Chinese online companies rush to list in Hong Kong: net profit after deducting non-recurring gains and losses has been consecutive losses, and stock prices have fallen 40% from recent highs.

Ask AI · How can Chinese Online reduce costs and improve profitability through the Hengqin base online in Chinese?

Radar Finance Produced | Written by Li Yihui | Edited by Shen Hai

Against the backdrop of continued rising enthusiasm in the Hong Kong IPO market, Chinese Online recently submitted its filing to the Hong Kong Stock Exchange.

According to the application materials for this issuance and listing published on the website of the Hong Kong Exchanges and Clearing Limited, Chinese Online is an AI-driven leading digital entertainment platform. It mainly provides online literature content domestically, and short dramas overseas, aiming to build a next-generation digital content ecosystem across the full industry chain.

The prospectus cites data from Frost & Sullivan. Based on the company’s 2024 revenue, it ranks third among copyright-driven content platforms in China’s online literature market, with a market share of 1.6%. In the overseas short drama platforms, based on revenue as of September 2025, Chinese Online ranks eighth; based on monthly active users during the first seven months after launch, it ranks second.

However, compared with its impressive results in going overseas, Chinese Online’s performance in financial results is not perfect. According to Tonghuashun iFinD, from 2021 to 2024, Chinese Online achieved attributable net profits of RMB 98.7915 million, -RMB 362 million, RMB 89.4369 million, and -RMB 243 million, respectively; it achieved non-GAAP attributable net profits of RMB 23.4389 million, -RMB 393 million, -RMB 38.3426 million, and -RMB 271 million, respectively. It only turned profitable in 2021.

According to the company’s 2025 performance preannouncement, Chinese Online expects its net loss attributable to shareholders of the listed company in 2025 to be between RMB 580 million and RMB 700 million; it expects its net loss after deducting non-recurring gains and losses to be between RMB 579 million and RMB 699 million. By this point, the company’s non-GAAP net profit has been loss-making for 4 consecutive years.

In addition, Chinese Online has repeatedly been involved in share reductions by shareholders and senior executives. On February 3, Chinese Online announced that, within three months after 15 trading days from the date of disclosure of this announcement, its directors Zhang Fan and Xie Guangcai (director and executive vice president), Wang Jingjing (vice president, and secretary to the board of directors and chief secretary to the board of directors), and Yang Ruizhi (chief operating officer) plan to collectively sell no more than 657,900 shares. Before this, the relevant shareholders had already carried out multiple rounds of share reductions.

What is worth noting is that on March 27, Chinese Online closed at RMB 25.94, down about 40% from its recent high.

Short-drama exports are booming, but the weak performance cannot be hidden

The materials show that Chinese Online was founded in 2000. In its early stage, the company launched the 17K Novel website (formerly known as the Together Read Novels website) to enter the field of original online literature. Later, in January 2015, it was listed on the Growth Enterprise Market (GEM) of the Shenzhen Stock Exchange, becoming the first digital publishing enterprise to be listed in the A-share market.

After listing, Chinese Online continued to deploy new businesses. Based on digital publishing, it transformed into outputting multiple content formats, including online literature, audiobooks, comics, AI manju dramas, animation, and short dramas. It also expanded its business footprint from content platforms in China to content platforms globally.

According to the prospectus, in terms of online literature and related businesses, as of the last practicable date, Chinese Online owned more than 5.6 million digital content items, mainly covering online literature works. The company mainly provides users with rich online literature and audio content through third-party channels and its own platforms. This core business contributed revenue of RMB 480 million for the nine months ended September 30, 2025, accounting for 47.5% of the company’s total revenue.

In the short drama and IP derivative business segment, Chinese Online became one of the first companies in China to produce and distribute short dramas as early as 2021.

In 2022, the company’s short drama revenue reached the RMB 100 million milestone. At the same time, it expanded into the overseas short drama market. As of the last practicable date, the company’s overseas short drama application FlareFlow previously ranked first on the U.S. free entertainment application chart in major mobile app stores and currently has more than 33 million registered users, offering about 52,000 short drama episodes.

In addition, Chinese Online selects high-quality IP from its digital content library and IP reserves for further development, and adapts it into multiple formats, including comics, AI manju dramas, animation, short dramas, films, and merchandise. It creates revenue from these IP derivatives.

Data show that, within the nine months ended September 30, 2025, among the company’s total revenue of RMB 1.011 billion, revenue from the short drama and IP derivative business reached RMB 474 million, accounting for 46.9% of the company’s total revenue.

However, from the actual situation, as of last year, the overseas short drama industry is still in the stage of “grabbing territory,” with a relatively high share of spending on user acquisition.

According to the company’s financial reports, in the first three quarters of 2025, Chinese Online achieved operating revenue of RMB 1.01 billion, up 25% year over year; it achieved attributable net profit of -RMB 520 million, down 177% year over year; and it achieved non-GAAP attributable net profit of -RMB 520 million, down 149% year over year.

In this regard, Dongwu Securities believes that the increase in operating costs dragged down the gross margin, and losses from the overseas business caused profits to decline. In the first three quarters of 2025, the company’s selling expenses increased 94% year over year to RMB 660 million, mainly due to a significant increase in overseas business promotion expenses. R&D expenses increased 42% year over year to RMB 53 million, reflecting an increase in overseas business R&D investment. The year-over-year increase in asset impairment losses was 496%, mainly due to an increase in the accrual of inventory price-decline allowance. The main reasons for the decline in profits were intensified operating losses in overseas business, combined with non-recurring factors such as reduced investment income from financial products and losses from the disposal of real estate.

On January 13, Chinese Online released a performance preannouncement. The company expects that in 2025, its net loss attributable to shareholders of the listed company will be between RMB 580 million and RMB 700 million, and its net loss after deducting non-recurring gains and losses will be between RMB 579 million and RMB 699 million.

As for the reasons for the change in performance, Chinese Online stated that during the reporting period, in order to expand the scale of its overseas business, the company increased promotional investment in its overseas short drama business. The relevant business remained in an investment period with profit losses in 2025, which led to the company’s attributable net loss to shareholders of the listed company. In addition, during the reporting period, it is expected that the impact amount of non-recurring gains and losses on the net profit for the current period was approximately -RMB 700,000.

In fact, when looking at it over a longer time horizon, Chinese Online’s profitability performance has not been stable. According to Tonghuashun iFinD, from 2021 to 2024, Chinese Online achieved attributable net profits of RMB 98.7915 million, -RMB 362 million, RMB 89.4369 million, and -RMB 243 million, respectively; it achieved non-GAAP attributable net profits of RMB 23.4389 million, -RMB 393 million, -RMB 38.3426 million, and -RMB 271 million, respectively. It only turned profitable in 2021.

The company’s sales and marketing expenses remain high, which is an important reason for the poor performance in profits. The latest prospectus shows that the company’s sales and marketing expenses in 2023, 2024, and for the nine months ended September 30, 2025 accounted for 34.2%, 40.1%, and 65.3% of revenue, respectively. The sharp increase from 2024 to the first nine months ended September 30, 2025 is mainly attributable to the fact that during the period, FlareFlow’s business scale expanded after it actively carried out marketing and user acquisition efforts.

To change the “burning money” situation of this business, Chinese Online stated that the company will improve the production and distribution efficiency of its overseas short drama business and control the company’s selling and marketing expenses for overseas short drama business.

For example, the company expects to gradually increase the number of overseas short dramas produced at its Hengqin base for filming in Zhuhai, China (trial operation starting January 2026). In the past, the company mainly shot overseas short dramas in the United States. Compared with overseas short dramas shot at the U.S. base, while ensuring content quality is similar, it is expected that the cost per overseas short drama shot at the Hengqin base will be significantly lower.

In the long run, the company expects that about 50% of its overseas short dramas will be produced and shot at the Hengqin filming base, and it is expected that this will significantly reduce the proportion of production costs relative to revenue.

In addition, Chinese Online will also continue to improve the ratio of selling and marketing expenses for its overseas short drama business to revenue. It will do so through measures such as rapidly expanding its high-quality short drama reserve by FlareFlow, cooperating with more leading KOL platforms, and increasing the use of AI application technology. This is intended to enable the company’s overall profitability to continue improving.

Executives and shareholders frequently cash out

In the secondary market, new application formats represented by AI manju dramas are creating entirely new business models and market opportunities in the content production sector. Riding the surge in the stock price, Chinese Online’s share price once reached a recent high of RMB 43.8, briefly putting the company among new “Yi Zhongtian” headlines.

It is worth mentioning that as Chinese Online’s share price continues to set new highs in recent years, the company’s shareholders “can’t sit still.”

On February 3, Chinese Online announced that, within three months after 15 trading days from the date of disclosure of this announcement, its directors Zhang Fan and Xie Guangcai (director and executive vice president), and Wang Jingjing (vice president, secretary to the board of directors and chief financial officer), and Yang Ruizhi (chief operating officer) plan to collectively reduce their holdings by no more than 657,900 shares. The reason for the reduction is personal funding needs.

As of now, the above share reduction plan is still ongoing. Radar Finance noted that as early as 2023, some of the above directors and senior executives began reducing their holdings.

On February 22, 2023, Chinese Online announced that the share reduction plans of directors Zhang Fan and Xie Guangcai (director and executive vice president), Wang Jingjing (vice president and secretary to the board of directors), Yang Ruizhi (vice president and chief financial officer), and Zhang Weilili (vice president) had all been completed, with a total reduction of 1.5837 million shares, representing 0.22% of the total share capital.

On March 27, 2024, Chinese Online announced that the share reduction plans of directors Zhang Fan and Xie Guangcai, (director and executive vice president), Yang Ruizhi (chief operating officer and chief financial officer), Wang Jingjing (vice president and secretary to the board of directors), and Zhang Weilili (vice president) had all been completed, with a total reduction of 1.1875 million shares, representing 0.16% of the total share capital.

On August 28, 2025, the company announced that the share reduction plans of director Zhang Fan, director and executive vice president Xie Guangcai, chief operating officer Yang Ruizhi, vice president, secretary to the board of directors and chief financial officer Wang Jingjing had all been completed, with a total reduction of 876,900 shares.

In addition, on November 4, 2025, Chinese Online announced that the share reduction plans of shareholders Shenzhen Litong Industrial Investment Fund Co., Ltd. and Shanghai Yuewen Information Technology Co., Ltd. (hereinafter referred to as “Shanghai Yuewen”) had been completed. The proportion of the company’s shares held in aggregate decreased from 8.98% to 6.991%,

According to Tianyancha, after tracing equity ownership, Shanghai Yuewen’s actual controller is Ma Huateng, whose shareholding ratio is 60%.

What is worth noting is that on February 11, Chinese Online hit a recent high of RMB 43.8 during intraday trading. It then entered a downward trend. The latest closing price is RMB 25.94, down about 40% from the recent high.