Preview of US Stocks IPO | With declining performance and existing shareholders looking to cash out, how can CTRL Group (MCTR.US) attract investors to buy in?

Among the new stocks listed in the US, there are companies that have old shareholders reselling shares during IPO, that is, old shareholders cashing out directly at the time of listing. Such companies often do not perform well in terms of stock price after IPO, as the logic behind it is that if old shareholders do not have confidence in the company's future development, the market will also be more cautious. Among the companies currently listed in the US, there is also one company that has arrangements for old shareholders to resell shares, and that is CTRL Group. It was learned that CTRL Group, which focuses on promoting mobile games in the Hong Kong market, first submitted its public version of the prospectus to the SEC on March 15, 2024, and subsequently updated it up to 6 times, continuously pushing forward its IPO process. According to the prospectus, CTRL Group applied to list on Nasdaq with the code "MCTR". In this IPO, it intends to issue 2 million common shares at a price of $4 to $5 per share, raising up to $10 million. At the same time, selling shareholders will sell 1.75 million common shares in this IPO, and CTRL Group will not receive any proceeds from it. The selling shareholders cashing out will undoubtedly dampen market sentiment towards CTRL Group, and in terms of performance, CTRL Group's performance is also not satisfactory. Data shows that CTRL Group's revenue for the 2024 fiscal year (12 months ending March 31) was HK$40.65 million, a year-on-year decline of 14.5%, and net profit for the period was HK$1.8997 million, a year-on-year decline of 30.5%. With old shareholders cashing out and a significant decline in performance, CTRL Group's stock price performance after listing is difficult to be optimistic. Gross profit margin rebound unable to offset significant decline in net profit CTRL Group is a comprehensive marketing and advertising service provider in Hong Kong, focusing on providing advertising and marketing services for mobile game developers in the mainland Chinese market. According to the prospectus, CTRL Group's entire advertising process provides customers with one-stop advertising services, including planning, creation, delivery, management, and performance monitoring of advertisements. CTRL Group tailors advertising plans for customers based on the characteristics of their mobile games and market conditions, taking into account popular trends in similar advertising designs. According to the advertising plan, CTRL Group designs the overall marketing concept and strategy for promoting mobile games for customers, customizing innovative themed advertising campaigns to attract target audiences and maximize exposure and display. It is worth noting that CTRL Group has an in-house design and production team responsible for the art and design of various advertising materials in different formats, including video, animation, and photos. CTRL Group is directly involved in concept development, storyboard creation, scriptwriting, casting, filming, and post-production. In addition to providing mainstream advertising services, CTRL Group also offers value-added services to customers during the advertising placement process, including creative design of advertising themes and content, localization of advertising materials, social media management services, post-publication advertising effectiveness monitoring, custom cosplay costumes for virtual characters in mobile games, and consultancy on the latest market trends and fashions. In terms of revenue structure, CTRL Group primarily provides four categories of services to customers, namely online advertising, offline advertising and network banner marketing, strategic planning services, and other services. In the 2024 fiscal year, the revenue shares of these four services were 35.94%, 55.58%, 1.63%, and 6.86%, respectively. Clearly, advertising is the core business of CTRL Group, with advertising revenue from Wuxi Online Offline Communication Information Technology Co., Ltd. accounting for over 90% of the total. The 14.5% decline in revenue in the 2024 fiscal year was mainly due to two reasons. First, online advertising revenue plummeted by 44.2% year-on-year to HK$14.6094 million, as most of CTRL Group's customers allocated a larger proportion of their advertising budgets to offline media after the impact of the epidemic subsided, leading to a sharp drop in online advertising revenue. Second, revenue from strategic planning services plummeted by 68.7% year-on-year, as the number of mobile gaming applications seeking such services decreased, and some customers decided not to renew service contracts upon expiry but instead opted to continue cooperation based on one-time advertising packages. Reasons for the significant increase in interest expenses in the 2024 fiscal year. It is worth noting that in the 2024 fiscal year, CTRL Group distributed a total of 3 million Hong Kong dollars to shareholders on the register as of March 31, 2023, and distributed it on May 16th.Development plans may not have immediate effects in the short term. From an industry perspective, the game advertisement market in Hong Kong is expected to continue growing in the coming years. According to an independent industry market research report from Euromonitor International Limited in London, as the impact of the pandemic diminishes, the entertainment and media advertising industry in Hong Kong will gradually recover with the increase in consumer activities. It is expected that the revenue of the advertising industry in Hong Kong will grow from HK$29.8 billion in 2022 to HK$39.6 billion in 2027, with a five-year cumulative compound annual growth rate of 7.3%. Looking specifically at the gaming sector, the growth of the mobile game market in Hong Kong and the overseas expansion of domestic mobile game developers will drive the development of the game advertising market. According to a report from CITIC SEC, the revenue of Chinese mobile games in the international market has grown from HK$20.6 billion in 2015 to HK$136.2 billion in 2022. Furthermore, the "2024 Chinese Game Overseas Research Report" shows that the actual sales revenue of independently developed Chinese games in the overseas market reached $18.557 billion in 2024, a year-on-year increase of 13.39%. This growth trend is expected to continue in the coming years. To seize future development opportunities in the industry, CTRL Group detailed its future development plans in its prospectus. One aspect is expanding into the Asian game advertising market, extending its one-stop advertising services to Southeast Asian markets such as Taiwan, Malaysia, and Singapore. The company will comprehensively consider factors such as potential customer groups, cultural differences in advertising audiences, and advertising methods to develop overseas markets. Another aspect is that CTRL Group aims to become a mobile game operator. The company's management has stated that due to their deep understanding of mobile games, experience accumulated from mobile game operator clients, and involvement in the advertising process, the company has the ability to become a mobile game operator to seize the mobile game market. However, as of now, CTRL Group has not yet established contact with any potential mobile game projects or publishers. Looking at CTRL Group's future development plans, it is clear that they have identified limitations to their own growth. In fact, the competition in the Hong Kong game advertising market is fierce, and the market is relatively limited, with the total size of the advertising industry in Hong Kong in 2022 being less than HK$30 billion. Focusing solely on the Hong Kong market makes it difficult to achieve breakthrough development. This is why in recent years, domestic game companies have been looking to expand internationally, while CTRL Group, by sticking to the Hong Kong market, has not achieved rapid growth. Therefore, the company plans to expand into the Southeast Asian market. However, it should be recognized that whether expanding into Southeast Asia or moving towards becoming a mobile game operator, there is still a great deal of uncertainty regarding CTRL Group's ability to achieve effective development, and it is unlikely to see immediate results in the short term. Therefore, if CTRL Group solely relies on the deteriorating performance fundamentals and the intention of stockholders to cash out through the IPO, the future performance of its stock price after listing may already be self-evident.