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Feng Xin: I can say that the storm is still healthy today
"The storm has always been more focused on the results it achieved rather than the path it took," said Feng Xin, founder and CEO of Storm Group. "It's also a storm that has reached this moment and has the courage to tell everyone that it's still thriving."
On September 1st, during the week when Storm Group released its financial report for the first half of the year, Feng Xin sat down with the Group's CFO, the CEO of Storm TV, and the head of the VR business to interpret the numbers. Over the past couple of months, Storm has faced numerous questions regarding its business model, growth trajectory, and future prospects. Feng Xin tried to reassure the public that the company’s operations are stable and not overly aggressive, maintaining consistency across all divisions.
According to Storm Group’s financial report for the first half of 2017, the company’s operating income reached 826 million yuan, representing a year-on-year increase of 66.89%. However, the net profit attributable to shareholders of listed companies decreased by 16.64% year-on-year, reaching 15.72 million yuan. In the second quarter alone, revenue was 370 million yuan, up 23.9% year-on-year, while the net profit attributable to shareholders of listed companies surged by 108% compared to the same period last year.
Despite these positive figures, the financial report highlighted that the TV business division incurred losses in the first half of the year. Operating costs increased by 134.43% year-on-year, largely due to higher terminal costs. Specifically, Storm Leader, the group’s primary TV product, reported operating income of 561 million yuan in the first half of 2017, with a net loss of 129 million yuan.
Storm Group’s CFO, Jiang Hao, explained that last year’s increase in panel prices and rising costs placed significant pressure on the profitability of the TV business, a situation that persisted into early this year. However, starting from the second quarter, the gross profit margin for the TV business showed a marked improvement. Liu Yaoping, CEO of Storm TV, noted during an interview with Sina Technology that "last year saw the largest fluctuations in supply chain costs in history. The entire industry faced a shortage, but this year and next year will see mass production, leading to a slight oversupply, which will stabilize and potentially reduce costs. This will make the cost impact on brand owners more manageable."
Additionally, the financial report revealed that the average customer acquisition cost for Storm TV has dropped significantly. In 2016, this figure stood at 400 yuan, whereas it now stands at 320 yuan. According to Storm, the reduction in customer acquisition costs is primarily due to the expansion of offline channels. During the reporting period, the company established over 6,000 retail stores, covering nearly 2,000 counties and districts. Furthermore, the new retail model, "Wind Fans 2.0," was launched in April.
Liu Yaoping emphasized that the sales through Storm TV’s channel account for approximately 70% of the total. While the original sales strategy was heavily reliant on online platforms, the company has since strengthened its partnerships with third-party e-commerce platforms. The challenge in the past lay in building a strong offline presence. Currently, this is a major investment phase, with plans to optimize efficiency and further reduce customer costs in the second half of the year.
Feng Xin remarked that Storm Group has already entered a growth phase characterized by accelerating user growth, declining customer acquisition costs, and rising individual user ARPU trends.
The "Three Don'ts" Philosophy of Storm
In recent months, Storm has often been questioned about its growth trajectory. One criticism has been that Storm's development lacks robustness. "If we didn't invest in TV or VR after our IPO and instead ran a business with 30% annual profit growth, would you still be interested in Storm?" Feng Xin questioned. Regardless of the external environment, as an entrepreneur, there is both an obligation and right to pursue growth.
Another major concern revolves around LeTV, which operates similarly to Storm. Jia Yueting, like Feng Xin, had pledged shares. Since the start of this year, Feng Xin’s personal equity pledges have totaled 12 times, averaging one per week in April. By August 5th, Feng Xin had pledged 49.213.37 million shares, representing 69.98% of his shares in the company, or 14.82% of the total share capital.
In response, Feng Xin explained that Storm's development requires financial support from the stock market. However, according to platform regulations, Storm primarily relies on personal pledges to fund strategic initiatives. "Even with these pledges, we maintain a safety buffer, pledging less than 70% of our shares. I believe it's crucial not to let risks escalate to extremes."
Unlike LeTV, which faced crises involving music, smartphones, and cars, Storm remains unaffected by such issues.
"Some have asked me whether this is a coincidence or an inevitability? I genuinely believe it’s inevitable. We know certain things cannot be done," Feng Xin stated.
Feng Xin outlined three principles guiding Storm's non-expansion strategy: first, any new venture must have sufficient synergy with core business; second, the market must offer unique competitive advantages over red seas; third, returns should materialize within five years.
In many instances, Feng Xin has demonstrated this pragmatism, such as in the recent surge of interest in AI speakers. "Our team was quite excited, but I had to spend considerable time explaining that this is a simple calculation," Feng Xin noted. Entering the speaker market to reach the top three would require selling at least 10 million units annually, with each unit potentially losing $50-$100. Over three years, this could amount to $3 billion. "We simply cannot afford this kind of loss," Feng Xin concluded.
Regarding the third "don't do" principle, Feng Xin mentioned that he never invested in stocks but recently purchased a Tesla, which later appreciated significantly. "This direction is promising, but it's not something we can pursue."
Feng Xin believes that the real rewards from the automotive market won’t manifest until 2025 at the earliest, making it a decade-long opportunity. "We're not qualified to plan for 15 years. My strategic planning horizon is 3 to 5 years. Fewer than five companies in the internet industry can truly consider beyond a decade."
Feng Xin reiterated that Storm's core business is to provide entertainment through visual mediums, with the ultimate goal being the evolution of the screen as the medium of choice for entertainment.