Full Truck Alliance faces downturn (NYSE:YMM)

Fritz Jorgensen

A quick overview of the complete truck alliance

Complete Truck Alliance (NYSE: YMM) went public in June 2021, raising approximately $1.57 billion in gross proceeds from an IPO at a price of $19.00 per ADS.

The company operates an online site freight platform to facilitate shipments over a range of types, weights and distances within China.

While the company may start adding new users again, it still faces macro downside risks and regulatory uncertainties.

Until these risks are quantified and begin to be removed, I am on hold for YMM.

Full Truck Overview

FTA, based in Guiyang, China, was founded to create a digital logistics hub that helps truckers and shippers locate, negotiate, book and track road shipments.

Management is headed by founder, chairman and CEO Peter Hui Zhang, who previously served as the regional manager of Alibaba Group’s B2B unit.

The company’s main offerings include:

  • Freight Referral Service

  • Freight brokerage service

  • Online transaction service

The company first gained customers by deploying direct sales teams in offline logistics parks, but has since abandoned this mode of marketing in favor of word of mouth and online marketing channels.

Full truck market and competition

According to a market research report by Beroe Advantage Procurement, China’s trucking services market was estimated at $25 billion in 2020.

This represents a CAGR (compound annual growth rate) of 6.5% in recent years.

Logistics participants tend to be concentrated in the southwest and south-central regions of China.

In addition, the report states that many industrial companies prefer third party logistics providers (3PLs) due to their ability to organize a range of trucking contractors, provide service coverage in various areas and have payment terms. longer than the other participants.

Major competitors or other industry participants by type include:

  • Carriers

  • Brokers

  • Freight matching companies

  • Technology-driven freight companies

Full Truck’s Recent Financial Performance

  • Total revenue per quarter has increased significantly in recent quarters:

Total turnover over 5 quarters

Total revenue over 5 quarters (looking for Alpha)

  • Gross margin per quarter has fluctuated over the last 5 quarters:

Gross profit over 5 quarters

Gross profit over 5 quarters (looking for Alpha)

  • Selling, G&A expenses as a percentage of total revenue per quarter have varied significantly over the past reporting periods:

Sales over 5 quarters, G&A % of turnover

5 Quarter Sales, G&A % Revenue (Seeking Alpha)

  • The operating result per quarter remained negative, as shown in the graph below:

Operating result for the 5 quarters

5th Quarter Operating Result (Seeking Alpha)

  • Earnings per share (diluted) has remained negative for the last 5 reported quarters, as shown here:

5 quarters of earnings per share

5 Quarter Earnings Per Share (Seeking Alpha)

(All data in the graphs above are in accordance with GAAP)

Over the past 12 months, YMM’s stock price has fallen 18% compared to the approximately 7% drop in the US S&P 500 index, as shown in the chart below:

52 week stock prices

52 week stock price (seeking alpha)

Valuation and other measures for full truck

Below is a table of relevant capitalization and valuation figures for the company:

Measure

Rising

Enterprise value

$5,890,000,000

Market capitalization

$9,840,000,000

Enterprise Value/Sales (TTM)

7.29

Price/Sales (TTM)

9.78

Revenue growth rate (TTM)

73.63%

Operating cash flow (TTM)

-$33,270,000

Earnings per share (fully diluted)

-$1.39

(Source – Alpha Research)

Full Truck Commentary

In its latest earnings call (Source – Seeking Alpha), covering the first quarter of 2022 results, management highlighted the company’s growth trajectory despite the lack of new users, as Chinese regulators asked the company to stop accepting new users while performing a security review of its systems. .

Since the earnings call, YMM has been cleared by regulators to start accepting new users as the data security review is apparently complete.

Management sees a continued trend towards digitalization in China’s logistics industry, which it says will foster its digital-first approach.

Regarding its financial results, total revenue increased 53.7% year-over-year, mainly due to increased revenue from its freight matching service. Freight brokerage fees also increased markedly, as did value-added services.

However, its cost of revenue has increased significantly due to “increased VAT-related tax surcharges and other tax costs”.

Sales and marketing, G&A, and R&D expenses increased significantly as the company increased its workforce and paid higher stock-based compensation.

For the balance sheet, the company ended the quarter with approximately $3.8 billion in cash and cash equivalents while it used operating cash of $14.4 million during the quarter.

Looking ahead, management has pointed to second-quarter revenue growth of around 43% at the midpoint.

In terms of valuation, the market values ​​YMM at an enterprise value/revenue multiple of around 7.3x despite annual revenue growth of over 73%.

The main risks to the company’s outlook are the potential for service disruptions due to China’s zero-COVID policies and resource shortages in the transportation industry, leading to increased costs and delays.

Moreover, the Chinese economy as a whole is growing very slowly, if at all, due to the effects of recent lockdowns and inflationary shocks.

In addition, the company has been named to the SEC list for HFCAA, which means that the company could be delisted from the US markets if its auditor’s working papers are not made available for inspection by the PCAOB within a period of time. of three years.

More recently, a company announcement said its gross transaction value (GTV) for the second quarter of 2022 fell 11.1% year-over-year, a worrying sign.

Although the company may start adding new users again, it still faces economic risks and regulatory uncertainties.

Until these risks are quantified and begin to be removed, I am on hold for YMM.

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