On October 4, 2024, Shansong, a domestic instant delivery service provider, successfully debuted on the Nasdaq stock market under the ticker “FLX.” The IPO saw the company issue 4 million American Depository Shares (ADS) at a price of $16.50 per share, raising a total of $66 million and giving Shansong an impressive IPO valuation exceeding $1.1 billion.

The announcement of Shansong’s intention to go public initially came as early as 2020, and after four long years of anticipation, the company finally made its stock market entryHowever, despite its recent success, Shansong operates in an increasingly crowded market of instant delivery services, facing fierce competition and challenges such as optimizing its cost structure and slowing revenue growthThe question remains: how will Shansong maintain its profitability amid such intense competition?

Founded in March 2014, Shansong offers one-on-one urgent delivery services within cities, adapting to various delivery needs and preferences for both individual and business clients.

As of June 30, 2024, Shansong boasted an impressive roster of approximately 2.7 million registered delivery riders and expanded its services to cover 295 cities across China

The growth trajectory of their order volumes over the past few years is noteworthy, with orders recorded at 159 million in 2021, climbing to 213 million in 2022, further advancing to 271 million in 2023, and reaching 138 million in the first half of 2024.

According to the prospectus, Shansong’s revenues from 2021 to the first half of 2024 were reported to be 3.04 billion yuan, 4 billion yuan, 4.53 billion yuan, and 2.28 billion yuan, respectivelyWhile their revenue figures reflect an upward trend, the rate of growth has notably declined; the company reported growth rates of 31.72% in 2022 and just 13.14% in 2023, only managing a modest 7.63% increase in the first half of 2024.

Turning to profit, Shansong faced losses of 291 million yuan in 2021 and 180 million yuan in 2022, before reversing its fortunes in 2023 with a net profit of 110 million yuan, further increasing to 124 million yuan in the first half of 2024.

It is crucial to highlight, however, that the profitability achieved in 2023 was not solely reliant on core business operations; a significant portion resulted from government subsidies that dramatically increased from 9.2 million to 74.32 million yuan, with operating profit related to actual business performance being a modest 11 million yuan.

In terms of operational structure, Shansong has stated in its prospectus that it does not directly employ any riders but instead relies on independent contractors known as Flash-Riders to deliver services to clients

The compensation and incentives paid to these contractors are substantial and represented the bulk of the company’s revenue costs, accounting for 90.5%, 90.3%, 87.8%, and 85.4% in total revenue from 2021 to June 2024. As order volumes increase, Shansong anticipates that these costs will rise as well.

Moreover, the average revenue per delivery also exhibited a troubling downward trend during this period, decreasing from 19.2 yuan to 16.5 yuanThis decline suggests that despite an increase in order volume, the diminishing revenue per transaction could impact the overall performance of the company.

Addressing competition in the instant delivery market is another pressing challenge for ShansongThey face significant rivals including S.FExpress, JD.com's Hourly Delivery, and Dada's rapid delivery servicesThe field is further bolstered by industry giants like Meituan, Ele.me, JD, Taobao, and Douyin, who are extending their existing business models to incorporate instant delivery, intensifying the competition

Companies like Gaode, Didi, and HuoLaLa are also entering the fray, leading to an increasing list of competitors and burgeoning competitive pressure for Shansong.

According to iResearch, Shansong commanded a 33.9% market share in the independent on-demand express delivery segment in 2023, yet its standing in the broader instant delivery market was only 4.6%. This disparity suggests that while Shansong is prominent in a niche sector, it struggles to gain a foothold in the larger market.

Moreover, the rapid pace of technological change in the era of the internet necessitates continuous innovation in the delivery services industryBusinesses must invest in new technologies and service models to stay competitive, requiring ongoing allocation of funds and human resources towards research and development.

From 2021 through to the first half of 2024, Shansong's research and development expenditures were 105 million, 120 million, 90.85 million, and 41.32 million yuan, respectively

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Given the current advancements in artificial intelligence, such a level of investment may hinder Shansong's ability to attain significant technological advantages.

Notably, Shansong's IPO prospectus indicated that the funds raised would predominantly be directed towards expanding its customer base, enhancing market penetration, building brand recognition, and investing in technology and R&D, along with general operational funding.

The valuation saga of Shansong is similarly compellingThroughout its ten years of operations, the company has successfully completed 10 rounds of financing, attracting renowned investment institutions such as Matrix Partners China, DH.Capital, Tiantu Capital, Shunwei Capital, and SIG Heina Asia Venture Capital.

Upon its inception, Shansong demonstrated rapid growth, securing millions in startup funding from Matrix Partners China in 2014. The year following, the company’s domestic operating entity, Beijing Tongcheng Biying Technology, began an aggressive fundraising phase, which included its B and B+ financing rounds, drawing investments from Jiuding Capital and the Light Source Growth Fund, among others.

Between 2016 and 2018, Shansong experienced an accelerated pace of fundraising, completing six rounds within this period

Notably, Wang Sicong’s Pusi Investment participated in the C and C+ rounds, with Huajin Group and Lei Jun’s Shunwei Capital leading investments in the C+ round.

Following this intense fundraising period, Shansong shifted its focus from raising capital to preparing for its market debutIn 2020, Shansong's vice president, Du Shangxiao, indicated during an interview that the company would likely go public soon.

The COVID-19 pandemic had positioned the instant delivery sector as a booming industry, making Shansong a strong candidate for becoming the first company to launch in this nicheHowever, Dada Group made its move ahead of Shansong, successfully listing on Nasdaq and earning the title of the "first stock in instant delivery." Subsequently, S.FExpress joined the ranks in late 2021 by listing on the Hong Kong Stock Exchange.

Shansong's latest fundraising round took place in 2021 with its D2 financing, achieving a valuation of $2 billion or approximately 12.903 billion yuan