In recent years, the development of SaaS in China has been booming, with a variety of applications emerging continuously. With the entry of various forms of capital, the SaaS industry has also stood at the forefront for a while. As an important application field, HR SaaS has been favored by all types of capital and has developed rapidly in China.
As the first cloud-based HCM (Human Capital Management) stock in China, Beisen Holdings has seen its market value plummet by 86% just one year after going public. It seems not an exaggeration to describe it as a dismal sight. So, what happened to the once highly promising HCM first stock?
The First Stock of HCM Dragged Down by Losses
Looking at the HCM market alone, Beisen Holdings is undoubtedly a leading player in the industry, but its performance makes it hard to generate much interest in the HCM industry. This is because its market concentration is not as high as outsiders believe, and it also faces the issue of chronic losses.
According to relevant industry statistics, in the year 2021, if we look from the perspective of revenue, Beisen Holdings' overall share in the Chinese HCM market exceeded 11%, ranking first among nearly three hundred companies. However, if we broaden the scope of the industry to include all players involved in the digital HCM market, Beisen's market share is only 3.4% among more than five hundred companies, ranking third in the entire market, which is not a high overall market share.According to relevant financial report information, Beisen's revenue has shown a stable growth trend over the past three years, increasing from 459 million in 2020 to 680 million in 2022. In absolute terms, the growth of Beisen Holdings' revenue is not fast, but its core issue is not the low revenue growth rate, but its extremely unstable gross margin. Public information shows that its gross margin for 2020 and 2021 was 59.8% and 66.4% respectively, and in 2022, the gross margin fell back to 58.9%. It may seem that its gross margin is quite high, but its loss figures are not small. So, what exactly is the reason?
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Firstly, like other SaaS companies in their early stages of development, high R&D expenses and sales costs have become the "heavy burden" that drags down Beisen Holdings' profitability. According to the data disclosed by Beisen Holdings, from 2020 to 2022, Beisen Holdings' R&D expenses during the reporting period exceeded 200 million, approximately 215 million, 213 million, and 258 million, accounting for 46.9%, 38.2%, and 38.0% of revenue, respectively, with the remainder being marketing expenses and sales costs. Since its revenue growth cannot keep up with its expenditures, it has been in a loss-making state. From the fiscal year 2020 to 2022, Beisen's adjusted net loss amounted to approximately 250 million, 120 million, and 160 million, totaling over 500 million.
Secondly, HR SaaS is a scale business, which requires a significant amount of resources to be invested upfront for product development, channel expansion, and customer growth, all of which seriously extend its profitability cycle. Combining the development situation of SaaS abroad, similar HCM leaders like Workday have also not been profitable for many years. Considering the mature SaaS environment abroad, in fact, Workday's development is better than Beisen's.
According to IDC research report data, the scale of China's HCM SaaS market in 2022 was about 4.528 billion yuan, while Workday's revenue in 2022 had already exceeded 5 billion US dollars. In terms of gross margin, Beisen Holdings is at 54%, while Workday is at 72.4%. However, even so, Workday has not yet achieved profitability. Considering China's environment and current scale, Beisen's profitability cycle is likely to be even longer.
It is difficult to break away from homogenization in a fiercely competitive market.In terms of industry perspective, the HR SaaS sector still holds significant potential for growth. Data from iResearch Consulting indicates that the HR SaaS market size reached 1.93 billion yuan in 2019, marking a 45.7% increase from the previous year. This growth momentum is notably higher than the 43.7% growth of the year before, showing an accelerating trend. According to iResearch estimates, the market size of HR SaaS is expected to reach 7.07 billion yuan by 2023 and is projected to hit 14.2 billion yuan by 2025. Despite the favorable development of the industry, companies are facing severe issues of homogenization in competition.
Specifically, HR SaaS systems primarily revolve around five core technologies: collaborative office, human-machine coordination, automatic data information matching, auxiliary business decision-making, data input and output, and data protection. The lack of high technical barriers has led to an inability for HR SaaS companies to establish core technological moats, thus forcing them to focus on product development. When categorized by product form, Chinese HR SaaS can be broadly divided into two types: integrated and single-module.
Integrated HR SaaS encompasses multiple segments such as recruitment, assessment, core human resources, performance, online training, and compensation, while single-module focuses on a specific vertical field. Industry-wide, both integrated and single-module sectors are facing the same issue of homogenization, with this being particularly acute in the integrated domain.
On one hand, as integration becomes an industry consensus, various companies, including Beisen Holdings, have embarked on the path of integration, leading to increasing homogenization in this track. According to public information, from Beisen to Kenexa, and to CDP Group, many companies are accelerating the depth and breadth of integration, which also implies fierce competition. For instance, CDP Group candidly acknowledges the pressure of homogenized competition in its prospectus, stating, "In the digitalization of future human resource management, CDP Group will inevitably face pressure from both domestic and international HCM vendors when expanding its customer base."
In addition to the existing integrated vendors, some single-module vendors are also gradually joining the integration process. Taking the recruitment sector vendor MOKA as an example, after securing financing from well-known capital institutions such as Hillhouse, Blue Lake, and Tiger, it began to expand from the recruitment field to more areas like compensation. Other single-module vendors are making similar moves. Concurrently, cloud-transformed vendors like Yonyou and Kingdee have also entered the fray, further intensifying the competition in the HR SaaS integrated market, turning it into a more challenging scenario.On the other hand, integration involves a broad spectrum, and the R&D resources required for it are also greater than those needed by single modular vendors. Compared to modular vendors, the main goal for integrated vendors is to address the issue of information silos, which necessitates the establishment of their own PaaS platforms. Relying on these platforms, companies can provide customized services for different industries. For integrated HR SaaS vendors, this also implies a greater investment in R&D expenses. As mentioned earlier, Beisen's R&D expenditures have long accounted for more than 38% of its revenue, significantly higher than that of single-module vendors in the same field.
However, despite such substantial R&D investments, many HR SaaS companies like Beisen Holdings have failed to rapidly expand their revenue and customer scale, as well as unit profits, like their U.S. stock counterpart Workday. This exacerbates the external challenges they face.
Is Beisen Unable to Break the SaaS Curse?
In fact, looking at the broader picture, the problems faced by Beisen are not unique but are widespread and common in the Chinese market. From HR SaaS to e-signature SaaS, to e-commerce SaaS, and so on, whether they are listed or not, losses are common, and some have not been profitable for many years. Their performance is not only far from comparable to Chinese internet companies targeting C-end consumers but also cannot be mentioned in the same breath as U.S. SaaS companies. This seems to have become a curse for Chinese SaaS companies. The root cause mainly lies in the differences between China's national conditions and those of foreign countries.
Firstly, the customer base in the Chinese market is different from that in the United States, and the Chinese SaaS market has also given rise to business models different from those abroad. Specifically, in the B-end market, small businesses do not place much emphasis on the application of SaaS. The budget that small and medium-sized enterprises can allocate to SaaS is very low. Therefore, many SaaS companies targeting small B customers, despite having a large number of clients, have very small unit profits. Considering the corresponding maintenance costs and other related expenses, many SaaS companies primarily serving small B customers essentially do not make money and may even lose money.In the large B market, large Chinese enterprises tend to be more dominant, often demanding that SaaS companies provide customized services tailored to their specific needs. For large enterprises, these customized services naturally fit better with their corporate structure. However, from the perspective of SaaS companies, overly customized services are inevitably difficult to scale, which affects the cost-sharing. This is precisely the reason why SaaS companies like Beisen have invested heavily in R&D to launch PaaS platforms. Nevertheless, while the development cost of PaaS platforms is high, the advantage is that they have gained access to a significant number of large clients, but the downside is that profitability remains elusive. Comparing Beisen's situation reveals that, in recent years, its large client resources have indeed grown rapidly, but its profitability remains weak.
Secondly, the challenges that cross-industry collaboration poses to SaaS companies are greater than imagined. Unlike foreign companies that have a solid foundation in digitalization, most Chinese companies have a weak digital base. When SaaS companies collaborate with enterprises in various fields such as high-end manufacturing, logistics, and retail, they need to invest significantly to understand the industry and quickly acquire "know-how" capabilities. In this process, Chinese SaaS companies not only need to overcome industry knowledge gaps but also need to understand customer needs and product design, which entails substantial hidden costs.
Taking Beisen as an example, the industries it serves cover a wide range, including manufacturing, automotive, and many others, implicating numerous learning costs and market education costs. In fact, many SaaS companies in the past preferred to take matters into their own hands, but with the tightening of external environments and the deterioration of financing, many SaaS companies no longer "fight alone." A well-known CRM company, SalesEasy, now only provides 70% of general capabilities to the outside world, with the remaining 30% of capabilities being supplemented by "industry-savvy" partners. This approach can greatly control the communication and learning costs associated with cross-industry collaboration.
In the long run, a service model similar to SalesEasy's may provide a reference for Beisen Holdings, which is also a SaaS company. Additionally, significantly improving customer renewal rates will become a top priority for its future development. Only by doing so can the company reduce its customer acquisition costs while enhancing its ability to generate cash flow.