The marketing services firm, previously heralded as Hong Kong’s “first metaverse stock,” is seeking to raise approximately $10 million through a share placement aimed at alleviating its financial burdens.
Key Financial Developments
Flowing Cloud has announced its intention to raise $10 million via a share placement following a substantial loss of 120 million yuan during the first half of 2025, attributed to a 33% decline in its core marketing services revenue. This marks the company’s second share placement within just four months as its cash reserves dwindled to a mere 21 million yuan by the close of June. Multiple stock placements within a short timeframe can often indicate financial distress, particularly when they are modest in scale, suggesting a lack of confidence in attracting buyers for the shares. Such actions not only highlight potential financial strains but also risk alienating existing shareholders due to repeated dilution of their investments.
Despite these challenges, Flowing Cloud Technology Ltd. (6610.HK), which specializes in AR/VR marketing services, has announced its second share placement since May. According to a statement released on September 9, the company plans to issue up to 433.4 million shares at a price of HK$0.174 each, which represents a discount of approximately 20% from its previous closing price and amounts to about 16.67% of the company’s expanded share capital. The firm anticipates raising around HK$74.53 million ($9.56 million) after expenses.
Roughly 60% of the funds raised will be directed towards acquiring traffic through various media platforms or agencies, while the remaining funds will be allocated for research and development as well as working capital. The focus on R&D includes enhancements in algorithms, data analytics, digital-human platforms, artificial intelligence, motion-capture technologies, and extended reality (XR) innovations. This placement follows a previous issuance of 361 million shares in May, which generated approximately HK$71 million in net funds, with similar spending plans.
A Shift in Fortune
Flowing Cloud enjoyed significant success shortly after its Hong Kong IPO three years ago, where it attracted investor interest by positioning itself as the first metaverse stock amidst a surge in excitement around the concept, largely fueled by Meta, formerly known as Facebook. The company initially sold shares at HK$2.21, which soared to HK$5.21 within a month as investors anticipated substantial growth linked to the metaverse.
However, the narrative has since shifted dramatically, as the initial enthusiasm for the metaverse has waned, causing Flowing Cloud’s fortunes to decline and its stock price to drop below the crucial HK$1 mark, currently trading at just over HK$0.20—a stark contrast to its earlier highs.
Initially, Flowing Cloud operated as a mobile ad optimizer, capitalizing on traffic arbitrage. Its revenue surged from 250 million yuan ($35 million) in 2019 to 1.25 billion yuan in 2021, driven by increasing smartphone usage, which allowed the company to achieve a profit of 260 million yuan that year. Seeking a new direction around 2015, the company pivoted to incorporate augmented and virtual reality (AR/VR) effects into its marketing campaigns, creating an operational model that integrated AR/VR marketing with content and a SaaS platform. This new focus was heavily marketed, but ultimately proved to be unsustainable as the metaverse hype faded.
The lack of proprietary intellectual property (IP) in metaverse technology left Flowing Cloud dependent on the fleeting excitement surrounding the trend. As interest diminished, the company’s inflated valuation plummeted. Compounding these issues, key clients in the internet and e-commerce sectors have recently slashed their marketing budgets, further straining Flowing Cloud’s financial situation as its costs for traffic acquisition continue to rise.
Financial Struggles
Flowing Cloud’s annual revenue of 995 million yuan in the previous year represented a 20% decline year-on-year, resulting in a loss of 43.7 million yuan—a significant downturn after years of profitability. This downturn was largely due to a sharp decrease in revenue from its primary AR/VR campaigns, which fell from 845 million yuan to 573 million yuan. The decline in client ad spending has also led to a decrease in gross margins, which dropped to 20.1% last year from 33.8% in 2023.
The trend of financial decline continued into the first half of 2025, with the company’s revenue dropping 15% year-on-year to 380 million yuan, leading to a loss of 120 million yuan, a stark reversal from the profit of 63.47 million yuan recorded in the same period last year. Core marketing revenue suffered even more, declining by 33.5% to just 215 million yuan, with average client spending decreasing by 24%. The company also experienced impairments of 85 million yuan in accounts receivable.
Desperate Measures for Cash
One of the few positive developments for Flowing Cloud this year came from its AR/VR content division, which saw a 12.6% increase in revenue and a 60% rise in pricing per project during the first half, fueled by growth in areas like digital avatars and short dramas. Nevertheless, this division remains too small to counterbalance the downturn in its core business.
Consequently, the company has had to resort to issuing additional shares to restore its financial resources. After the mid-May share sale, Flowing Cloud’s cash and bank balances still amounted to only 21 million yuan by the end of June, indicating ongoing financial strain and raising concerns that such fundraising efforts could become a repetitive cycle.
Despite a flurry of negative indicators, Flowing Cloud’s stock experienced a 5.5% increase on the first trading day following its fundraising announcement, closing at HK$0.229. This uptick could be interpreted as a relief rally, as investors may have already factored in the numerous challenges facing the company. Moreover, there remains optimism that the new funds will be invested in its promising AR/VR content division.
However, this rally does not mask the underlying challenges that Flowing Cloud faces. While there may still be opportunities for growth in AR/VR applications—such as digital culture-tourism, immersive exhibitions, and AI digital avatars—the company lacks significant IP advantages in both hardware and software in a competitive landscape.
Ultimately, Flowing Cloud continues to function primarily as a marketing firm with limited growth prospects. This situation is reflected in its price-to-sales (P/S) ratio, which stands at a mere 0.4 times, compared to 1.6 times for New Media Lab (1284.HK). With the allure of the metaverse fading, the company may struggle to attract investors under its current business model unless it achieves significant technological advancements.
