When it comes to the latest high-tech buzzwords, it seems investors like blockchain and the metaverse, but are less excited about non-fungible tokens, better known as NFTs.
Oh, and they’re also quite upbeat on Oriental Culture Holding Ltd. (NASDAQ:OCG), an online art and collectibles trading platform whose recent series of announcements involving all three new technologies elicited reactions in line with what we’ve just described. Founded just four years ago, Oriental Culture has also just released its latest annual results that showed triple-digit profit and revenue growth last year for its comfortable niche in China’s C2C e-commerce space.
We’ll get to the financial highlights shortly, but first, we’ll begin with Oriental Culture’s recent series of high-tech initiatives. Most of the company’s current business comes from the trading of real-world goods, from paintings and ceramics to wine and spirits, and tea. But clearly, it’s itching to move up the technology ladder, hence the rapid-fire series of announcements starting about three months ago.
The parade began on Feb. 24 when Oriental Culture announced it had signed a memorandum of understanding with Heng Well Information Technology Co. to collaborate on blockchain-based products and services involving digital cultural products and artworks. That tie-up included collaboration on NFTs, a digital art form that has become all the rage these days. Investors applauded the company’s big step into the digital art realm by bidding up Oriental Culture’s American depositary shares (ADSs) 7.2% the day the deal was announced.
Fast forward a week to March 2, when the company said its Hong Kong subsidiary would provide services to create NFTs for cultural and artwork collections. It added that its e-commerce platform would also be upgraded to facilitate sales, auctions, and trading of NFTs. This time, however, it seems investors weren’t quite so impressed – the company’s shares sagged 10.6% on that news.
Last but certainly not least, the company on April 12 announced it would pay 6 million yuan ($893,000) for 11.875% of Beijing Jiu Yu Ling Jing Technology Co. Ltd., which provides wine and liquor-related services that allow people to trace, authenticate and assess the quality of alcoholic products. At the same time, Oriental Culture disclosed the pair were developing a “Wine and Spirits” metaverse game that “aims to create a virtual ‘Wine World’ for wine and alcohol product merchants and fans across the world.” Through that game, it said, people could learn about things like brewing, packaging, and managing for the spirits industry, and also give their friends and contacts virtually made drinks as gifts.
Investors seemed to like that message, which dovetails with the much bigger renaming of Facebook to Meta Platforms (FB) last October in anticipation of big prospects for future metaverse applications. Oriental Culture’s stock rose 3% the day of the announcement, not exactly a standing-ovation but still a relatively warm reception.
In fact, Oriental Culture’s shares have been standouts over the past year even before the latest series of announcements. Perhaps that’s because the company’s main trading platforms are based in Hong Kong, which means they aren’t subject to the strict wave of regulation that has rained down on most Chinese companies over the last year. And while the company itself is based in the Chinese city of Nanjing, its relatively small market cap of $77 million means that perhaps investors feel it isn’t big enough to attract unwanted regulatory attention.
Whatever the reasons, the company’s stock is currently down by a relatively mild 15% from the $4 price for its December 2020 IPO. By comparison, other big e-commerce names like Alibaba (BABA) (9988.HK) and Pinduoduo (PDD) have lost well over half their value over the last year as China tightens the reins over a wide range of issues, ranging from anti-competitive behavior to data security.
All that said, we’ll look next at the company’s latest annual results that show the triple-digit top- and bottom-line growth that we mentioned earlier. The company posted revenue of $37.6 million last year, representing 116% growth from 2020. Its operating margin roughly tripled to 29% last year from 9.4% in 2020, with the result that its net profit soared by a factor of more than five to $11.4 million from just $2 million over the same period.
The company pointed out that 2020 was a weak year due to the pandemic, which made it easier to post stronger numbers in 2021 as the business bounced back. But even so, the latest annual revenue was still nearly triple the level of 2019 before the pandemic, and the latest profit was up 27% from that year as well.
Oriental Culture also looks quite strong in terms of cost control, with operating expenses rising 84% last year – quite a bit less than its revenue growth. A big part of that was probably due to its small headcount, which grew by just four to 51 employees at the end of last year. So, clearly, this is a mean and lean company with relatively limited costs, which is probably why it has been able to become profitable for most of its brief existence.
Other metrics also looked quite strong, with the company’s active traders roughly doubling to 159,000 last year from 77,000 in 2020. The value of goods traded on its platforms roughly tripled to $15.6 million from $4.6 million over the same period, while average transaction value posted smaller but still solid growth of about 20% to $116 from $96 during that time.
The company previously traded at a price-to-earnings (P/E) ratio of 28 based on its 2020 profit, which is roughly comparable to the 25 for both Alibaba and U.S. C2C peer Etsy (ETSY). But the big jump in 2021 profit has dragged Oriental Culture’s ratio down to a much lower 6.5, meaning the stock currently looks quite undervalued. That said, it still looks much stronger than regional peer Takung Art (TKAT), which has been losing money for the last four years.
At the end of the day, Oriental Culture is still quite small and admits it faces competition from around 30 other similar platforms in both Hong Kong and on the Chinese mainland. But it does look quite well run and able to scale up its operations without taking on big extra costs. And while its series of blockchain, NFT, and metaverse announcements does have a certain element of hype, those initiatives do show the company isn’t just content to sit on its current business but is out there looking for the next big thing.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.