Recently, Kuke Music released its revised annual financial results for 2022, with a year-on-year decrease of 60% in revenue and a loss of 879 million yuan. The company stated that due to the severe impact of the epidemic, the group was unable to achieve its business objectives, resulting in asset impairment.
Since the beginning of this year, the popularity of offline performances has recovered, and most companies in the cultural and tourism industry chain have seized the opportunity to repair their stock prices. However, the warmth has not reached Kuke Music, and the company is still hovering on the edge of delisting red lines.
In the financial report, Kuke Music's ability to continue operating has been marked with a question mark, leaving little time for the company to explore and make mistakes.
Significant decline in performance
According to the financial report, as of December 31, 2022, Kuke Music's revenue was 115 million yuan, a year-on-year decrease of 61.1%. Specifically, the revenue from licensing and subscription services, intelligent music learning services, and offline classical music activities decreased by 53.25%, 68.45%, and 60% year-on-year, respectively. In response, the company mentioned the negative impact of the epidemic and weak customer demand.
Compared to 2020, the revenue level during the licensing and subscription, intelligent music learning business period has decreased, but the sales cost is also continuously increasing. In 2022, the sales costs of licensing, subscription, and intelligent learning services were 25.029 million yuan and 45.01 million yuan, respectively, an increase of 187% and 160% compared to 2020. From this perspective, simply attributing the decline in performance in 2022 to the impact of the epidemic does not seem to have much persuasiveness.
The greater pressure is reflected in the profit aspect. In 2022, Kuke Music's gross profit was 17.311 million yuan, compared to 170 million yuan in the same period last year; The annual loss was as high as 897 million yuan, compared to a loss of 59.617 million yuan in the same period last year. Among them, the largest loss comes from asset impairment. During the reporting period, the company recorded "other losses" of 707 million yuan, including inventory impairment of 7.84 million yuan, impairment of property, plant and equipment of 34.858 million yuan, impairment of intangible assets of 427 million yuan, and impairment of goodwill of 237 million yuan. The company once again mentioned the impact of the pandemic on the reasons for asset impairment.
Under business pressure, Kuke Music's three expenses have to be controlled. In 2022, the sales and distribution expenses of Kuke Music were 32.033 million yuan, compared to 73.263 million yuan in the same period last year; The management expenses were 69.03 million yuan, compared to 132 million yuan in the same period last year. For the decrease in sales and distribution expenses, the company stated that it was mainly due to the contraction of kindergarten business and the reduction in promotional expenses, while the decrease in management expenses was due to a decrease in share-based compensation expenses.
However, the limited "cost reduction and efficiency increase" has not been able to solve the financial crisis of the company. As of December 31, 2022, Kuke Music's current ratio was 0.29 and its asset liability ratio was 75.36%, indicating significant short-term debt repayment pressure. At the same time point, the company's cash and cash equivalents remained at only 5.425 million yuan.
Kuke Music has reached the brink of danger.
Ice and Fire Double Sky
However, the offline performance market related to Kuke Music has seen a hot development trend this year.
Taking the recently concluded double holiday as an example, data from the China Performance Industry Association shows that from September 29th to October 6th, there were 44200 commercial performances (excluding performances in entertainment venues) nationwide, an increase of 227.68% compared to the previous year's National Day holiday. According to the Ministry of Culture and Tourism, from January to August this year, more than 900 large-scale performances such as concerts and music festivals were held nationwide, with an audience of over 10 million, exceeding the pre pandemic level.
The performance economy is booming, and many companies' stock prices have been restored. For example, the stock price of Lehua Entertainment increased by over 20% in the week of holding the Lehua family concert, and the stock price of Lehua increased by over 30% throughout July. The stock price of global stage lighting company Haoyang Co., Ltd. continued to rise in the first half of the year, reaching its highest point since going public at 121.92 yuan/share in April.
But this warmth was not transmitted to Kuke Music. Since the beginning of this year, the company's stock price has been hovering around the $1 red line. From February to March, there was a small peak in the stock price, which quickly fluctuated and declined again. As of October 20, 2023, the company's stock price closed at $0.88 per share, a decrease of 9.37%, with a total market value of $29.2549 million. The current stock price of the company has not only dropped by 94% from its peak of $15.06 per share price, but has also exceeded the $1 red line on the New York Stock Exchange.
At the end of November 2022, Kuke Music received a delisting warning from the New York Stock Exchange, which triggered the relevant delisting mechanism due to the average closing price falling below $1 for 30 consecutive trading days. The notice letter from the New York Stock Exchange mentioned that in addition to its stock price, the company's market value is also approaching the minimum standard red line of $15 million. If the average market value falls below the standard within 30 trading days, the company may be immediately suspended and delisted.
Despite some measures taken by Kuke Music to raise its stock price, the company's current stock price is still below $1, and overall, it has not truly escaped the delisting crisis.
The "Star Ocean" of Education?
Studying the reasons why Kuke music is not favored by the market, the limited imagination of classical music tracks is one of the important factors.
Kuke Music has become a niche, relying on classical music to survive in the cracks of top music platforms such as QQ Music and NetEase Cloud Music. However, it has been defeated by the small market capacity of the classical music track and insufficient performance imagination. The limited revenue scale not only suppresses the company's development, but also significantly shortens its ability to resist risks, as evidenced by the impact of the epidemic on Kuke Music in the past three years.
In order to overcome the problem of limited imagination in classical music, Kuke Music's solution is to adjust its positioning to an "educational company". Since 2015, Kuke Music has been expanding the weight of its education business in the overall business composition. From distributors to collaborating with kindergartens, the revenue scale of education business is constantly expanding. In 2021, intelligent music education achieved revenue of 118 million yuan, a year-on-year increase of 100.8%, and has become the company's largest business curve.
At that time, some analysts stated that "for Kuke Music, the revenue from music licensing and subscription has a ceiling, and future growth points and expectations are focused on intelligent music education." CEO Yu He also said in an interview with Blue Whale Education, "Kuke Music must develop in the context of an education company
But soon, in the second quarter of 2022, the company's revenue from intelligent music learning solutions significantly decreased by 59% year-on-year, with revenue from public schools and commercial clients significantly decreasing by 71.5% year-on-year, and revenue from kindergartens decreasing by 30.1% year-on-year. Afterwards, Kuke Music's education business stepped on the brakes. Throughout 2022, the intelligent music learning business achieved only 37.243 million yuan in revenue, a decrease of 68.45% compared to 2021 and 37% compared to 2020. The proportion of total revenue also decreased from the highest of 40% to 32%.
Revenue has declined, and Kuke Music has had to readjust its thinking. The latest financial report reveals that the company's current intelligent learning business includes providing Kuke intelligent piano, Kuke intelligent music learning system, and Kuke courses. Since 2022, the company has reduced its offer of Kuke courses and shifted to selling intelligent music hardware and content to primary and secondary schools.
The cooperation with People's Music Publishing House has been a key focus of Kuke Music's education business in the past two years. In February of this year, Kuke Music and People's Music Publishing House released a digital music teaching product called "Music Museum", which began selling in March and aims to cover 200000 schools nationwide. In May, the Renyin Society released the "Renyin Education Piano Classroom" project, with Kuke Music responsible for assisting in software system technology development and course digitization production. Meanwhile, Kuke Music also seems to have not given up on the preschool education market. Chairman Yu He visited the Love Cube Publishing Education Industrial Park in March, intending to work together to create a preschool education music industry. As of December 31, 2022, Kuke Music has over 840 institutional subscribers, including over 500 universities and music schools, as well as over 330 public libraries.
However, it is still unknown how much actual revenue returns a series of measures can bring to the company. In front of state-owned publishing houses and public schools, Kuke Music's bargaining power is clearly weak. Moreover, looking back at the development process of Kuke Music's education business, in 2015, when Kuke Music first entered education, it provided distributors with Kuke piano and music teaching systems, but the market response was mediocre. It was not until 2019 that Kuke Music shifted its focus to collaborating with kindergartens to provide Kukey courses that the education business experienced a major explosion. Nowadays, Kuke Music focuses on selling hardware and content, seemingly with the intention of returning to its old ways.
But the idea that the education industry has not gone through its golden period seems difficult to break out during the industry downturn cycle. For Kuke Music, there is not much room for exploration and trial and error.