Chinese social network platform operator Soulgate has submitted a second application to go public in Hong Kong with the Tencent (0700)-backed firm still in the red as it continues to bet on the rapidly cooling metaverse.
Soulgate had hoped to become China's first listed metaverse-related firm when it applied for an initial public offering on Nasdaq in 2021 with a targeted valuation of up to US$1.8 billion (HK$14.04 billion), but scrapped the listing as it found new funding options.
It then turned to Hong Kong last year, but its first attempt in the city lapsed.
Soulgate started operation in 2015 and launched its mobile app Soul the next year. The app features virtual social networking, which can be developed into the metaverse - a designed cyber world without physical interactions - in a bid to stand out in a market dominated by Tencent's social messaging apps WeChat and QQ.
As of 2022, the number of Soul's average monthly active users had increased to 29.4 million from 20.8 million two years ago, while Generation Z - those born between 1996 and 2010 - accounted for 78 percent of total users.
Soul's users can create their cyber identities with avatars, which are used to represent people in the virtual world, before communicating with others and generating content in a so-called decentralised and gamified environment.
Moreover, they can also buy virtual and physical gifts and other stuff inside the app.
Tencent's support came in 2020 and it holds 49.99 percent of Soulgate's stake via an investment unit Image Frame.
Though Soulgate claims it is not reliant on Tencent, the support from the tech giant has penetrated the app's functions from payment, music and access to users.
The app operator's revenue comes from two major streams: value-added services including sales of virtual items and membership subscriptions, and advertising.
In early 2021, it added a new service of allowing users to send physical gifts provided by third-party vendors to other users, creating one more income stream.
Soulgate's number of monthly paying users was 1.7 million on average last year, the same as in 2021, while each paying user spent 75.3 yuan (HK$85.43) on the app on average, up by 24 percent from one year ago.
While its revenue has risen from 498 million yuan in 2020 to 1.67 billion yuan in 2022, annual growth has slowed sharply from 157 percent to 30 percent over the same period.
However, the income is vulnerable to any changes from the app's users, as value-added services, or the user's major spending in the platform, contributed 94 percent of the total revenue last year.
Meanwhile, Soulgate has recorded a total net loss for the past three years of 2.4 billion yuan, though the reading was narrowed to 508.5 million yuan last year following cutbacks in sales and marketing.
While still burning money for growth, Soulgate says it will continue to inject resources into the metaverse, which once triggered an investment frenzy during the three-year Covid pandemic.
However, excitement over the metaverse -- which requires vast sums of cash to develop and grow -- has rapidly faded and investors are now turning to generative artificial intelligence after Open AI's groundbreaking ChatGPT rocked the world earlier this year.
US giant Meta, which changed its name from Facebook in its push into the virtual world, is also now focusing on AI after its metaverse division posted a US$4 billion loss in the first quarter.
BofA Securities and China International Capital Corporation (3908) are the joint sponsors.
