Full Truck Alliance Travels Bumpy Road Through Pandemic, Regulatory Wave

Key takeaways:

• Full Truck Alliance said its fourth quarter fulfilled orders rose 41.6%, slowing from 78.4% growth in the previous quarter
• Growth comes as other major companies report business contractions in China due to Covid-control disruptions

By Doug Young

There are quite a few ways to look at the latest fourth-quarter update from Full Truck Alliance Co. Ltd.YMM, reflecting just how complex China’s corporate landscape has become due to factors including the global pandemic and the current wave of new regulation sweeping the nation.

And then, of course, there’s the company’s actual business, which uses apps to match up truckers and people looking to have goods trucked within China. But somewhat ironically, the company’s actual business seems to be increasingly irrelevant in the current climate due to all the other factors.

That’s actually a growing reality for many Chinese tech firms these days, reflecting the country’s complex corporate landscape where many non-commercial elements are often just as important as actual business factors. We mentioned one of those when we last wrote about Full Truck Alliance, namely syncing with government priorities, which the company seemed to be doing well as China seeks to lower its carbon emissions to become carbon-neutral by 2060.

But another factor that’s been in strong focus lately is data security, which has been more problematic for the company. More precisely, Full Truck Alliance announced last July it was undergoing a cybersecurity review by China’s internet regulator, and that it was being barred from signing up new users pending outcome of that review.

While it remains unclear what the results of the review might mean, the more immediate concern is the ban on signing up new customers that is limiting Full Truck Alliance’s growth.

Then there’s the pandemic and China’s recent strict control measures that have resulted in big restrictions on movement of people within the country and even within individual cities. Three of the most extreme cases during the fourth quarter have come in the cities of Xi’an, Tianjin and Zhengzhou, which have implemented partial or complete lockdowns to contain local outbreaks.

Such restrictions have wreaked havoc for restaurants and shops that rely on consumers to be out and about. It has also restricted travel between cities, which has affected the movement of people around the country. The movement of goods that lies at the heart of Full Truck Alliance’s business has also been affected. That element was on display during the Xi’an lockdown when some people started to complain of a lack of daily groceries as they remained stuck at home.

With that complex landscape in mind, we’ll finally take a look at Full Truck Alliance’s latest update, which shows it fulfilled 34.8 million orders in last year’s fourth quarter, up 41.6% from a year earlier. Those orders represented gross transaction volume of 69.5 billion yuan ($11 billion), up by a milder 22.1% year-on-year. That combination continues a broader trend for the company that shows that the average value of each transaction is getting smaller.

If you were a “glass-half-full” person, you might applaud the latest report for the fact that Full Truck Alliance was able to report such strong growth for the quarter, even as most retailers and other consumer-facing businesses were reporting strong contractions due to pandemic disruptions.

Half empty?

But at least based on the company’s stock price, it would appear investors took a more “glass-half-empty” view of this latest update. Full Truck Alliance’s shares fell 7.1% in Tuesday trade after the report came out to trade near their 52-week low. Here we should note the stock rose by a similar amount a week ago for no apparent reason, meaning it now trades not far from where it started 2022, down about 4% since Jan. 1.

Investors were probably focused on the fact that the latest figures represented a slowdown from the third quarter, when Full Truck Alliance’s fulfilled order volume rose 78.4%, and its gross transaction value was up by 48.8%.

The company also mentioned the security review, which is obviously quite important to its ability to return to a stronger growth track. “Pending the completion of the cybersecurity review of our Yunmanman and Huochebang apps, we look forward to our continued growth through expanding user base and driving user engagement,” said Chairman and CEO Zhang Hui, who also uses the name Peter Zhang, in remarks accompanying the update.

The bottom line is that pandemic-related disruptions and the ongoing review are overshadowing the company’s more positive environmentally friendly story, as well as its very real growth potential due to the fragmented nature of China’s trucking industry.

It’s really anyone’s guess when the review will wrap up. Similar anti-trust reviews in China are supposed to be completed within six months, though there don’t appear to be any such time limits for data security reviews, possibly because they are so new. Full Truck Alliance first announced the review at the start of last July, meaning six months have passed since then.

The uncertainty factors appear to be weighing on the company’s stock and valuation. It currently trades at price-to-book (P/B) ratio of 2.5, compared with the 3.7 and 3.5 for more traditional logistics companies JD Logistics(2618.HK) and ZTO ZTO, respectively. Things look a bit better for Full Truck Alliance on a price-to-sales (P/S) ratio. In that regard the company trades at a P/S of 20, versus a relatively low 1.6 for JD Logistics and 5.6 for ZTO.

On a broader basis, Full Truck Alliance’s overall financial health looks relatively good. Its revenue rose 68.9% in the third quarter to 1.2 billion yuan, while its net loss narrowed by half to 178 million yuan from 334 million yuan a year earlier. On a non-GAAP basis, the adjusted loss in the third quarter was even smaller at 4.7 million yuan, though we should not the company was profitable on that basis in the year-ago period.

The bottom line is that we’re likely to see a major uncertainty removed from this company in the not-too-distant future when the data security review ends, which should allow Full Truck Alliance to start signing up new customers again. It’s harder to say when pandemic disruptions might ease, though that also looks likely in the next three or four months as the omicron variant starts to subside and cold-and-flu season ebbs with the arrival of spring and summer.