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.

From | Lei Da Finance Li Yihui

Editor | Deep Sea

Against the backdrop of continued rising interest in the HKEx IPO market, Chinese Online has recently filed its submission with the Hong Kong Stock Exchange.

According to the application materials for this issuance and listing published on the website of the HKEX, Chinese Online is an AI-driven leading digital entertainment platform. It mainly provides online literature content domestically and short dramas overseas, with the goal of building a next-generation digital content ecosystem covering the entire industry chain.

The prospectus cites data from Frost & Sullivan, showing that based on 2024 revenue, the company 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 platform segment, Chinese Online ranks eighth based on revenue as of September 2025, and ranks second based on monthly active users during the first seven months after launch.

However, compared with its impressive overseas performance, Chinese Online’s financial results are not perfect. Data from Tonghuashun iFinD shows that from 2021 to 2024, Chinese Online recorded attributable net profit of RMB 98.7915 million, -RMB 362 million, RMB 89.4369 million, and -RMB 243 million, respectively; and recorded non-GAAP attributable net profit (after deducting non-recurring gains and losses) of RMB 23.4389 million, -RMB 393 million, -RMB 38.3426 million, and -RMB 271 million, respectively. Only in 2021 did it achieve profitability.

According to the company’s 2025 performance preannouncement, Chinese Online expects its net loss attributable to shareholders of listed companies in 2025 to be between RMB 580 million and RMB 700 million. It also expects 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 four consecutive years.

In addition, Chinese Online has also frequently faced share sales by shareholders and senior management. On February 3, Chinese Online announced that, within three months after 15 trading days from the date of disclosure of this announcement, Director Zhang Fan, Director and Executive Vice President Xie Guangcai, Vice President and Board Secretary and Financial Controller Wang Jingjing, and Chief Operating Officer Yang Ruizhi plan to collectively sell no more than 657,900 shares. Before this, the relevant shareholders had carried out multiple rounds of share sales.

Of note is that on March 27, Chinese Online closed at HKD 25.94, down by about 40% from its recent high.

Overseas short drama growth is booming, but it cannot hide the downturn in performance

According to the information, Chinese Online was founded in 2000. In the early days, it launched its original online literature business by establishing the 17K novel website (formerly known as Together to Read Novels). Then in January 2015, it was listed on the ChiNext board of the Shenzhen Stock Exchange, becoming the first digital publishing company to be listed in the A-share market.

After listing, Chinese Online continued to develop new businesses. Based on digital publishing, it transitioned into producing and distributing various content formats such as online literature, audiobooks, comics, AI manhua-drama (AI manju), animation, and short dramas. It also expanded its business footprint from China to become a global content platform.

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

In the short drama and IP derivative products business, Chinese Online became one of the first batches of companies in China that produced and distributed short dramas as early as 2021.

In 2022, the company’s short drama revenue reached the milestone of RMB 100 million, while it also expanded into the overseas short drama market. As of the latest practical date, the company’s overseas short drama application FlareFlow had ranked No. 1 on the U.S. free entertainment app charts in major mobile application stores. Currently, registered users exceed 33 million, offering about 52,000 short drama episodes.

In addition, Chinese Online selects high-quality IPs from its digital content library and IP reserves for subsequent development, and adapts them into multiple forms, including comics, AI manhua-drama, animation, short dramas, films, and merchandise. It generates revenue from these IP derivative products.

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

However, based on the actual situation, as of last year, the overseas short drama industry was still in the stage of “racing to grab market share,” with a relatively high proportion of traffic acquisition costs.

According to the company’s financial reports, in the first three quarters of 2025, Chinese Online achieved operating revenue of RMB 1.01 billion, representing a year-on-year increase of 25%. It recorded attributable net profit of -RMB 520 million, representing a year-on-year decrease of 177%. It recorded non-GAAP attributable net profit of -RMB 520 million, representing a year-on-year decrease of 149%.

In this regard, Dongwu Securities believes that the rise in cost of sales dragged down gross margin, and losses from overseas business led to profit declines. In the first three quarters of 2025, the company’s selling expenses increased 94% year-on-year to RMB 660 million, mainly due to a substantial increase in overseas business promotion expenses. Research and development expenses increased 42% year-on-year to RMB 53 million, reflecting increased R&D investment for overseas business. Asset impairment losses expanded 496% year-on-year, mainly because the increase in provisions for inventory write-downs. The main reasons for the profit decline are the worsening operating losses of overseas business, together with non-recurring factors such as a decrease in investment income from financial products and losses from property disposals.

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

Regarding 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 for its overseas short drama business. Such business was in an investment period in 2025, resulting in profit losses. In addition, during the reporting period, it estimates that the impact of non-recurring gains and losses on net profit for the period is approximately -RMB 700,000.

In fact, when looking at the longer term, Chinese Online’s profitability performance has not been stable. Data from Tonghuashun iFinD shows that from 2021 to 2024, Chinese Online recorded attributable net profit of RMB 98.7915 million, -RMB 362 million, RMB 89.4369 million, and -RMB 243 million, respectively; and recorded non-GAAP attributable net profit of RMB 23.4389 million, -RMB 393 million, -RMB 38.3426 million, and -RMB 271 million, respectively. Only in 2021 did it achieve profitability.

High levels of sales and marketing expenses are an important reason for poor profitability. 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 significant increase from 2024 to the first nine months ended September 30, 2025 is mainly attributable to the expansion of FlareFlow’s business scale during the period after it actively carried out marketing and user acquisition activities.

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

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

In the long run, the company expects about 50% of its overseas short dramas to be produced at the Hengqin filming base, which is expected to significantly reduce the proportion of production costs in revenue.

In addition, Chinese Online will continue to improve the ratio of selling and marketing expenses of the overseas short drama business to revenue by, among other measures, leveraging its rapidly expanding high-quality short drama reserve via FlareFlow, collaborating with more leading KOL platforms, increasing the use of AI application technology, and so on, thereby continuously improving the company’s overall profitability.

Executive and shareholder cashing out frequently

In the secondary market, new application formats represented by AI manhua-drama are giving rise to entirely new business models and market space in the content production field. Riding a surge in its stock price, Chinese Online’s share price recently briefly hit a recent high of 43.8.

Worth noting is that as Chinese Online’s stock price keeps setting 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, Director Zhang Fan, Director and Executive Vice President Xie Guangcai, Vice President and Board Secretary and Financial Controller Wang Jingjing, and Chief Operating Officer Yang Ruizhi plan to collectively sell no more than 657,900 shares. The reason for the sale is personal capital needs.

As of now, the above share sale plan is still ongoing. Lei Da Finance noted that as early as 2023, some of the senior executives and directors mentioned above began selling their shares.

On February 22, 2023, Chinese Online announced that the share sale plans of Director Zhang Fan, Director and Executive Vice President Xie Guangcai, Vice President and Board Secretary Wang Jingjing, Vice President and Financial Controller Yang Ruizhi, and Vice President Zhang Weilì had all been completed, with a total sale of 1.5837 million shares, representing 0.22% of the total share capital.

On March 27, 2024, Chinese Online announced that the share sale plans of Director Zhang Fan, Director and Executive Vice President Xie Guangcai, Chief Operating Officer and Financial Controller Yang Ruizhi, Vice President and Board Secretary Ms. Yang Jingjing, and Vice President Zhang Weilì had all been completed, with a total sale of 1.1875 million shares, representing 0.16% of the total share capital.

On August 28, 2025, the company announced that the share sale plans of Director Zhang Fan, Director and Executive Vice President Xie Guangcai, Chief Operating Officer Yang Ruizhi, Vice President and Board Secretary and Financial Controller Wang Jingjing had all been completed, with a total sale of 876,900 shares.

In addition, on November 4, 2025, Chinese Online announced that the share sale plans of the company’s 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 combined shareholding proportion decreased from 8.98% to 6.991%,

According to Tianyancha, after equity penetration, the actual controller of Shanghai Yuewen is Pony Ma Huateng, and his shareholding proportion is 60%.

Of note is that on February 11, Chinese Online hit a recent high of 43.8 during intraday trading, and then entered a downward channel. The latest closing price was 25.94, down by about 40% from the recent high.

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