[Editor’s Note: This story has been updated to include the statement of Xinchao Media CEO Zhang Jixue released on February 12, 2020].
Xinchao Media, a Chinese unicorn that places elevator advertisements, is laying off roughly 500 employees or 10 per cent of its workforce after the company resumed operations on Monday post an extended Chinese New Year holiday.
Chengdu-based Xinchao Media, which previously raised billions of yuan from Chinese e-commerce major JD.com and internet search giant Baidu, will dismiss about 500 employees including 20 executives after it resumed operations from the vacation, Zhang Jixue, founder and chief executive officer of Xinchao Media, announced at a company internal speech on February 10. His address was recorded and publicized in a company statement on the same date.
Xinchao Media is projected to see a nearly 70 per cent decline in February 2020 due to “the great impact of the coronavirus outbreak,” said the company founder and CEO Zhang Jixue, responding to public enquires in the past two days in a new statement on Wednesday (February 12, 2020). He said that such an influence on revenue might even continue in the second quarter of this year.
The layoff was partially caused by worries of a liquidity crunch as the company sales are dampened by China’s coronavirus outbreak, according to the statement. Xinchao Media estimated a normal business operation of about six to seven months before the company dries out the current cash reserve of nearly 1 billion yuan ($143 million), given the condition that there will be zero operating income in the duration.
Noticeably, such worries of tightened liquidity came from a unicorn that was valued at $1.5 billion by the Hurun Global Unicorn List 2019 (released in October 2019). The company, which places advertisements through LED screens in about 600,000 elevators in China, is backed by some of the country’s most prominent investors.
JD.com, the second-largest e-commerce group in China, led a strategic investment of almost 1 billion yuan ($143 million) in Xinchao Media in August 2019. Chinese technology giant Baidu also led a funding round worth 2.1 billion yuan ($301 million) in the firm in November 2018.
Besides the two billion-yuan deals, Xinchao Media also garnered more than 3 billion yuan ($430 million) from at least five transactions from investors including listed companies and a government-backed fund in China.
“As a middle-aged entrepreneur from Chengdu city, I have led the team to overcome the SARS epidemic in 2003 and the 2008 Sichuan earthquake. But I am still afraid of being defeated by the coronavirus outbreak in 2020,” Zhang was cited as saying in the earlier statement.
The company proposed to weed out the final 10 per cent of employees based on their ranking in the annual performance appraisal in 2019. All executives of Xinchao Media also volunteered to have their paychecks slashed by 20 per cent, and they agreed to receive no more than 50,000 yuan ($7,166) in monthly salary per person.
Even so, Zhang again stressed in the new statement that the 100 personnel reduction is a normal move since the firm weeps out the final 10 per cent of employees based on the annual performance appraisal every year.
Its total number of staff will reduce to about 4,000 after the dismissal, as per the statement.
“To survive from the epidemic, we will have to slam on the brakes [of spending money], retrench cash flows, and reduce costs, ensuring that the company will live through,” said Zhang, despite his insistence that the personnel reduction is “a normal move” for the company to adjust the development pace.
The coronavirus, which appears to have started in central China’s Wuhan city, has resulted in over 1,000 fatalities as of February 11, surpassing that of the SARS.