Banking & Finance

Power grab

Jumei founder finally delists his firm in the US


Chen: flamboyant entrepreneur

Venture capitalists sometimes deploy personality tests to distinguish between those entrepreneurs that are acceptably optimistic and those that are completely delusional.

For Chen Ou, the flamboyant co-founder of Jumei, the e-commerce site that got its start selling cosmetics, it can be hard to figure out on which side he falls.

The 37 year-old’s confidence borders on cocky. He chose himself as brand ambassador for the beauty site and when the company went public on the New York Stock Exchange in 2014 he made sure to mention that he was the youngest chief executive of a NYSE-listed company in history.

“I can’t tolerate being a mediocre person. For me, mediocrity means failure,” he added.

But the tech tycoon had to admit to a setback last week, when he took Jumei private. On its final trading day, its share price was $19.9, which carried a market capitalisation of $227 million. That compares with its $22 offering price back in 2014. Before Chen’s buyout offer was tabled, its shares had been trading below $10 for several years.

Founded in 2010, Jumei’s annual sales exceeded Rmb500 million ($70.63 million) in its early days, when e-commerce was starting to take off in China. It became an investor darling, expanding its range from beauty products into female luxury goods. Later there were reports that the platform was selling counterfeit products, although Jumei had promised that all the goods it offered were “100% genuine”. Its reputation took a hit when it later acknowledged that third-parties might have been selling fake items.

Competition from larger rivals like Alibaba and intensified and Jumei gradually lost ground. Chen tried to resuscitate the business by foraying into livestreaming, offline stores and even TV drama production, but with no real success. Jumei’s revenues went into decline: from Rmb6.3 billion in 2016 to Rmb4.3 billion in 2018. Active users also fell, from 15.4 million to 10 million. According to data from Analysys, in the third quarter of 2019, Jumei enjoyed just a 0.1% share of China’s B2C e-commerce market.

“In recent years, Chen Ou has been questioned not only for his efforts to take the company private but also how he has dealt with the downturn in the e-commerce business. He has since dabbled in TV dramas, produced smart homes devices and invested in power bank sharing. Although Chen called this diversification, in the eyes of many investors and the market, it was more like a blindly chasing after the next thing and not focusing on his real job,” Phoenix News critiques.

Faced with a falling share price, Chen had offered to take the company private back in 2016, when he made his first offer at $7 per ADS (American Depositary Share), about a third of the market price at the time. Angry shareholders protested to the SEC about Chen and venture capital firm Sequoia Capital, his backer, for setting such a low price for the buyback. Chen scrapped the offer the next year.

In January he made another attempt to acquire the shares that he did not already own (he then held a 45% stake in the company) for $20 per ADS in cash. This time round, shareholders relented.

Chen now has more freedom to take the business in new directions. In fact, he has been planning the next chapter for a while: in 2017, despite shareholder opposition, Jumei paid Rmb300 million for a 60% stake in the power bank sharing company Jiedian. It operates self-service cabinets in train stations and shopping malls from which customers can rent recharging devices (for between Rmb1 to Rmb7 an hour). The power banks contributed about a fifth of Jumei’s revenues in 2018, up from just 3% in 2017, and Jumei says that Jiedian has been profitable since 2018. It is also the leader in its sector, with a market share of 40.5% and more than 107 million users, says iiMedia Research.

Sceptics on the phone-charger sharing business ask why people will rent units when it costs so little to buy one.

But growing rental numbers suggest that there is a market. And it looks like this is going to be Chen’s new focus in reigniting investor interest – with speculation that it won’t be long before he relists his firm on China’s A-share market.

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