The Offer

Company Overview

VS Media Holdings Ltd. (VSME) is a British Virgin Islands-based business entity established on August 30, 2022, with the primary purpose of serving as the holding company for its operations. Its primary business activities are conducted through the indirectly wholly owned subsidiary in Hong Kong SAR, known as VS Media Limited, another Hong Kong SAR subsidiary named GRACE CREATION LIMITED, and its indirectly wholly owned subsidiary in Taiwan, referred to as VS MEDIA LIMITED. The company oversees a global network of digital Creators that are responsible for creating and sharing content on various social media platforms, including YouTube, Facebook, Instagram, and TikTok. The company also provides these creators access to production facilities, training, and financial resources to facilitate the creation of high-quality content.

Key Highlights

Primary Offering: The firm is issuing 2,000,000 Class A ordinary shares at a price of USD5.00 per share. The company will offer a discount to underwriters of USD0.30 per share.

Use of proceeds:

• During this Offering, VSME intends to allocate the net proceeds as follows:
• Approximately 46% will be dedicated to expanding VSME's business scale and extending its reach into North America and Southeast Asia. Specifically, VSME plans to establish offices in the U.S. and Vietnam, strategically positioning itself to capitalize on the growing trends in Influencer Marketing and Social Commerce in these regions. The focus will be on the Social Commerce business, emphasizing Creators recruitment and live shopping events. VSME is tentatively planning to establish an office in Culver City, California, encompassing 2,000 square feet and housing two live streaming studios. In Southeast Asia, the plans include a 2,000 square foot office in Ho Chi Minh City, Vietnam, equipped with four live streaming studios.
• Approximately 8% of the proceeds will be allocated for general working capital to support VSME's day-to-day operations.
• Around 15% will be directed towards VSME's Creators Incubation Program, with the aim of further recruiting and nurturing talented Creators in the Asia Pacific and North America regions. Additionally, this allocation will be used for marketing efforts to facilitate VSME's expansion into new markets.
• Roughly 12% of the funds will be earmarked for the development of VSME's Data Analytics Platform, enhancing Creators' profiles and conducting in-depth analysis of their fans' demographics and user behavior. This investment will also serve to improve Social Commerce conversion.
• Approximately 4% will be allocated to strengthen VSME's workforce and talent pool, particularly as it plans to expand its business operations in Hong Kong SAR and Taiwan. The focus will be on enhancing talent acquisition and training programs. Additionally, VSME intends to recruit senior management, including a Chief Operating Officer and a Chief Strategy Officer, to further bolster its regional business growth.
• Lastly, around 15% of the proceeds will be used to repay shareholder and bank loans, contributing to VSME's financial stability and reducing debt obligations.

Dividend policy:

The company currently plans to retain the majority, if not all, of its available funds and any future earnings generated after this Offering to support the continued development and expansion of its business. Consequently, it does not anticipate making any cash dividend payments in the foreseeable future.

The Class A Ordinary Shareholders have the right to receive dividends when declared by the company’s board of directors, provided there are legally available funds for this purpose. If the company decides to distribute dividends in the future, its ability to do so and meet other financial obligations will rely on receiving dividends or other payments from its operating subsidiaries and other holdings and investments.

Business model:

• Marketing Services Model: The company’s approach to assisting Creators in generating revenue involves two primary methods:
  • Its aid Brands in shaping their content and social media strategies. The company guides them in selecting the most suitable Creators to create engaging content, share it on social media platforms, capture the attention of fans, and enhance their receptiveness to the Brand's message. Brands compensate the company with a predetermined fixed service fee for each campaign they undertake.
  • It helps Creators earn advertising revenue by producing and sharing content on social media platforms like YouTube and Facebook. On a monthly basis, it receives advertising revenues from YouTube and Facebook, which are determined by the overall advertising revenue generated through our content network, calculated according to user views.
• Social Commerce Model: In its Social Commerce Model, the company procures products from Brands and resells them to Creators, enabling Creators to establish their eCommerce ventures. In certain instances, it also assists Creators in selling products and merchandise directly to their fanbase or customers. Here the company receives total compensation equal to the sum of product cost and fixed margin.

Market Analysis:

• The Creator Economy is a software-facilitated economic system that enables Creators to generate income from their creations.
• The Creator Economy is emerging as a potential disruptor within the entertainment and media industry, valued at approximately USD 2 trillion.
• Traditional media giants no longer exclusively own content. Instead, a significant portion is generated by individual Creators through various mediums like writing, photography, filming, and more. With over 50 million independent content Creators, curators, and community builders contributing to this movement, this generation of micro-entrepreneurs has grown to a valuation of around USD 20 billion.
• Estimates suggest that by 2022, this market could expand to reach USD 104.2 billion, with annual venture capital investments in Creator ventures amounting to USD 800 million.

campaigns, solidifying its status as a crucial advertising strategy.

• The Creator Economy has experienced remarkable growth in recent years, prompting marketers to allocate a larger portion of their social media budgets to collaborate with content creators, recognizing the immense potential of this trend.
• According to Statista Research, global Influencer Marketing has more than doubled since 2019 and was valued at a record USD 16.4 billion in 2022. Looking ahead, Grand View Research anticipates this figure could surge to USD 84.89 billion by 2028, underscoring the growing significance of Influencer Marketing as an integral component of brand advertising strategies. 93% of marketers report incorporating Influencer Marketing into their campaigns, solidifying its status as a crucial advertising strategy.

Financial Highlights (Expressed in USD):

• Decrease in revenue: In the fiscal year ending on December 31, 2022, the company and its subsidiaries reported total revenue of approximately USD 9,028,187. This figure represents a reduction of 17.5% compared to the revenue of roughly USD 10,944,753 recorded in the fiscal year ending on December 31, 2021. The decline in revenue was primarily driven by a decrease in earnings from the company’s Social Commerce business. This decrease was influenced by the significant lockdown measures imposed in Hong Kong SAR in 2022 due to the COVID-19 pandemic. Additionally, its strategic decision to discontinue low-margin business activities in favor of focusing on profitability also contributed to the decline in revenue.
• Decrease in the cost of revenues: The cost of revenues in the fiscal year ending on December 31, 2022, amounted to approximately USD 6,743,205, marking a decrease from the approximately USD 8,662,313 incurred in the preceding fiscal year. This reduction primarily resulted from the company’s strategic decision to discontinue low-margin business operations in pursuit of enhancing profitability.
• Increase in gross profit: The gross profit for the fiscal year concluding on December 31, 2022, amounted to USD 2,284,982. This represents a slight increase from the USD 2,282,440 recorded for the fiscal year ending on December 31, 2021, reflecting a growth of USD 2,542, equivalent to 4.4%. This overall increase in gross margin, which rose from 20.9% in the year ending December 31, 2021, to 25.3% in the year ending December 31, 2022, can be attributed to the following factors:
• Effective cost management in Optimization-Based Marketing Services, including the control of expenses related to content creation by Creators and the optimization solutions provided by Google and Facebook.
• A higher proportion of revenue is generated from Campaign-Based Marketing Services, which enjoy significantly higher profit margins compared to other services.
• A strategic shift in the company’s sales focuses towards cultivating relationships with clients that yield higher profit margins, while discontinuing associations with lower-margin clients.

Key Management Highlights

Risk Associated:

Investment in the IPO of “VSME” is exposed to a variety of risks such as:

• The advertising industry in Hong Kong SAR and Taiwan is evolving rapidly and characterized by intense competition: The company operates in the fiercely competitive advertising sector and may encounter challenges in maintaining a strong competitive position against rivals. Intense competition may potentially result in a decline in the company’s market presence and unfavorable impacts on its financial standing, with the prospect of even fiercer rivalry for clients in the future. This heightened competition may lead to price reductions for advertising services, narrower profit margins, and a gradual erosion of its market share.
• Reductions in advertising expenditures by the company’s Brand clients and the inability to both retain and expand its Brand client portfolio: The company’s revenue primarily stems from the acquisition of Brand clients who utilize its Marketing Services, typically contingent on the advertising budgets allocated by these Brand clients. Consequently, its revenue stream and overall profitability are closely tied to the allocations within the advertising budgets of its Brand clients. The willingness of the Brand clients to allocate their advertising budget through the company’s services is pivotal to the success of its business and its capacity to generate revenue.
• Failure to sustain positive relationships with the Creators: The company considers its business's fundamental value to be contingent upon its capacity to identify and nurture strong connections with the Creators. It has established relationships with a diverse group of Creators who may serve in various roles such as directors, producers, hosts, or lead actors/actresses in the creation of advertising and creative content for its Brand clients. Additionally, it's important to note that the company’s interactions with Creators are typically non-exclusive. As a result, its ability to continually discover new Creators and maintain ongoing relationships with its existing Creators will play a pivotal role in driving business growth.

Conclusion

VSME operates within the burgeoning Creator Economy, a sector with significant growth potential. With a global network of digital Creators and plans to expand into North America and Southeast Asia, VSME is poised to capitalize on the rising trends in Influencer Marketing and Social Commerce. The allocation of proceeds for expansion, working capital, Creators' incubation, Data Analytics Platform, talent acquisition, and loan repayment reflects a comprehensive strategy.

Financially, while there has been a recent decrease in revenue, VSME has made strategic decisions to enhance profitability. The increase in gross profit and the shift towards higher-margin services indicate promising prospects. The Creator Economy's upward trajectory is an undeniable force, with substantial market valuations and growth projections. Influencer Marketing is flourishing, and VSME is well-positioned to benefit from this trend.

However, it's crucial to acknowledge the associated risks, including intense competition, reliance on Brand clients' advertising budgets, and the need to maintain positive relationships with Creators.As of December 31, 2022, the company faced a working capital deficit, a net loss, and had accumulated significant deficits, raising substantial doubt about its ability to continue as a going concern. Management intends to prioritize projects with sustainable profit margins and may seek additional capital through private placements or public offerings if necessary to meet obligations, highlighting ongoing uncertainties about its ability to operate as a going concern.

Therefore a “Neutral” rating is assigned to the IPO of VS Media Holdings Ltd. (VSME), given the available listing price.