Energy Monster Expands Its Reach, But Gets Bitten by Covid

Key Takeaways:

•      Leading power bank provider Smart Share Global’s revenue fell 13% in the first quarter as it suffered from pandemic lockdowns

•      Company hopes to improve performance with more efficient new power bank cabinet set to launch by the end of this year

By Edith Terry

When power bank operator Energy Monster EM made its Nasdaq market debut in April 2021, the timing seemed superb. China’s economy was on a roll after bouncing back from its initial Covid-19 scare of 2020, and consumers were spending. And while the rest of the world was still grappling with the latest Covid variants, the China tech route of 2021 had yet to come.

Fast forward to the present, when the latest earnings report from Smart Share Global Ltd., Energy Monster’s official English name, shows a company grappling with shrinking sales as it battles with rivals for market share. Adding to its woes, Energy Monster is also facing repeated disruptions from China’s ongoing efforts to stamp out Covid-19 outbreaks by shuttering many of the stores, restaurants and other venues that are company’s main source of business.

Things weren’t always that way.

The Shanghai-based company was riding high at the end of 2020 when it controlled 34.4% of China’s market for store-based power bank charging stations, with peers Yidianyuan and, Jie Dian lagging behind at 22.2% and 17%, respectively. The situation represented a flip-flop from just two years earlier in 2018, when Yidianyuan and Jie Dian were the market leaders, each with more than 30% share, while Energy Monster was the newbie with 9.0%.

The companies were battling in a market expected to grow from 9.0 billion yuan ($1.37 billion) in 2020 to 106.3 billion yuan by 2028, according to third-party research, creating a huge opportunity for the dominant players.

All that changed within a few months of Energy Monster’s IPO, which raised $150 million. Its shares have moved steadily downward from their $8.50 IPO price, closing at $1.21 on Wednesday. That’s still an improvement from the all-time low of $0.89 where the stock traded in March not long after its last earnings report. But its latest valuation of about $330 million is still a far cry from the $2.1 billion it was worth at the time of its IPO.

The stock has traded mostly sideways since the June 15 release of its first-quarter results that contained little to get investors excited. Its current level translates to an anemic price-to-sales (P/S) ratio of 0.48 and similarly unimpressive price-to-book (P/B) ratio of 0.69.

Energy Monster’s revenue fell by 13% year-on-year to 737.1 million yuan ($110 million) in the first-quarter, as it slipped into the red with a net loss of 96.4 million yuan compared to a 15.1 million yuan profit a year earlier. Revenue from its core mobile device charging business fell 12.1% to 717.7 million yuan, accounting for the vast majority of sales, while revenue from power bank sales dropped by an even larger 48.3% to 12.9 million yuan. The only bright spot was a 25.5% increase in revenue from the company’s new advertising business and other new business initiatives to 6.4 million yuan, though that figure is tiny in the overall picture.

Worse to come

Things are only expected to get worse in the near-term. In May, nearly 400 million people in 45 cities were locked down across China, including the 25 million people in the country’s economic and financial hub of Shanghai. Energy Monster’s business revolves around the convenience of providing power chargers for hire in a country with more mobile phones than people. But people have to be able to leave their homes to use those chargers. And the shops, restaurants, gyms and other venues where the charging stations are located also need to be open for business.

“Starting in mid-March, Shanghai’s foot traffic was nearly halted due to the citywide lockdown imposed by the government,” said Chairman Mars Cai on the company’s earnings conference call. “As a result, from mid-March to May, our revenue in Shanghai decreased by an average of 93%. Beijing is similar, to a lesser extent,” he added.

The worsening situation in April and May led Energy Monster to forecast the second quarter would be even worse than the first, with revenues expected to come in between 660 million yuan and 690 million yuan, down around 30% from 972 million yuan in last year’s second quarter.

The pandemic woes are just the latest in a near-nonstop stream of bad news for Energy Monster since its IPO. The company’s shares have also been hammered by a China tech rout of the last year, which is only now abating as Chinese policymakers reverse course after a regulatory crackdown on the country’s big tech companies.

The largest China tech stock ETF, KraneShares CSI Internet Fund (KWEB), had wiped out nine years of gains by mid-March, as investor reaction to Russia’s invasion of Ukraine added to existing worries about China’s anti-trust and other measures to rein in big tech. But by June 22, KWEB was up by 45% from its March 14 low.

Energy Monster is among a larger group of hardware-related offline tech stocks, dependent on advances in charging technology and proliferation of devices that need charging. Despite the low cost of charging devices, many people like the convenience of being able to use borrowed chargers. Even as rental prices have risen from about 1 yuan to more like 5 yuan per hour, equal to nearly $1, customers complain but keep using the chargers that are ubiquitous in malls, restaurants, Shanghai Disneyland, and most venues with high foot traffic.

Energy Monster is one of four dominant players that control an overwhelming majority 96% of the market – a factor that has allowed the group to steadily raise rental prices. While market share has shifted during the pandemic, Energy Monster has managed to keep growing in terms of its presence, even if its revenue growth has stalled. The company had 861,000 “points of interest,” as it calls its charging station locations, at the end of March, compared to 845,000 at the end of 2021. Those stations had 5.7 million power banks “available for use” on any given day by the company’s 298.9 million registered users.

As technology improves, Energy Monster has increased its R&D expenditures by 31.2% year-over-year in the latest quarter. That includes development of a new, more efficient power bank cabinet that could ultimately help the company to lower capex costs when the product is ready for deployment later this year.

According to Cai, the new power bank cabinets will reduce the payback period for its partners and “unlock their growth potential.” The company is rapidly building up its network of such partner operators in first- and second-tier cities, complementing its past practice of directly operating most of its power banks in those cities. Its number of partners in the latest quarter was up 180% from a year earlier, and up 30% from the end of 2021.