Key Takeaways:

• East Buy’s shares fell to a two-year low after the company parted ways with Dong Yuhui, its star livestreaming host who had frequent open conflicts with management
• Dong’s departure marks the e-commerce company’s strategic shift away from overreliance on individual livestreaming hosts

By Xia Fei

Sometimes a divorce is inevitable when a couple fights constantly. But that doesn’t mean it isn’t painful – and sometimes costly – when it eventually happens, even if it was widely anticipated.

That was the case when Dong Yuhui, an English teacher-turned-celebrity livestreaming host, parted ways last week with East Buy Holding Ltd. (1797.HK), the former online education arm of New Oriental (NYSE:EDU) that became a high-profile online marketplace.

East Buy has yet to announce results for its fiscal year that ended in May this year. But it reported a profit of 249 million for the six months through last November. By comparison, Time With Yuhui posted a 141 million yuan profit in the first half of the 2024 calendar year, showing that Dong’s departure could take away a big chunk of East Buy’s profits.

The disposal of the unit amounts to a “free gift” to Dong, Yu explained on social media after penning a lengthy open letter about Dong’s departure. But the news was anything but a gift to holders of East Buy’s shares. 

When the resignation was made public on July 25, East Buy thought it might cushion the blow by announcing a share buyback program of up to 500 million yuan on the same day. But investors still dumped the stock, which tanked 23% the next day to touch a two-year low of HK$9.50 before regaining some ground to close at HK$9.92 on Monday. Its market cap has shriveled by nearly 45% since May to a current level of about HK$10 billion ($1.3 billion).

The selloff reflects not only a big drop in market value, but more symbolically the hefty price East Buy has to pay as it attempts to reduce its overreliance on any single livestreaming host. Over the longer run, the breakup may also end the ongoing reputational damage Yu and East Buy have suffered due to the conflict’s very public nature, and allow East Buy to focus on more important challenges such as rising competition and China’s slowing retail market.

Fans effect

The internal clash between Dong and management first burst into public view when East Buy dismissed its veteran CEO Sun Dongxu last December in part for the latter’s criticism of China’s “extreme fan culture”.

But the move hardly settled the feud. Yu and Dong were in talks multiple times dating back to March and decided to spin off Time with Yuhui at the end of May to avoid “business conflicts and public opinion disputes,” according to the latest open letter from Yu.

Dong’s fans also cheered him for going solo. On Douyin, the Chinese version of TikTok, East Buy lost nearly 50,000 followers while Time with Yuhui gained more than 370,000 new subscribers. While East Buy made no mention of Dong or Time With Yuhui in its 2023 annual report published in February, alternative data shows the hit from Dong’s exit could be substantial in the near-term.

According to data service provider ChanMama, more than 100 million yuan of products were sold through Time with Yuhui’s livestreaming channel in May, the second highest transaction volume on Douyin that month, while East Buy ranked ninth.

Post-star era

While painful, the split is probably an important step for East Buy over the longer term, and serves as a textbook case on the perils of relying too heavily on any single individual’s public personality for a company’s business.

And even though Dong’s rising stardom helped pump up East Buy’s GMV, that wasn’t enough to reverse the company’s falling profits due to intense competition in China’s e-commerce market. East Buy reported 2.8 billion yuan in revenue in the six months to last November, up 34% from a year earlier. But its profit slumped 57% to 249 million yuan, as it more than doubled its spending on marketing, R&D and administrative expenses to keep up with its rivals.

In his public letter, Yu acknowledged that volatile public opinion was leading to “huge uncertainties” for East Buy, causing its reputation and stock to suffer damage.

In a positive sign of pivoting, revenue from East Buy’s private label products and livestreaming e-commerce segment increased by 37% during the six months to last November, making a significant contribution to its overall revenue and offering an early sign of the firm’s strategic shift. East Buy has been cultivating rising new livestreaming hosts, such as YoYo, also a former instructor at New Oriental known for her world history knowledge.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.