Hanryu Holdings Starts $35 Million U.S. IPO Effort (Pending:HRYU)

A Quick Take On Hanryu Holdings

Hanryu Holdings, Inc. (HRYU) has filed to raise $34.5 million in an IPO of its common stock, according to an S-1 registration statement.

The firm operates a fan-enabled platform primarily for the Asian entertainment industry.

HRYU is still a tiny company with little operating history and presents a high risk to U.S. investors.

I’ll provide an update when we learn more about the IPO from management.

Hanryu Overview

Seoul, Republic of Korea-based Hanryu Holdings, Inc. was founded to create a fan-oriented online platform to provide culture and entertainment services.

Management is headed by Chief Executive Officer Mr. Chang-Hyuk Kang, who has been with the firm since 2021 and has an extensive financial and tax employment background.

The company’s primary offerings include FANTOO, which is a platform that enables the creation of online fan spaces and economic rewards in return for user contributions.

The online fan engagement platform industry is used by celebrities and fandom communities to engage with each other and monetize their fan base.

As of September 30, 2022, Hanryu has booked fair market value investment of $26.3 million from investors including Paxnet Co. and various individuals.

Hanryu – User Acquisition

The firm markets its social media mobile app via major app platforms and through online media and social media activities.

Since the FANTOO site’s launch in Mary 2021, it has attracted over 18.9 million users, with the user base percentages from various regions shown below:

Marketing and Advertising expenses as a percentage of total revenue have dropped as revenues have increased, as the figures below indicate:

Marketing and Advertising	Expenses vs. Revenue
Period	Percentage
Nine Mos. Ended September 30, 2022	33.5%
2021	113.0%

Click to enlarge

(Source – SEC.)

The Marketing and Advertising efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Marketing and Advertising spend, rose to 3.0x in the most recent reporting period, as shown in the table below:

Marketing and Advertising	Efficiency Rate
Period	Multiple
Nine Mos. Ended September 30, 2022	3.0
2021	0.9

Click to enlarge

(Source – SEC.)

Hanryu’s Market & Competition

According to a 2021 market research article by Financial Express, the global market for celebrity-fan engagement is an estimated $10 billion business.

There is significant variation in fan engagement site features and business models.

Also, the rise in the use of NFTs, or Non-Fungible Tokens, also presents the industry with further business model options.

Major competitive or other industry participants include:

• Facebook

• Instagram

• Twitter

• Reddit

• Lysn

• Weverse

• Universe

• Whattpad

• Amazon

• eBay

• Ticketmaster.

Hanryu Holdings, Inc. Financial Performance

The company’s recent financial results can be summarized as follows:

• Growing topline revenue from a tiny base

• A swing to gross profit and positive gross margin

• Reduced operating losses

• Lowered cash used in operations.

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue
Period	Total Revenue
Nine Mos. Ended September 30, 2022	$ 904,041
2021	$ 480,224
2020	$ –
Gross Profit (Loss)
Period	Gross Profit (Loss)
Nine Mos. Ended September 30, 2022	$ 440,456
2021	$ (79,195)
2020	$ –
Gross Margin
Period	Gross Margin
Nine Mos. Ended September 30, 2022	48.72%
2021	-16.49%
2020	–%
Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
Nine Mos. Ended September 30, 2022	$ (5,277,657)	-583.8%
2021	$ (20,453,973)	-4259.3%
2020	$ (637,507)	–%
Net Income (Loss)
Period	Net Income (Loss)	Net Margin
Nine Mos. Ended September 30, 2022	$ (5,038,818)	-557.4%
2021	$ (12,764,662)	-1412.0%
2020	$ (9,627,519)	-1064.9%
Cash Flow From Operations
Period	Cash Flow From Operations
Nine Mos. Ended September 30, 2022	$ (3,421,125)
2021	$ (7,814,399)
2020	$ (561,966)
(Glossary Of Terms.)

Click to enlarge

(Source – SEC.)

As of September 30, 2022, Hanryu had $8,172 in cash and $6.2 million in total liabilities.

Free cash flow during the twelve months ended September 30, 2022, was negative ($9.6 million).

Hanryu Holdings IPO Details

Hanryu intends to raise $34.5 million in gross proceeds from an IPO of its common stock, although the final figure may differ.

No existing shareholders have indicated an interest in purchasing shares at the IPO price.

Management says it will use the net proceeds from the IPO as follows:

for investment in corporate infrastructure;

for the construction of a data center for our AI technology and hiring approximately 23 software engineers;

for increasing our engineering team to staff our planned AI technology data center;

to market and host events such as live K-pop concerts;

to develop services within the FANTOO ecosystem such as the fan shop, digital stickers, Augmented Reality filters, and emojis; and

for general working capital purposes, operating expenses, and/or acquisitions of, or investments in, businesses, products, services or technologies.

(Source – SEC.)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, the firm is subject to an ongoing legal proceeding for debt assumed as a result of its purchase of Marine Island property.

The sole listed bookrunner of the IPO is Aegis Capital Corp.

Commentary About Hanryu’s IPO

Hanryu Holdings, Inc. is seeking U.S. public capital market investment to fund its general corporate growth and working capital requirements.

The firm’s financials have produced increasing topline revenue from a tiny base, recent gross profit and positive gross margin, lowered but still high operating losses and reduced cash used in operations.

Free cash flow for the twelve months ended September 30, 2022, was negative ($9.6 million).

Marketing and Advertising expenses as a percentage of total revenue have dropped as revenue has increased from a tiny base; its Marketing and Advertising efficiency multiple rose to 3.0x in the most recent period.

The firm currently plans to pay no dividends and to retain any future earnings to reinvest back into the firm’s growth and operating requirements.

Hanryu has spent lightly on capital expenditures despite negative operating cash flow.

The market opportunity for fan-related websites is estimated to be $10 billion by some industry observers.

Aegis Capital Corp. is the sole underwriter and the only IPO led by the firm over the last 12-month period has generated a return of negative (51.5%) since its IPO. This is a bottom-tier performance for all major underwriters during the period.

Risks to the company’s outlook as a public company include its tiny revenue base and limited operating history.

Additionally, Hanryu Holdings, Inc.’s growth potential rests on the demand for Korean culture throughout Asia. Should consumer attitudes about Korean culture change in a way that diminishes the appeal of the firm’s services, it could be exposed to lower revenue growth potential.

When we learn more information about the IPO, I’ll provide a final opinion on Hanryu Holdings, Inc.

Expected IPO Pricing Date: To be announced.