Analysis of US stock market new stocks: The concentration of high-quality development to customers is soaring, and the low profitability of OCP.US is difficult to solve.

Thanks to the successful commercialization of AI technology in the advertising industry, the stock price of the leading AI advertising company AppLovin (APP.US) on the US stock market has soared more than 10 times this year, approaching a market value of nearly one trillion RMB. The success of AppLovin has also driven a significant increase in the stock prices of companies in the A-share market, including Leo Group Co., Ltd. (002131.SZ), BlueFocus Intelligent Communications Group (300058.SZ), and Easy Click Worldwide Network Technology (301171.SZ). This also indicates a significant increase in market attention to AI advertising companies, prompting investors to actively seek and invest in potential stocks in this field. The listing journey of Kuangshi Alliance, which has initiated an IPO in the US, has also entered the investors' view. It is understood that Kuangshi Alliance, a big data AI intelligent advertising placement service provider, submitted its public version of the registration statement (F-1 file) to the SEC on March 29, and has updated the prospectus for the third time on September 3, accelerating its IPO process. According to the prospectus, Kuangshi Alliance has applied for the code "OCP" to be listed on Nasdaq, and plans to issue 2 million shares of common stock at a price of 4-6 dollars per share, raising up to 12 million dollars. The 2 million shares of common stock account for 13.79% of the total share capital after the IPO (assuming no exercise of the over-allotment option), corresponding to an IPO market value of Kuangshi Alliance between 58 million and 87 million dollars. In terms of performance, Kuangshi Alliance achieved revenue of 157 million dollars in the 2023 fiscal year (12 months ending June 30), a 324.78% increase year-on-year, with a net profit of 4.455 million dollars, a 253.85% increase year-on-year. However, in the first half of the 2024 fiscal year (6 months ending December 30, 2023), its revenue growth slowed down, dropping by 2.6% year-on-year to 112 million dollars, while net profit increased by 73.6% year-on-year to 1.262 million dollars. Why did Kuangshi Alliance's rapid revenue growth come to a halt in the first half of the 2024 fiscal year? Can it return to a growth trajectory? Will this affect the company's valuation? Answers to these questions may be found in its prospectus. Transitioning from rapid development to high-quality development Since its establishment in December 2015, Kuangshi Alliance has been deeply rooted in the advertising industry, mainly providing customized mobile advertising placement services (including developing mobile advertising plans, placing ads on media platforms, monitoring ad performance data, and optimizing ad placement strategies) and also offering advertising agency services to its customers. Media placement is Kuangshi Alliance's core business, accounting for over 99% of its revenue in the fiscal years of 2022 and 2023. It is not difficult to see from the prospectus that the explosive growth of Kuangshi Alliance's revenue in the 2023 fiscal year is directly related to its seizing of the industry opportunities brought by the popularity of short video platforms. Due to the popularity of short videos, short video platforms have become new battlegrounds for brand advertisers, changing the landscape of the marketing industry, and Kuangshi Alliance has actively expanded its media channels based on this trend. Data shows that in the fiscal years of 2022, 2023, and the first half of 2024, Kuangshi Alliance has cooperated with 48, 197, and 92 mainstream media platforms and their agents respectively, including partners such as Tencent, Sina, and 360. After a significant expansion of media channels, Kuangshi Alliance's customer base grew rapidly. According to the prospectus, the number of Kuangshi Alliance's customers was 64, 238, and 120 in the fiscal years of 2022, 2023, and the first half of 2024, with well-known companies such as Tencent, Huawei, and Vipshop Holdings Ltd Sponsored ADR among its clients. With the rapid growth in the number of customers, Kuangshi Alliance naturally experienced explosive growth in performance in the 2023 fiscal year. However, from a profitability perspective, Kuangshi Alliance's gross profit margin was 5.5%, and net profit margin was 2.8% in the 2023 fiscal year, a decrease of 0.6 percentage points from the 3.4% in the 2022 fiscal year, mainly due to the significant increase in sales and marketing expenses affecting the company's net profit margin. In the first half of the 2024 fiscal year, Kuangshi Alliance no longer simply pursued scale expansion, but began to focus more on the profitability of its projects, placing a higher emphasis on high-value customers and shedding some low-margin customers. This led to an increase in the gross profit margin to 3.2% and the net profit margin from 0.6% to 1%. However, even so, Kuangshi Alliance's net profit margin remains at a relatively low level. Intensifying market competition and increasing customer concentration In fact, Kuangshi Alliance's low profitability is directly related to the high level of competition in the industry. While the popularity of short video platforms has brought opportunities for short video marketing, a large number of marketing companies have also entered this field, leading to continued fierce market competition. To stand out in the fiercely competitive market, advertising placement companies must accumulate core competencies in intelligent recommendation algorithms, data analysis, programmatic advertising, precise marketing, etc. If Kuangshi Alliance does not make breakthroughs in these areas, its low profitability situation may be difficult to address effectively. Apart from fierce market competition, Kuangshi Alliance also faces other potential operational challenges, such as a significant increase in customer concentration. According to the prospectus, in the 2023 fiscal year, the revenue of Kuangshi Alliance's top five customers accounted for only 25.4%, with percentages of 9.24%, 7.58%, 3.36%, 2.88%, and 2.34% respectively. However, in the first half of the 2024 fiscal year, the revenue share of the top five customers of Kuangshi Alliance has soared to 53.4%, with the largest individual customer accounting for 28.4%. If the demand from these major customers weakens or is lost, it may significantly impact Kuangshi Alliance's performance.Secondly, the advertising industry is very sensitive to macroeconomic conditions. If the economy is in a downturn, businesses will take the lead in cutting marketing expenses to save operating costs. Therefore, when the economy is relatively weak, the demand for advertising placements by advertisers will also significantly decrease, leading to a clear cyclical pattern in the advertising industry. The ability to achieve counter-cyclical development will be a test for the Kwangshin Alliance. Furthermore, the ability to achieve success in overseas markets will be a crucial factor in determining the valuation of the Kwangshin Alliance. In its prospectus, the Kwangshin Alliance clearly states that it will explore opportunities to collaborate with overseas media platforms such as Alphabet Inc. Class C, Meta, TikTok, and Bing. It will establish partnerships with agents of these international media platforms and will enter the international mobile advertising market starting from the third quarter of 2024. At the same time, the Kwangshin Alliance will start exploring the live e-commerce market in Southeast Asia from the third quarter of 2024. The Kwangshin Alliance needs to prove its ability to expand overseas businesses through its performance. Overall, the Kwangshin Alliance achieved explosive growth in the 2023 fiscal year and has started high-quality development since the 2024 fiscal year. This has led to revenue contraction, accelerated profit release, but the intense competition in the market, over-concentration of customers, industry volatility, and the ability to expand overseas markets are all potential challenges that the Kwangshin Alliance needs to face directly.