Online Chinese companies rush toward A+H listings amid ongoing concerns: revenue continues to decline, losses worsen, and shareholders keep reducing their holdings.

Ask AI · How does heavy online marketing spending in Chinese affect competitiveness in overseas short drama markets?

Harbor Business Observation by Shi Zifu

At the end of February this year, Chinese Online Group Co., Ltd. (hereinafter referred to as “Chinese Online,” stock code: 300364.SZ) filed for listing on the Hong Kong Stock Exchange, with Citigroup as the sole sponsor.

In January 2015, Chinese Online went public on the Shenzhen Stock Exchange’s ChiNext. Only a year later, the company chose to pursue an A+H dual listing. Having platforms listed in two markets may have helped build momentum for its main business—short dramas going overseas—while also serving as a move to resolve its own financial difficulties. However, right before the IPO, the intensive selling of shares by major shareholders and executives also led outsiders to question its prospects.

1

Revenue continues to decline, while losses expand sharply

According to Tianyancha, Chinese Online was founded in 2000. It is an AI-driven leading digital entertainment platform. It mainly provides online literature content domestically, and short dramas overseas. It is committed to building a next-generation end-to-end digital content ecosystem.

According to data from Frost & Sullivan, based on 2024 revenue, Chinese Online ranks third among copyright-driven content platforms in China’s online literature market, with a market share of 1.6%. In the overseas short drama platforms, based on revenue as of September 2025, the company ranks eighth; based on monthly active users during the first seven months after launch, it ranks second.

In Chinese Online’s total revenue, more than 90% of its revenue comes from online literature and related businesses, short dramas, and IP derivative businesses.

The online literature business has long been the foundation of Chinese Online’s revenue. Chinese Online mainly distributes online literature content to readers through diversified third-party distribution channels and its own online literature platforms. In addition, Chinese Online generates revenue by licensing online literature content to IP adaptation partners.

From 2023–2024 and January–September 2025 (hereinafter referred to as the reporting period), revenue from online literature and related businesses was RMB 670 million, RMB 686 million, and RMB 480 million, respectively, accounting for 47.5%, 59.2%, and 47.5% of revenue for the respective periods.

During the period of historical performance records, Chinese Online’s focus shifted from a to-C model to a to-B model, where the decline in revenue in the domestic market was largely offset by an increase in revenue from its to-B online literature business.

For overseas short dramas, Chinese Online mainly provides in-house and third-party produced short dramas through its flagship short drama platform, FlareFlow. The first episode of each short drama series is offered free to increase viewer engagement. After that, viewers may choose to unlock subsequent episodes for a fee, or subscribe to watch the full short drama series without limits. The company’s revenue mainly comes from customers’ subscription fees and stored-value fees. Non-paying viewers can choose to watch advertisements each day in exchange for the opportunity to watch a limited number of episodes.

In the domestic short drama sector, Chinese Online produces short dramas independently and distributes them through major domestic short drama platforms and video platforms such as Hongguo. The company charges customers a fixed fee based on the number of short dramas, and it also shares in short drama playback revenue.

During the reporting period, revenue from short dramas and IP derivative products was RMB 622 million, RMB 398 million, and RMB 474 million, accounting for 44.2%, 34.4%, and 46.9% of revenue for the respective periods.

Due to intense competition in the domestic market, together with the strategic shift to the domestic premium short drama segment, Chinese Online’s short drama and IP derivative business revenue showed a downward trend from 2023 to 2024. However, benefiting from the growth of the overseas short drama business, improved sharing income from premium short dramas under its cooperation with Hongguo, and increased revenue from IP derivative products related to “Little Black Luohua,” performance rebounded strongly in January–September 2025, with year-on-year growth of 62.9%.

In 2024, revenue from Chinese Online’s short drama and IP derivative businesses decreased by 36% year over year, which also led to a decline in the company’s overall revenue for that year.

During the reporting period, Chinese Online recorded revenue of RMB 1.41B, RMB 1.16B, and RMB 89.98M, with gross profit of RMB 630 million, RMB 381 million, and RMB 347 million, and gross margin of 44.7%, 32.9%, and 34.4%, respectively. In 2024 and January–September 2025, the company’s revenue growth rates were -17.7% and 25.1%, respectively.

Regarding the reasons for the decline in gross profit and gross margin in 2024, Chinese Online attributed this mainly to intensified competition in the domestic market, which increased the share of its domestic to-C online literature business (online reading via mini-programs) with relatively low gross margins, and the loss of gross profit that previously came from not accounting CrazyMapleStudio (its overseas online literature business with higher profit margins anymore). Therefore, the company recorded profit and net profit margin in 2023, while it recorded losses and a net loss margin in 2024.

On the profit side, Chinese Online’s losses during the period intensified significantly. During the reporting period, the company’s net profit was RMB 89.52M, -RMB 243 million, and -RMB 517 million, and its net profit margins were 6.4%, -20.9%, and -51.1%, respectively. In the first three quarters of 2025, the company’s losses expanded to nearly 2x compared with the full year of 2024.

2

Selling expense ratio surges to 65%, and leverage ratio spikes

In the view of the market, the core reason behind Chinese Online’s losses is mainly related to the company’s huge selling and marketing expenses invested to capture the overseas short drama market.

In detail, the company’s selling and marketing expenses mainly include payroll for sales personnel, share-based payments, and benefits; advertising and marketing expenses used for brand promotion and user base expansion; outsourced and other labor costs; and other items, mainly including travel expenses, business entertainment expenses, professional service fees, depreciation and amortization expenses, rent and management fees, and office expenses.

At the end of each period during the reporting period, the company’s selling and marketing expenses were RMB 481 million, RMB 465 million, and RMB 660 million, accounting for 34.2%, 40.1%, and 65.3% of revenue for the respective periods. As of September 2025, Chinese Online’s selling expense ratio exceeded 65%, severely eroding the level of profit for the period.

In January–September 2025, the company’s selling and marketing expenses increased 93.65% year over year, mainly attributable to the launch of the FlareFlow business. This investment was mainly used for brand promotion, user base expansion, and to raise sales personnel payroll, share-based payments, and benefits to support growth of the new platform.

Zhou Di, an expert from the National Technology Expert Database of the Ministry of Science and Technology, said: The overseas short drama industry is highly dependent on ad-driven customer acquisition on platforms such as TikTok and Meta. The industry is in a phase of intensive market competition where players “fight over market share,” causing traffic acquisition costs to be continuously pushed higher and resulting in a marketing arms race. In addition, since the content production cost for short dramas is low and R&D investment itself is limited, companies end up using more than 60% of revenue for marketing.

On the other hand, Chinese Online’s administrative expenses were RMB 107 million, RMB 110 million, and RMB 86.25M, accounting for 7.6%, 9.4%, and 8.85% of revenue for the respective periods; its R&D expenses were RMB 61.58M, RMB 53.37M, and RMB 8.17M, accounting for 6.12%, 5.31%, and 5.28% of revenue for the respective periods.

Ongoing losses combined with high-level investment have put significant pressure on Chinese Online’s own liquidity.

At the end of each period during the reporting period, net cash flow from operating activities was RMB 54.08M, -RMB 657.9k, and -RMB 161 million, respectively; over the most recent nine months, cash flows recorded outflows.

As of the end of each period during the reporting period, the company’s cash and cash equivalents were RMB 330 million, RMB 139 million, and RMB 294 million, respectively.

Due to liquidity pressure, Chinese Online chose bank borrowings to provide funding for its operations. In each period during the reporting period, the company’s bank and other borrowings were RMB 235 million, RMB 230 million, and RMB 321 million, respectively.

For other financial data, at the end of each period during the reporting period, Chinese Online’s trade receivables and bills receivable were RMB 153 million, RMB 162 million, and RMB 207 million, respectively. This mainly came from an increase in trade receivables from the company’s overseas short drama business through third-party online payment platforms. The days of trade receivables and bills receivable turnover were 23.3 days, 49.5 days, and 49.8 days, respectively.

As of the end of each period during the reporting period, Chinese Online’s net current assets were RMB 219 million, RMB 150 million, and -RMB 165 million, respectively. As of the end of the period, the company recorded current liabilities of RMB 165 million, and current assets could no longer cover current liabilities. The company attributed this to a decrease in financial assets measured at fair value with changes recognized in profit or loss, an increase in trade payables and bills payable, and an increase in bank and other borrowings (current portion), partially offset by an increase in trade receivables and bills receivable and an increase in cash and cash equivalents.

In terms of solvency, at the end of each period during the reporting period, the company’s current ratio was 1.41, 1.29, and 0.83, indicating relatively high short-term solvency pressure.

Eastmoney.com shows that from 2022 to 2024 and January–September 2025, Chinese Online’s asset-liability ratio was 35.11%, 31.05%, 38.45%, and 66.56%, respectively, showing a gradual upward trend.

3

Intensive share reductions by major shareholders and executives

As of the latest date that is actually practicable, the company’s single largest shareholder group includes Tong Zilei and the Xuan Yuan Yuan Ding 6 Fund, with a combined voting rights of about 13.69% of the company that can be exercised.

The outside world has noticed that around the eve of Chinese Online’s IPO, multiple core executives and important shareholders of the company, including the company’s directors, the executive vice president, the CFO, and the secretary to the board of directors, conducted share reductions.

On September 12, 2025, Chinese Online issued on the Shenzhen Stock Exchange an announcement regarding a pre-disclosure of a share reduction plan by major shareholders. The announcement stated that Tencent-related shareholder Shenzhen Litong Industrial Investment Fund Co., Ltd. (hereinafter referred to as “Shenzhen Litong”) and Shanghai Yuewen Information Technology Co., Ltd. (hereinafter referred to as “Shanghai Yuewen”) plan to reduce a total of about 14.57 million shares of the company within three months after 15 trading days from the date of disclosure of this announcement by way of centralized bidding or block trades, with the proposed reduced shares representing 2% of the company’s total share capital.

On February 3, 2025, Chinese Online issued an announcement regarding the pre-disclosure of share reduction plans by directors and senior management. The announcement stated that Director Zhang Fan, Director and executive vice president Xie Guangcai, vice president and secretary to the board of directors and CFO Wang Jingjing, and Chief Operating Officer Yang Ruizhi jointly planned to reduce 657.9k shares, with the reduction ratio being 25% of the total number of company shares held by each of them. The reason for the reduction was personal capital needs.

On February 3, 2026, Chinese Online disclosed an announcement regarding the pre-disclosure of share reduction plans by directors and senior management. The four executives mentioned above plan a new round of combined share reduction of no more than 657.9k shares, representing 0.09% of the total share capital, and representing 25% of each individual’s proportion of shares held.

Since the share reductions occurred on the eve of the company’s submission for listing on the Hong Kong Stock Exchange, the share reduction actions of Chinese Online’s important shareholders and major executives have undoubtedly attracted significant attention.

Zhou Di pointed out that large shareholders such as Tencent and Yuewen cashing out was mainly to realize early investments and avoid risks of valuation fluctuations after listing. If core executives reduce their shares by 25% before listing, it clearly sends a signal that they lack confidence in the company’s long-term profitability, which will also make the market worry that the company’s model of emphasizing heavy marketing over R&D may not be sustainable.

At the same time, according to the company’s 2025 annual performance pre-announcement disclosed on the Shenzhen Stock Exchange, it shows that in 2025 the company’s net loss attributable to shareholders of listed companies was RMB 580 million to RMB 700 million, representing a decrease of 139% to 188% compared with the same period last year. After deducting non-recurring profit and loss items, the net loss was RMB 579 million to RMB 699 million, representing a decrease of 114% to 158% compared with the same period last year. Against a backdrop of not-so-optimistic performance, the significant share reductions by major shareholders and high-end shareholders are undoubtedly highly sensitive.

On March 31, 2026, a research report by China Post Securities showed that during the overseas business expansion phase, promotion spending is increased on a phased basis, suppressing short-term profitability. According to projections based on the performance increase announcement, the company is expected to record a net loss attributable to parent in the fourth quarter of 2025 of RMB 657.9k to RMB 60 million, representing an increase in losses year over year of 57.89% to 373.68%. The main reason is that overseas business is in a critical phase of scale expansion; to maintain competitive advantage, the company significantly increased promotion spending, resulting in weaker short-term profit performance.

Looking ahead, as word-of-mouth effects become apparent and the content ecosystem gradually improves, industry concentration may consolidate toward leading platforms that control traffic resources. As one of the current leading players in overseas short dramas, the company’s promotion spending is expected to show marginal improvement first, thereby driving an overall rebound in profitability.

China Post Securities expects the company’s operating revenue for 2025–2027 to be RMB 14/15/1.6B, consistent with the original forecast. But considering that the company is currently in a key stage of expanding overseas markets, it still needs to invest higher promotion expenses in the short term to gain market share. The net profit attributable to shareholders is revised from the original forecast of RMB 0.14/1.28/314M down to -RMB 5.8/0.21/1.06 billion; accordingly, EPS is revised to -0.79/0.03/0.15 yuan. Based on the closing price on March 27, 2026, the corresponding PE ratios are -33/822/175 times. Maintain the “Buy” rating.

For this IPO, the company plans to use the proceeds primarily to develop and improve AI technology, build an overseas short drama ecosystem, strengthen the content ecosystem, and repay within the next year certain bank and other borrowings that will be denominated in RMB, as well as working capital and general corporate purposes. (Produced by Harbor Finance)