Qudian in Search of a Business as Stock Falls Below $1

Qudian Inc.’s (QD.US)’s stock is once more flirting with penny territory as the once-flourishing online lender faces an identity crisis that shows no signs of quick resolution.

The company, which was trying to radically reinvent itself as a seller of ready-to-cook meals, said last Friday it was notified by the New York Stock Exchange (NYSE) that it’s in breach of listing rules that require its stock to stay above $1 after the shares’ average closing price for 30 consecutive trading days slipped below that floor. The company now has six months to prop the stock back up above the $1 mark, or risk potential delisting.

Qudian is no stranger to such warnings. It received a similar letter from the NYSE as recently as May, but managed to meet the minimum listing requirement in August after its stock rose above $1. Before that, the company was warned for the same reason in February, reflecting the hot-and-cold winds blowing the stock around the $1 level.

Qudian received its latest delisting threat after it indicated it was ditching its new ready-to-cook meal business, QD Food, which it launched just about six months ago. “After assessing current market conditions, the company has decided to streamline its QD Food business,” Qudian said in its latest quarterly earnings report released early this month. It added that it will “continue to explore new business opportunities and protect long term value for its shareholders.”

Exactly what is happening with that new venture is unclear. But it appears that Qudian is scaling down the business significantly, if not winding it down completely. The company said it will be hit by employee severance costs, fees for terminating partnerships and inventory write-offs, which appear to point to a full closure of the business.

The move came as a surprise since Qudian had trumpeted the business as its new road to riches just months earlier. In July, it boasted how a live-streaming event it held on Douyin, the Chinese version of the popular TikTok short-video app, generated sales of millions of dishes from the service. It also highlighted its capabilities to deliver products to more than 200 locations across China using a network of more than a dozen warehouses, and assembly and packaging facilities.

While exact circumstances behind the sudden change of heart are a bit of a mystery, going from online lender one day to food seller the next was always going to be a long shot. More broadly, the move underscores the urgency that a field of formerly highflying Chinese online lenders are feeling to find new business models after Beijing cracked down on them to stem excessive growth in private credit.

Some of Qudian’s rivals, such as 360 DigitTech (QFIN.US) and FinVolution (FINV.US), have made much less radical shifts from direct lenders to loan facilitators between consumers and banks.

A different game

Such moves closer to their original business make much more sense than ones like Qudian’s that are taking it into completely unfamiliar terrain. Unlike lending that requires capital but very little fixed assets, selling meals requires much higher fixed costs to run physical facilities like warehouses and employ delivery staff. Competition in food delivery is also intense. Reflecting these challenges, Missfresh Ltd. (MF.US), which pioneered speedy grocery delivery in China, is facing an existential crisis after burning through more than $2 billion since its inception.