In-Depth Analysis of the Reasons for Yonyou Network's Three-Year Losses During Cloud Transformation

Based on the collected financial data and market information, I will systematically analyze the reasons for

for you.

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As a domestic leader in enterprise software and cloud services, Yonyou Network is facing severe profitability challenges, as shown in its Hong Kong IPO prospectus and public financial data:

Financial Indicator	2022	2023	2024	Trend
Operating Revenue	RMB 8.89 billion	RMB 9.44 billion	RMB 8.817 billion	Rose first, then fell
Net Profit	RMB 225 million	-RMB 933 million	-RMB 2.07 billion	Continued deterioration
Gross Profit Margin	55.0%	49.3%	46.0%	Three consecutive declines
Cloud Service Revenue as % of Total Revenue	65.4%	72.0%	77.2%	Continuous growth
Adjusted EBITDA	RMB 1.13 billion	RMB 239 million	-RMB 676 million	Swung from profit to loss
R&D Expense Ratio	19.7%	22.3%	24.1%	Continuous increase

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Yonyou Network is fully promoting the transition of its core products from traditional licensed ERP systems to a

. This strategic transformation requires huge upfront investments:

• Continuous increase in R&D investment
  : Total R&D expenses from 2022 to 2024 amounted to approximately
  RMB 6 billion
  , including capitalized development costs of RMB 3.91 billion [1][2]
• Proportion of depreciation and amortization in R&D expenses
  surged from 13.9% in 2022 to 38.5% in 2024, mainly related to the amortization of capitalized costs for BIP platform development [2]
• Sales and marketing expense ratio
  also rose from 25.1% in 2022 to 29.7% in 2024 to promote cloud service products [2]

The gross profit margin has shown a continuous downward trend, falling from 55.0% in 2022 to 46.0% in 2024, a cumulative decline of

[2]:

• Gross profit margin of cloud services for large enterprises declined the most
  , falling from 49.6% in 2022 to 31.8% in 2024, mainly due to a surge in implementation costs for high-end projects [2]
• Overall gross profit margin of cloud services is 45.0%
  , which is significantly lower than the 56.6% of software products [2]
• Yonyou Network admitted in its prospectus that the main reasons for the decline in gross profit margin are
  increased delivery difficulty due to the growing complexity of top clients’ businesses
  and increased costs to ensure a high-quality delivery experience for BIP [3]

The combined ratio of the three expenses to operating revenue rose continuously from 57.5% in 2022 to 67.7% in 2024, and further reached

in the first half of 2025, far exceeding the gross profit margin of 46.7% in the same period, resulting in severe operating losses [2].

Expense Item	2022	2024	Change
Sales Expense Ratio	25.1%	29.7%	+4.6pp
General and Administrative Expense Ratio	12.6%	13.9%	+1.3pp
R&D Expense Ratio	19.7%	24.1%	+4.4pp
Total	57.5%	67.7%	+10.2pp

, which are the mainstay of revenue, fell by 8.8% year-on-year in 2024, declining for two consecutive years [3]:

• Average revenue per large enterprise client fell from RMB 769,000 in 2022 to RMB 631,000 in 2024
  [3]
• The retention rate of large enterprise clients dropped to 74.1% in 2024
  , a decrease from the previous year [2][3]
• This reflects intensified competition in the high-end market and pressure from tightened client budgets

The company’s cash flow is deteriorating at an accelerated pace [2]:

• Cash flow from operating activities shifted from a
  net inflow of RMB 286 million in 2022
  to a net outflow of RMB 90 million in 2023, RMB 274 million in 2024, and reached a net outflow of
  RMB 928 million
  in the first half of 2025
• As of June 30, 2025, the company’s cash and cash equivalents dropped to RMB 2.734 billion, a
  51.3% decrease
  from the end of 2024
• Both the current ratio and quick ratio are below the safe level of 1

Yonyou Network needs to both maintain its ability to provide in-depth services to meet the complex needs of large enterprises and improve the standardization and profit efficiency of cloud products, resulting in significant difficulty in strategic balance [3]:

• International vendors such as SAP and Oracle
  still maintain technological and ecological advantages in the high-end market
• Domestic SaaS vendors focusing on niche tracks and small and medium-sized enterprises
  are rapidly penetrating the market with more lightweight and standardized product forms
• Compared with domestic peer
  Kingdee International
  , Yonyou’s 2024 operating revenue scale is 1.5 times that of Kingdee, but it is at a disadvantage in terms of
  gross profit margin (46.0% vs 57.2%) and R&D investment ratio (24.1% vs 19.3%)
  [2]

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Despite short-term growing pains, Yonyou Network has made some positive progress in cloud transformation:

1. Continuous increase in cloud service proportion
   : In 2024, cloud service revenue reached RMB 6.8 billion, accounting for 77.2% of total revenue, with subscription revenue growing by over 25% year-on-year [1]
2. Customer scale exceeds one million
   : Cumulative paid cloud service customers have exceeded
   1 million
   , with 138,000 new paid cloud service customers added in 2024 [1]
3. Continuous growth in ARR
   : ARR for cloud service business reached RMB 2.78 billion, a 16.3% increase from the previous year [3]
4. Accelerated breakthrough in AI business
   : AI-related contract signing amount exceeded
   RMB 730 million
   in the first three quarters of 2025 [3]
5. Improved delivery capability for large-scale projects
   : Successfully delivered projects for a number of central SOEs, local SOEs, and leading private enterprises, including China Merchants Group, China Life, CITIC Securities, and BYD [1]

In its 2025 plan, Yonyou Network stated that it will

[1].

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Risk Type	Specific Performance
Financial Risk	RMB 2.07 billion net loss, RMB 1.334 billion net current liabilities, negative adjusted EBITDA of RMB 676 million
Customer Churn Risk	Retention rate of large enterprise cloud service customers dropped to 74.1%
Technology Iteration Risk	Huge R&D investment in large AI models, with smart platform construction costs increasing by 40.7% year-on-year in 2024
Cash Flow Risk	51.3% decrease in cash and cash equivalents within half a year, increasing liquidity pressure

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Yonyou Network’s consecutive three-year losses are

. Its core contradiction lies in:

“The difficult balance between ‘increasing the proportion of cloud revenue’ and ‘improving profit quality’”

The company achieved the transformation result of increasing cloud service revenue proportion from 65.4% to 77.2% through large-scale R&D investment (RMB 6 billion over three years), high delivery costs, and a continuously rising expense ratio. However, during this process,

, resulting in severe erosion of profit margins.

Yonyou Network is in a critical stage of transformation from a traditional software vendor to a cloud service provider, and its future profitability depends on:

1. Whether gross profit margin can stabilize and rebound
2. Whether the retention rate of large enterprise cloud service customers can improve
3. Whether AI investment can be converted into competitive advantages
4. Whether the subscription model can achieve economies of scale

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[1] Yonyou Official Website - Yonyou Gathers Momentum in 2025 to Reverse Operating Efficiency and Strive for Profitability (http://www.yonyou.com/news/3757)
[2] Sina Finance - Yonyou Network Races Towards Hong Kong IPO: Net Loss Widens to RMB 2.07 Billion in 2024 (https://finance.sina.com.cn/stock/aigc/ggxg/zgs/2025-12-29/doc-inhentrz7713445.shtml)
[3] Guancha.cn - Yonyou Network Makes Another Attempt at Hong Kong IPO: When Will Cloud Transformation Reignite the Profitability Engine? (https://user.guancha.cn/main/content?id=1578311)
[4] Jinling API Data - Yonyou Network (600588.SS) Company Profile and Financial Analysis