The Turbulent Journey of RELX's Stock Price and the Hazy Future of the Vape Industry

I. Overview

1492 The new world was discovered by Christopher Columbus, which significantly changed the course of human history. The arrival of tobacco, too, which came hand in hand with the discovery of the New World, had significant changes in the lives of the Old World people. Take the FDA's statement as a Summarize and take a look at the rapid Preface of the "electronic hardware+cigarettes" form into major professional markets in modern times. They are riding on the "east wind" of capital, relying on marketing and the Internet channelthe world spread.

II. China's tobacco companies

As the birthplace of e - cigarettes China has a number of famous e - cigarette enterprises and e - cigarette brands. In January this year Shenzhen Smoore Technology Co. Ltd. the member of RELX brand was officially listed on the New York Stock exchange in the United States becoming the first Chinese e - cigarette brand stock of the US stock market.

A. A Stock Price that Shined and Then Some

1- More generally companies with the "first - stock" halo generally can enjoy priority in the secondary capital market and RELX is no exception. On the first day of trading, RELXstock closed at $29-51 per share, an increase of145-92%, with a market value of $45-8 billion. On January 25, its stock price was $35- But since then RELXs stock price has trended steadily lower.

2- But according to data of GOOGLE. com RELX was trading at $7-53 per share when markets closed on July 12th. It was down 37-25% from the issue price and down 78-49% from the highest price. RELX stock price has been plummeting two big questions loom how long will it go and when the stock would shine again

B. The Unstoppable Downtrend And RELXs Promising Start

1- RELX was established in January 2018 and in just 3 years the company did IPO (via Tianyancha APP. In the primary capital market RELX was invested in three times before listing. Investors factor in it included institutions like Source Code Capital Sequoia Capital China and DST Global Primary Capital MarketRELX had long a relative favourable of financings.

2- RELX is the Chinese e - cigarette market leader in terms of market size and brand awareness. According to the CIC report, based on retail sales, RELX has occupied 48-0% and 62-6% of the market share of closed - system atomized e - cigarettes in nine months respectively. Meanwhile a September 2020 survey conducted by CIC also found that RELX scored highest in terms of brand awareness with a mental share of 67-6% among Chinese e - vaping product users.

3- Based on the information available in its prospectus and post - listing financial documents RELXs financial results are truly outstanding. But Smoore Technology is in another stage, the revenue and gross profit were positive growth since the first quarter. Look at the latest data as an example, Smoore Technologys first quarter net revenue of 2-4 billion yuan, compared to 1-62 billion yuan in the fourth quarter of last year, an increase of 48-2%; gross profit 1-1 billion yuan, compared to the fourth quarter of 2020 694 million yuan, an increase of 59-1%.

4- The online sales ban order released in late October of 2019 led Smoore Technology to update its offline channels, causing the business model to switch from "light" to "heavy" with gross profit margin dropping. Smoore Technology's fourth quarter gross profit margin was 30%, fell to the lowest ever. But as of the latest Q1 2021 data Smoore Technologys GPM has increased to 46%

III. Why RELX fell

Whether it was the fact that RELX stock continued to decline after its IPO and status in the primary capital market, pre-listing market size and brand IP value, and good financial data after listing, none of these could escape the decline in RELX stock price. PerformanceBased on cumulative data: So why cant this "good ship" RELX withstand the "wave" of stock price decline?

A. Let us first get into Juul the US e - cigarette behemoth to know the story before analyzing the causes behind RELXs stock price drop.

1- From there the American e - cigarette giant Juul was once a myth in the e - cigarette industry. This company was once worth some $48 billion and controlled 72% of the US market. However, its marketing to minors has sparked public resistance. Under the pressure of regulatory and public opinion Juul's market capitalization has lost 90% and its market share has gradually declined.

2- Part of the reasons the price of RELXs stock has gone down come from regulation and public opinion too.

a. On the one hand, together is the end of March, through the Ministry of Industry and Information Technology, State Tobacco Monopoly Administration to jointly prepare the solicit a draft, I wrote down an article for the " e - cigarettes such as new types of tobacco to the relevant regulations on cigarettes implemented with reference to." That raised questions about whether e - cigarettes would be taxed at the same level as cigarettes. After all, China's comprehensive tax rate on cigarettes is extremely high. If the e - cigarettes are taxed according to the cigarette tax rate it can further compress the profit margins of the e - cigarette brands.

b. Then on June 1, the new "Law on the Protection of Minors" was officially implemented, which clearly stated that it is forbidden to sell e - cigarettes to minors. On June 18 the State Tobacco Monopoly Administration and the State Administration for Market Regulation jointly issued the "Special Action Plan for Protecting Minors from the Harm of Tobacco - Guardian Growth" (hereinafter referred to as the "plan") pointing out that it will comprehensively and strictly regulate the business activities of e - cigarettes gradually establish and improve the regulation system of e - cigarettes work and standardize the production and activities of e - cigarettes.

c. The information related to regulation and health has led to a large amount of public opinion in the e - cigarette industry. Such as the United States e - cigarette - related pneumonia has led to Chinese e - cigarette users have health anxiety, e - cigarette industry practitioners concerned about the e - cigarette tax rate.

B. In addition despite the fact that RELX has made some good progress in the e - cigarette market in the context of the Preface of a series of regulatory policies and the negative public opinion environment facing e - cigarettes in China RELX is still difficult to avoid the downward trend of stock price.

IV. The Hazy E cigarette Industry: | Of Waves| And Reefs

A. Under the dual influence of regulation and public opinion not only RELX has been affected. The entire e - cigarette industry has also been compromised to some extent. For instance Taking Smoore RELXs OEM factory as an example its market value now has shrunk by over half compared to the beginning of this year.

B. However with the stock price of e - cigarette industry fell as the leading enterprise of the industry in the face of the e - cigarette market " ambiguity " in the regulation and public opinion RELX there are also many " waves " and " bitter reef " to face.

1- The first is the issue of Chinas abundant supply chain.

a. Chinas e - cigarette supply chain is highly developed. Official showing that China undertake over 90% of the global e - cigarette supply chain business, and these supply chain enterpris... (4) Having stable supply chain will guarantee an stable and adequate supply in e - cigarette industry, but also allows RELX rise rapidly and list in 3 years.

b. But the influx of Chinas supply chain also brings new problems to RELX. One is the issue of compatible cartridges, and the other is the issue of homogeneous competition.

i. This supply chain development creates a tangible foundation for developing compatible cartridges. With the low technical threshold of cartridges and huge gross profit margins many compatible cartridges are emerging in the industry. But the rise of compatible cartridges has greatly harmed the interests of brand owners.

ii. The vape business is a classic Razor blade (LTV Lifetime Value) business. First time business is unprofitable and may even incur losses. At the same time the sale of "blades" (cartridges) relies on the long - term operation of the business which is the maximum profit maximization. It means the profit of e - cigarette business relies heavily on the sale of cartridges.

iii. As mentioned starting from the time, in the industry RELX ranked first in market share, but also has accumulated a certain brand awareness. With the help of RELXs brand awareness some brands have cooperated with OEM factories to enter the business of RELX - compatible cartridges.

iv. From the supply - side, the supply of e - cigarette industry is sufficient, leading to extremely low entrance threshold for e - cigarette industry, the homomorphism competition problem. Once entrepreneurs build a brand they can locate a corresponding supply chain. In 2019 it was reported that it cost less than 5 million yuan to build an e - cigarette brand.

v. Although a large number of small e - cigarette brands collapsed after the e - cigarette "quit the Internet" but the remaining brands due to the cooperation with similar OEM factories heavy marketing before make the competition become homogeneity. However most brands target the young and fashionable with their fruit itself being the main flavor promotion.

vi. Macroeconomics assumes that generic competition will eventually be reduced to price warfare. In fact the compatible cartridges have also been a new form of price wars.

2- Secondly, RELX is also under pressure from the channel side.

a. Because of the "quitting the Internet" of e cigarettes all e cigarette brands can only build offline channels and RELX is the most aggressive of all e cigarette brands. From the conference call of RELXs first - quarter financial report it now owns over 15000 exclusive stores.

b. With the offline channels become stable and the funds imported by listing, the short - term decline of gross profit margin and cash - flow dilemma blown up from aggressive expansion of offline channels has been resolved. But now the problem is how to maintain the interests of so many offline channels partners.

c. In order to open more offline stores, RELX will provide certain subsidies to offline channel partners. But short - term subsidies might be hard to ensure the long - term interests of the channel partner. E - cigarette products are consumer electronic products belong to the fast fashion consumer products category rapid upgrades and iterations. On the one hand, RELX can help peer partners solve the inventory of obsolete products such as cartridges and cigarette rods. On the other hand, opening too many stores will bring great competition pressure to the store. Whether the store can have long-term and stable customer flow gradually after opening is also a problem.

3- Meanwhile the formal announcement that e - cigarettes are harmful to health also gives RELX great pressure.

a. "We see that according to the "Report on the Health Hazards of Smoking in China" jointly issued by the National Health Commission and the World Health Organization Office in China in May, there is sufficient evidence that e - cigarettes are unsafe and can harm the health of the people. The wording commonly referred to e - cigarettes is certainly not nice towards e - cigarette manufacturers that have previously advertised e - cigarettes as "healthy".

b. RFying partners with many manufacturers to establish a cigarette product output and branding system closely connected with the enterprise. Production and sales At the current stage (6178-555) 100% =8-6% turquoise is a period of time for RELX to learn to correctly understand the wave and reef of the e - cigarette industry.

V. Courage to Meet the Waves and a Lighthouse to Show the Way

A.Smoking is harmful to health.? Inghi yin enn pabiary, vuta: printed gun packs, also reel mind. Similarly, people know that smoking is not good for health, but there are still more smokers. The main reason: cigarettes have nicotine which is addictive.

B. Similar to cigarettes e - cigarettes also have nicotine. This leads to a high repurchase rate of e - cigarettes Like cigarettes. The vape business is a 'razor blade' business in itself, plus the blessing of its high repurchase rate, as well as the Chinese e - cigarette market which is still very small in penetration rate and huge in market potential from these aspects the e - cigarette business is a very good business.

C. There is certainly a lot of potential within the e - cigarette industry. The seas are full of "haziness","waves", "reefs" despite this, it does not block the people in pursuit of profit.

1- Data from Tianyancha shows that the annual number of new vape-related enterprises registered in China has increased dramatically. Throughout the year the number of new related enterprises (all operating status) reached more than 18000 with an annual registration growth rate as high as 96%. This June, vape brand "YOOZ Yuzu" finished with a financing of more than $200 million.

2- Sailing in a sea full of haze waves and reefs the ship needs to be sturdy and at the same time it needs a lighthouse to guide the way. The same is also true for the e cigarette market. There is a lot to do inside enterprises themselves, and they also need a "lighthouse" to show them the way.

a. As for the problem of compatible cartridges, RELX has taken legal weapons to protect its own interests. In June RELX filed the first lawsuit about compatible cartridge in the Chinese e - cigarette industry and sued Vaporlax for unfair competition. Lawsuits against compatible cartridges have been successful overseas in the past. Juul has previously sued in the US for the issue of compatible cartridges, and the US later ruled to ban the import of compatible cartridges. Now, RELX might win the lawsuits with this precedent.

b. To the problems of homogeneous competition and channels RELX needs to strengthen the strength of its own. To avoid homogenous competition, the best thing to do is to discover the needs that are currently not being met and then launch differential products. For instance Magic Ring a brand that focusing high - end high - end and original tobacco taste to capturing the attention of the ignored old smokers.

c. For the channel problem, RELX needs to measure their product update and iteration, compatibility between different product cartridges, and develop a good policy for the recycling of inventory cartridges from channel partners. After all e - cigarette brands are associated with supply side channel side demand side. The long-term survival of the brand depends on this: only when all parties can obtain benefits can the brand survive in the long term.

d. About the harm of e - cigarette to human body, RELX wants to be a "beacon" itself. RELX has set up a scientific research laboratory, and seeks to provide evidence that e cigarettes are regular screening through SCI papers than cigarettes are less harmful. However on the consumer side these papers may not be helpful.

i. A senior smoker who tried e - cigarettes and then quit told the author: "I am very clear about the harm of cigarettes but I am not very clear about the harm of e - cigarettes. Maybe in two or three decades, when the first generation of e - cigarette smokers get older, we will clearly understand the specific harm of e - cigarettes, but I don't want to be the one, guinea pig."

ii. Consumers concerns are not without merit. For examples although the e - cigarette enterprises observed that the additives in the fruit - flavored cartridges meet the national standard and that the flavorings are food - grade that there is no Summarize on whether this standard applies to the breathing standard.

iii. For e - cigarette enterprises clear laws and regulations clear regulatory policies and the announcement of the specific harm of e - cigarettes are the "lighthouses" of e - cigarette enterprises under the hazy e - cigarette market.

iv. When the formal policies are clear and the specific harm of e - cigarettes is clearly announced e - cigarette enterprises can compete legally and compliant within the framework consumers can choose e - cigarettes in the reminder of "smoking e - cigarettes is harmful to health". At then RELX will depend on his own strength to decides the rise and fall of stock price.

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