Are the three shareholders of Focus Media reducing their holdings of more than 20 billion yuan in cash really just a profit-making exit?

Focus Media announced that from February 14 to June 29, 2017, shareholder Giovanna Investment Hong Kong Limited reduced its shareholding by 210 million shares, accounting for 2.40% of the total share capital, and cashed in more than 2.7 billion yuan.

On June 30, Focus Media announced that shareholder Giovanna Investment Hong Kong Limited reduced its holdings of 210 million shares through block transactions from February 14 to June 29, 2017, accounting for 2.40% of the total share capital, and cashed in more than 2.7 billion yuan. After this reduction, Giovanna Investment (HK) holds 470 million shares of the company, accounting for approximately 5% of the total share capital, and is no longer a shareholder holding more than 5% of the company's shares.

This is the second time in June that Focus Media has suffered a reduction from a major shareholder.

On the evening of June 16, Focus Media's second and fifth largest shareholders launched a "liquid-style reduction" plan, which caused Focus Media's share price to suffer a heavy drop. Previous announcements showed that Power Star (HK), the second largest shareholder, is preparing to reduce its stake in Focus Media by no more than 7.41%, and Gio2 (HK), the fifth largest shareholder, is preparing to reduce its stake in Focus Media by no more than 6.77%. These two major shareholders previously held 648 million shares and 591 million shares respectively in Focus Media.

Affected by this, Focus Media's share price once hit a limit on June 19, and the share price finally barely closed at 13.06 yuan/share, a drop of 9.81%. In the nine trading days since then, Focus Media's share price rebounded by 5.36%, but it still fell by about 5% compared with the high of 15.39 yuan/share before the announcement. At present, the total market value of Focus Media is 120 billion yuan, which is 6.5 billion yuan "evaporated" compared with June 16 before the announcement.

Based on the announcement date, the cash amount of these three shareholders who announced their reduction in holdings exceeded 20 billion yuan. In 2013, when Focus Media delisted from Nasdaq, its market value was US$2.646 billion, equivalent to approximately RMB 16.5 billion. In this way, the cash amounts of the three investment institutions that entered in the early stages have exceeded the original valuation of the entire company.

Market analysts said that the return of China Stock Exchange will often bring about a sharp rise in stock prices. The consortium that participated in the privatization of China Stock Exchange will need to withdraw and realize after meeting relevant conditions to obtain considerable profits. But in addition to profit-making exits, Focus Media's recent performance may also be a major reason for early investors to withdraw.

Focus Media's revenue is concentrated, and its main business income comes from elevator building advertising. At present, Focus Media's building video media market share reaches 95%, building frame media market share reaches 70%, and theater screen media market share reaches 55%.

The above figures mean that Focus Media's main business has limited room for growth, and the company's revenue and profit growth will be challenged. In addition, with the emergence of mobile advertising, market share has been compressed again.

Tencent Holdings '2016 annual report shows that Tencent achieved revenue from online advertising business of 27 billion yuan, a year-on-year increase of 54%. Among them, effect advertising revenue composed of WeChat circle of friends, mobile news applications and WeChat public accounts was 5.168 billion yuan, a year-on-year increase of 77%. This growth rate is much higher than Focus Media's advertising growth rate. Focus Media's 2016 annual report shows that the company achieved total operating income of 10.213 billion yuan that year, a year-on-year increase of 18.38%. 78% of the revenue comes from elevator building advertising, approximately 7.847 billion yuan. However, Focus Media's elevator advertising growth rate of 12.99% year-on-year is lower than the company's total revenue growth rate of 18.38%, not to mention Tencent Mobile's 77% year-on-year growth rate.

The gross profit margin of Cinema Media, another major revenue of Focus Media, also declined slightly. The gross profit margin of Cinema Media fell from 62.19% in 2015 to 60.57% in 2016.

In fact, considering the possible challenges in the building business, Focus Media also laid out cross-field cooperation when it returned to the A-share listing. In January 2016, Focus Media acquired Shuhe Technology, a wealth management service provider, for 1 billion yuan. It owns the product "Latte Financial App" and uses it to enter the field of Internet finance. In July 2016, Focus Media invested an 8.24% stake in Hero Sports for RMB 3 billion, thus entering the e-sports sports industry. However, annual report data shows that Shuhe Technology's operating income is 8.2762 million yuan and its net profit is-23.07 million yuan. The operating situation is not optimistic. Focus Media's cross-field investment has not yet yielded results.

Editor: Mary