Increased revenue but declining profits - these five words aptly summarize the market's view of Three Squirrels Inc. (300783.SZ) interim performance.
The interim report shows that in the first half of 2025, Three Squirrels Inc. achieved operating revenue of 5.478 billion yuan, hitting a record high for the same period, up 7.94% year-on-year. However, the company's net profit attributable to shareholders declined instead of growing, reaching 138 million yuan, down over 52% year-on-year.
In the second quarter specifically, the company's net profit attributable to shareholders posted a loss exceeding 100 million yuan, marking the worst single-quarter performance since 2018.
Regarding the significant decline in net profit, Three Squirrels Inc. explained that factors including rising costs of nut raw materials, changes in traffic structure on some online platforms, increased marketing expenses for offline distribution expansion, and rising depreciation and amortization expenses for new properties contributed to the decline.
It was found that in the first half of 2025, Three Squirrels Inc. paid 761 million yuan in promotional fees and platform service fees, up approximately 25.35% year-on-year.
Corresponding to the heavy spending on traffic acquisition, Three Squirrels Inc.'s R&D expenses decreased. In the first half of 2025, the company's R&D expenses were 11.4512 million yuan, marking four consecutive declines in the same period.
In the first half of 2025, Three Squirrels Inc.'s net operating cash flow was -377 million yuan, the first time it turned negative in an interim period since 2017.
Three Squirrels Inc. is seeking a Hong Kong listing, and this interim report and future earnings expectations may test its Hong Kong IPO prospects.
**Sharp Net Profit Decline Faces Cost Challenges**
Three Squirrels Inc., once believed by the market to have emerged from its trough, saw its operating performance deteriorate again.
On the evening of August 27, Three Squirrels Inc.'s 2025 interim performance report was released as scheduled. In the first half of 2025, Three Squirrels Inc. achieved operating revenue of 5.478 billion yuan, setting a historical high for the same period, up 7.94% year-on-year; net profit attributable to shareholders was 138 million yuan, down 52.22% year-on-year.
The significant decline in net profit attributable to shareholders was directly related to the main business. In the first half, the company's non-recurring net profit was 50.8281 million yuan, down a substantial 77.75% year-on-year.
Looking solely at interim performance, the net profit attributable to shareholders and non-recurring net profit for the first half of 2025 were the second-lowest for Three Squirrels Inc. in the same period since 2017, with the previous low being in the interim period of 2022.
By quarter, in Q1 and Q2 2025, Three Squirrels Inc. achieved operating revenues of 3.723 billion yuan and 1.754 billion yuan respectively, up 2.13% and 22.77% year-on-year; net profits attributable to shareholders were 239 million yuan and -101 million yuan respectively, down 22.46% and 441.41% year-on-year; non-recurring net profits were 162 million yuan and -112 million yuan respectively, down 38.31% and 220.91% year-on-year.
Three Squirrels Inc.'s operating performance shows clear seasonality, with Q1 typically being the peak season and Q2 the off-season.
The quarterly data shows that operating revenue grew for two consecutive quarters, while net profit attributable to shareholders declined for both quarters. In Q2, despite rapid revenue growth, net profit attributable to shareholders fell sharply and posted a loss exceeding 100 million yuan.
Comparison reveals that Q2's net profit attributable to shareholders and non-recurring net profit were both the worst for Three Squirrels Inc. in the same period since 2018, and also the worst quarterly performance since 2018.
Three Squirrels Inc. explained the reasons for the 2025 interim performance changes.
Regarding revenue growth, Three Squirrels Inc. attributed it to the early shift of the New Year shopping festival causing Q1 revenue timing differences, Q2's reliance on the "D+N" omnichannel system achieving overall revenue growth exceeding 20%; offline distribution's focus on promoting daily consumer goods and pilot testing of dairy and beverage products, with Q2 channel sales achieving double-digit growth; and the company's exploration of instant retail opportunities by creating its first proprietary brand lifestyle store.
As for the sharp decline in net profit attributable to shareholders, Three Squirrels Inc. cited rising costs and expenses as the main factor, involving four specific aspects: rising costs of nut raw materials affecting gross margin; changes in traffic structure on some online platforms leading to increased rates; increased marketing expenses for offline distribution to accelerate daily consumer goods layout and terminal penetration; and rising depreciation and amortization expenses for new properties.
In the first half of 2025, Three Squirrels Inc.'s comprehensive gross margin and net margin were 25.08% and 2.47% respectively, down 0.77 and 3.24 percentage points year-on-year.
According to the interim report data, in the first half of 2025, Three Squirrels Inc.'s selling expenses increased 25.11%, and administrative expenses rose 57.89%.
According to Three Squirrels Inc., the company's profitability improvement encountered cost challenges.
**Sharp Decline in Net Operating Cash Flow**
While profits declined significantly, Three Squirrels Inc.'s operating cash flow rarely turned negative.
The interim report shows that in the first half of 2025, Three Squirrels Inc.'s net operating cash flow was -377 million yuan, compared to 38.6395 million yuan in the same period last year, down 1,075.08%. Q2's net operating cash flow was -485 million yuan.
Looking solely at interim operating cash flow, from 2017 to 2024, Three Squirrels Inc.'s interim operating cash flow was always positive, and until the interim period of 2023, net interim operating cash flow exceeded 200 million yuan. From the interim periods of 2020 to 2023, the company's net operating cash flows were 608 million yuan, 296 million yuan, 295 million yuan, and 310 million yuan respectively, with 2024 showing a significant decline.
Regarding the rare negative net operating cash flow in the first half of 2025, Three Squirrels Inc. explained that it was mainly due to increased operational procurement during the period. As of the end of June 2025, Three Squirrels Inc.'s inventory was 768 million yuan, up 42.22% year-on-year. Currently, the company's inventory is at historically high levels for the same period.
However, Three Squirrels Inc. does not face debt repayment pressure. As of the end of June 2025, the company had 519 million yuan in cash, 120 million yuan in wealth management products, and 956 million yuan in transferable large certificates of deposit, totaling 1.595 billion yuan. Corresponding interest-bearing debt was 620 million yuan.
Currently, Three Squirrels Inc. is advancing its Hong Kong listing plan to accelerate industrial layout.
Even though the company is not short of funds, Three Squirrels Inc.'s negative operating cash flow, combined with sharply declining profits, sends a negative signal to the market.
In terms of sales model, e-commerce channels remain the main source of Three Squirrels Inc.'s operating revenue. In the first half of 2025, third-party e-commerce platforms generated operating revenue of 4.295 billion yuan, accounting for 78.42% of the company's operating revenue.
Three Squirrels Inc. rose during the traditional e-commerce dividend period, returned to the scale of 10 billion yuan revenue through Douyin channels, and now faces new challenges of declining net profits even as Douyin channels contributed 26.98% of operating revenue in the first half.
Now, Three Squirrels Inc.'s new challenge is mainly that traffic costs have become more expensive. In the first half of 2025, the company paid up to 761 million yuan in promotional fees and platform service fees, accounting for about 68% of selling expenses. In the future, the company may face paying even higher traffic costs.
Corresponding to spending hundreds of millions of yuan on traffic acquisition, Three Squirrels Inc.'s R&D expenses are being compressed. In the first half of 2025, the company's R&D expenses were 11.4512 million yuan; R&D expenses in the same period of 2021 were 26.1367 million yuan, with interim periods from 2022 to 2024 being 22.8894 million yuan, 12.6241 million yuan, and 12.1008 million yuan respectively.
What will Three Squirrels Inc. rely on to break through in the future?
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