectual property.
• May be held liable for information or content displayed on, retrieved from, or linked to platforms, or distributed to users.
• May from time to time be subject to claims, controversies, lawsuits, and other legal and administrative proceedings.
• Grant of share options and other forms of share-based incentive awards may result in significant share-based compensation expenses.
• None of the lease agreements of leased properties has been registered with relevant PRC government authorities, and some are for industrial use, which may expose the company to potential fines.
• Failure to make adequate contributions to various employee benefit plans and withhold individual income tax on employees' salaries 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 on financial condition.

Future Outlook

The company plans to continue diversifying its product offerings and optimizing its product mix to drive profitability, focusing on supporting emerging brands and expanding its private label portfolio. It aims to enhance user engagement through rich content, intelligent recommendations, and superior user experience, attracting more Key Opinion Leaders (KOLs) and leveraging new cost-effective sales and marketing channels. The company will also continue to invest in and enhance its technology systems and intends to fund future capital expenditures with existing cash, bank loans, and potential equity or debt offerings.

Management Comments

• Our management believes that there is only a remote possibility that this scenario [VIE accumulated earnings exceeding fees paid to PRC subsidiaries, leading to non-deductible transfers and higher taxes] would happen.
• Our management believes that our current cash, cash equivalents and short-term investments and borrowings will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures, for at least the next 12 months.
• Our management has concluded that our internal control over financial reporting was not effective as of March 31, 2025 due to the material weakness identified in our internal control over financial reporting as described above.

Industry Context

StockSavvy.ai notes that the Chinese pet industry is relatively new, evolving, and highly competitive, with Chinese pet parents generally being more price-sensitive and less brand-loyal compared to their U.S. counterparts. The company's strategy to diversify monetization channels, expand private label offerings, and leverage content-driven marketing is a common response to these market dynamics, aiming to build loyalty and differentiate from generic e-commerce platforms. The decline in overall revenue, despite growth in higher-margin services, suggests a challenging market environment where volume-driven strategies are being re-evaluated in favor of profitability.

Comparison to Industry Standards

• The filing indicates that Chinese pet parents are generally more price-sensitive and less brand-loyal compared to U.S. pet parents, suggesting a different market dynamic than more mature Western markets.
• The company operates in a 'highly competitive' market, competing with pet product retail stores, supermarkets, generic e-commerce platforms, and other pet-focused online retail platforms, but no specific comparable companies or projects are listed with results.
• StockSavvy.ai notes that the company's gross margin for product sales (16.5% in FY2025) is relatively low compared to typical retail industry benchmarks, especially for specialized products, indicating intense price competition or a focus on lower-margin volume.
• The higher gross margin in online marketing and information services (78.2%) is more in line with technology-driven service sectors.

Management Changes

Corporate Governance

Legal Proceedings

• Not party to any material legal or administrative proceedings pending or threatened as of the date of this annual report.
• Previously fined RMB100,000 by Shanghai Internet Information Office in December 2021 for publishing and transmitting illegal information on Boqii Pet APP (rectified).
• Previously fined RMB5,000 by Shanghai Pudong New Area Market Supervision Administration in May 2023 for failure to stop sending commercial information to consumers upon unsubscribe request (rectified).

Related Party Transactions

• Advance payment of RMB 5.5 million (January 2023) and RMB 14.4 million (June 2024) made to Superb Origin International Limited for purchase of goods. Balance as of March 31, 2025, was RMB 18.7 million.
• Loan granted to Wuhan Chunzhijin (an equity investee) with RMB 1.989 million outstanding as of March 31, 2025.
• In September 2023, Shanghai Guangcheng (a VIE) entered into a debt waiver agreement with Chong Li, waiving RMB 75.28 million of borrowings payable. Concurrently, the company entered into a debt waiver agreement with Superb Origin (100% equity owner of Chong Li), waiving US$11.25 million (RMB 75.28 million) of outstanding investment amount payable by Superb Origin. This resulted in an investment loss of RMB 1.4 million.

Stakeholder Impact

• Shareholders: Impacted by the 160-for-1 reverse stock split, ADS termination, and transition to Class A ordinary shares trading on NYSE American. Face dilution risk from future equity issuances and potential adverse tax consequences if classified as a PRC resident enterprise or PFIC. Significant risks related to the VIE structure and potential PRC government intervention.
• Employees: Affected by employee layoffs, which contributed to decreased sales & marketing and general & administrative expenses. Share incentive plans are in place to attract and retain talent.
• Customers: Affected by changes in product offerings, pricing strategies, and potential impact of IT disruptions or product quality issues. The company aims to enhance customer loyalty through membership programs and personalized experiences.
• Brand Partners/Suppliers: Relationships are crucial for product offerings. Royal Canin China Co., Ltd. is a significant supplier (33% of total purchases in FY2025). Heze Jianuojia Pet Products Co., Ltd and Royal Canin China Co., Ltd are significant accounts payable, indicating reliance on these relationships.
• Creditors: Impacted by the company's liquidity and ability to repay borrowings, including short-term borrowings of RMB 9.1 million and long-term debt of RMB 38.6 million as of March 31, 2025.

Next Steps

• Continue to enhance accounting policies and closing procedures to improve the quality and accuracy of period-end financial closing process.
• Enhance segregation of responsibilities in financial decision-making processes so that no single executive will have unilateral authority to approve transactions that pose potential risks.
• Complete required SAFE registrations for PRC option grantees.
• Prepare and file with SEC one or more registration statements to register for the resale of the ADSs from the February 2025 private placement no later than May 31, 2025.
• Continue to explore and leverage new cost-effective sales and marketing channels, such as Red and Douyin.
• Continue to invest in and enhance technology systems to support online platforms.
• Potentially seek additional credit facilities or issue debt or equity securities if existing cash is insufficient to meet future requirements.

Key Dates

Recommendation

The substantial decline in total revenue, persistent net losses, and the identified material weakness in internal controls signal significant operational and financial challenges. The highly unusual circumstances surrounding the dismissal of the previous auditor, PwC, and their expressed concerns about the substance of US$6 million in payments, raise serious governance and transparency red flags. While cost-cutting measures are in place and service revenue is growing, these issues collectively point to a high-risk investment profile with considerable uncertainty regarding future performance and regulatory compliance, making it a 'sell' for a seasoned investor.

Keywords

Boqii Holding, pet industry, China e-commerce, online retail, pet products, pet services, VIE structure, SEC filing, 20-F/A, financial results, net loss, revenue decline, gross margin, operating expenses, internal controls, cybersecurity, data privacy, reverse stock split, ADS termination, NYSE American, capital raise, PRC regulations, foreign investment, market risk, liquidity