China’s Babytree, a leading online family platform which aims at child-care, plans to raise USD 1 billion in a Hong Kong initial public offering (IPO) in October, taking steps to expand globally, sources told news agency Reuters.
On the condition of anonymity, the sources further disclosed that the company is seeking approval from the Hong Kong stock exchange’s listing committee and would target a valuation of USD 3 to 5 billion.
Regardless of the HK IPO, Babytree is a thriving business. In its preliminary IPO prospectus filed on June 28, the platform announced that it is “China’s largest maternity and child-centric online community.” By usage metrics, Babytree boasted more than 139 million monthly active users (MAU) and connected 338 advertising clients and 2,253 third-party e-commerce vendors at the end of fiscal 2017.
Further, Babytree posted revenue of CNY 729 million (USD 106 million) in fiscal 2017, up 43% since 2016. The parenting platform earned revenues primarily through advertising, e-commerce, and content management services.
However, the IPO file revealed a severe loophole in the company’s functioning: inefficiency to monetise its parenting community.
Babytree’s parenting community: from online to offline
Babytree provides parenting knowledge, activity and interactive services primarily through its community website —babytree.com— and two apps— Babytree Pregnancy and Babytree WeTime. It connects Chinese parents who can discuss their problems with each other.
Following the model of “community + e-commerce”, it built a business ecosystem that covers internet community, original contents and commercial services, to fulfill Chinese families' requirements for education, socialisation, child development tracking and consumption.
To expand its business, Babytree has emphasised on both online and offline early childhood education schools in recent years.
The company began to explore the sector as early as 2008. However, its offline early education institutions opened in Beijing ended up with closure after a few months.
Fortunately, Babytree’s online early childhood learning programs are much successful. The venture partnered with an American toy manufacturing company, Mattel to develop online lessons in early 2017, targeting those aged between 0 and 5.
“Fisher-Price, as a a subsidiary of Mattel, will involve in designing related courses and activities. Its management team will operate the entire early education system.” Babytree founder and CEO Wang Huainan told Chinese news company Sina.
In June this year, Babytree officially formed an alliance with Alibaba (阿里巴巴) after it completed CNY 1.4 billion (USD 201 million) corporate round led by the tech giant. The funding round appears to give Babytree a strong growth opportunity as it stands to benefit from Alibaba’s e-commerce expertise. At the same time, the two sides would collaborate on marketing, e-commerce, C2M (Customer to Maker) etc.
The plight of online community monetisation
For the parenting startup, online community is the essence. Babytree’s community includes UGC (user-generated content), PGC (professionally-generated content), and PUGC (professionally-user-generated content), which were believed by many as one of the most profitable sources.
However, online community monetisation is difficult. According to the IPO prospectus, only a modest 3% revenue was generated from the corporation’s online community (or “content services” in the prospectus) last year. Insufficient exploration of the monetisation source offered a big challenge for Babytree, Sina commented.
The venture currently relies on “paid knowledge” to boost business and increase profits. This means that users pay for professional parenting knowledge on the platform.
In 2016, Babytree raised CNY 3 billion (USD 431 million) Series D round led by Chinese venture investment firm Fosun (复星). It utilized Fosun’s healthcare resources to scheme an “online paid knowledge + health services” strategy. The two sides even established a joint venture company, Shanghai Xingbao Zhikang Technology (上海星宝智康科技), to ramp up the plan.
But the “online paid knowledge” focus is perhaps problematic: it has invited troubles for other platforms that used it. These platforms often suffered from poor quality of lecturers and subject selection. Besides, early education is comparatively new in China and few are willing to spend money on it.
According to Zhang Yi, the founder of a third-party research institution iiMedia (艾媒咨询), paid knowledge platforms are not profitable.
“The industry is not that thriving. The funds flowing between the market and the platform aren’t enough. It is difficult to support Babytree team." Zhang observed.
He further added that the pressure on Chinese investment market is relatively high owing to the large number of companies that have gone for IPOs in the recent past.
“ If Babytree fails to diversify its monetisation sources, it might be difficult to obtain the expected valuation in the upcoming HK IPO,” Zhang added.