Thanks to the development of social media, celebrities with millions of followers can easily turn their huge fan bases into real money—just ask US celebrities like Kylie Jenner or Kim Kardashian.
And it's not just confined to US celebrities, as evidenced by Ruhnn Holding, a Chinese agency for internet celebrities who peddle their influence for commercial ends, which listed on Nasdaq last Wednesday in a downwardly revised US$125 million initial public offering.
It didn't all go to plan, though, as the share price sank 37% on the first day of trading, reflecting the fragility of its internet celebrity ecosystem and perceived risks to its revenue streams, despite investor backing form the likes of Alibaba, Legend Capital, and SAIF Partners.
Ruhnn, which a month ago had hoped to raise US$200 million with its IPO, currently manages 113 internet celebrities. It opens stores for various products with the help of these celebrities, takes advertising from others and posts links directing fans to third-party websites.
Ruhnn now has 91 online stores and cooperates with 501 brands, including cosmetics and fashion wear. How much the company earns depends on the number of fans that click on the links its celebrities post online.
So its various fan followings comprise Ruhnn's main asset and their combined purchasing power fuel its growth. As it stands, this amounts to about 148 million fans across various social media platforms, stock market filings show, which helped to generate revenue for the company of US$137.8 million in the year to March-end 2018.
In that respect, the spending power behind Ruhnn is comparable to that of Kylie Jenner’s fans. The richest Kardashian-Jenner sibling sold an estimated US$280 million in cosmetic products in 12 months in 2017 via her 128 million fans on Instagram—for an average of US$2.1 per follower. Ruhnn’s top internet celebrity, fashion entrepreneur Zhang Dayi, sold an average US$7.6 per follower in the same period. She has 22 million followers.
But even with such fan backing, Ruhnn is still losing money. The company’s net loss widened to US$13 million for the fiscal year to March end 2018. Its gross profit rate has continued to drop since 2017 while sales and marketing expenses increased year after year.
“It's very difficult and expensive to boom your followers on social media nowadays,” one Shenzhen-based internet celebrity agent told FinanceAsia. “And it is even harder to get those followers to click on the posted link and actually buy things.”
Internet celebrities rely on increases in their followers to boost sales, but user growth on Weibo and other Chinese social media platforms have started to slow down.
Ruhnn’s biggest headache is how to attract and retain fans. After a national crackdown of some live-streaming platforms late last year their options for gaining new users have narrowed.
The purchase of fake followers to pump up internet celebrity followings is also suspected to be rife by some industry insiders.“On average, 30% to 50% of these internet celebrities’ followers are fake accounts,” one source at a Shanghai-based digital marketing company told FinanceAsia.
If true, it would mean advertisers potentially getting just half the bang for every buck spent.
Ruhnn's business relies mostly on sales driven by Zhang Dayi and her fans. Ruhnn’s 112 other celebrities sell much fewer products, which means the source of its earnings isn't as diversified as it could be, raising a question mark over its future revenue streams.
Another risk is the internet celebrities themselves.
“It is common for internet celebrities to jump from one agency to another,” according to the same agent. “Sometimes an agency would suffer a loss when its internet celebrity jumps to another company, that means you waste money and resources to build up a competitor.”