China's Full Truck Digital Freight Platform Pulls Back Curtain In Prospectus

With China's Full Truck Alliance moving toward an initial public offering in U.S. equity markets, its prospectus is giving potential investors, competitors and potential customers a look into the online logistics' platform's finances and business operations.

Full Truck Alliance filed a registration statement last week with the Securities & Exchange Commission for an IPO on a to-be-determined U.S. stock exchange. Reports in other media said the company is seeking to raise $1.5 billion in its stock offering.

Late last year, FTA raised about $1.7 billion in investments from several private equity sources. The company is known as Manbang in China.

In the prospectus, Full Truck said it is the world's largest freight platform if measured by the benchmark of gross transaction value. It put its 2020 gross transaction value at 173.8 billion renminbi (RMB), which at current exchange rates would translate to approximately $27.2 billion. However, that number was impacted by COVID-19, and the prospectus said the company's GTV in the first quarter of 2021 was RMB51.5 billion ($7.9 billion, which equates to an annual rate of $31.6 billion.)

The prospectus cited a report that said "approximately 20% of all China's heavy-duty and medium-duty truckers fulfilled shipping orders on our platform in 2020."

Full Truck lists three primary services. The first is a freight listing service, a membership service that shippers utilize to post their needs. The membership aspect of that business "allow[s] paying shippers to post more shipping orders than non-paying shippers."

A second is a freight brokerage service, launched in January 2018. Full Truck's description of the service sounds similar to that of a U.S. brokerage, with one enormous exception: government assistance. Full Trucking, the prospectus said, pays value-added tax, but then receives "partial tax refunds in the form of government subsidies from local financial bureaus as an incentive for developing the local economy and business." 

The third segment at Full Truck is an online transaction service. Part of the offering in this segment is visibility: "we offer shippers the option to track the transactions at each (sic) in real-time." The model involves truckers making deposits, which "serve as assurance for the timeliness and quality of truckers' services."

The service also includes a feature that truckers can use to protect themselves against order cancellations. "If shippers cancel shipping orders when truckers are already on their way to pick up cargoes, truckers can collect cancellation fees from our platform to cover the cost of travel," the prospectus says. If a shipper is late on a payment, users of the online transaction service will be aided by Full Trucking in collecting what is due them, the prospectus said.

That service has only been monetized since August 2020, specifically in just three cities: Hangzhou, Huzhou and Shaoxing. "For selected types of shipping orders originating from certain cities in China, we collect commissions from truckers for shipping transactions matched through our online transactions service," Full Trucking said in the prospectus. 

Full Truck is not profitable at present. In 2020, it reported a net loss before income tax of RMB 3.45 billion, which translated at the end of the year to a U.S. equivalent of $528.9 million. The operating loss was RMB 3.6 billion, equivalent at year's end to $553.96 million. 

Net revenue including VAT income was RMB 2.58 billion ($395.5 million) during the year, meaning its operating loss exceeded its revenue. Its general and administrative expenses (G&A) were close to RMB 4 billion ($603 million), so G&A exceeded both net revenue and operating loss. 

While a perfect comparison to a U.S. logistics company is not possible, it can give some sense of the size of Full Trucking. For 2020, C.H. Robinson Worldwide CHRW posted full 2020 revenues of $16.2 billion, compared to the dollar equivalent figure for Full Truck of just under $400 million. 

At the end of 2020, C.H. Robinson had slightly more than 15,000 employees. Full Trucking had just over 4,000 employees at the end of 2020. 

But if the financial numbers aren't strong, Full Truck touted other figures about its market penetration. The number of active shippers on the platform in the first quarter of 2021 was 1.22 million. A year ago, it was 730,000. But the number of fulfilled orders rose far higher than the rate of the number of shippers. In 2020, fulfilled orders in the first quarter was 8.2 million; this year in the first quarter it was 22.1 million. 

The prospectus has brief biographical information about its key officers. Peter Hui Zhang is the 42-year-old founder of Full Truck and was the CEO of the Yunmanman group, which was consolidated with Huochebang in 2017 to create Full Trucking. 

The company's IPO will be for class A shares though there are a significant number of class B shares now in the hands of other management team members.  

"Our corporate actions will be substantially controlled by [Zhang], who will have the ability to control or exert significant influence over important corporate matters that require approval of shareholders," the prospectus said. "As a result," it added, shareholders may be "deprive[d] … of an opportunity to receive a premium for your [shares] and materially reduce the value of your investment."

Zhang, before founding the predecessor company to Full Truck, was a regional manager at China's Alibaba Group.

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