Business context and reporting period
This is LIZHI INC.’s annual report on Form 20-F for the fiscal year ended December 31, 2022—not a standalone 2022 Q4 report. The filing describes an audio entertainment and social networking business, primarily operating in China through subsidiaries and variable interest entities (VIEs). The filing identifies the registrant as LIZHI INC.; verify the company identity against the request metadata, which names Sound Group Inc.
Revenue is generated almost entirely from virtual-gift sales tied to audio entertainment. The company reported 50.4 million average total mobile monthly active users (MAUs) and 483.9 thousand average monthly paying users in 2022. Each ADS represents 20 Class A ordinary shares.
Key financial metrics
Amounts below are RMB unless stated otherwise; 2022 U.S. dollar equivalents are included where reported.
| Metric | 2022 | 2021 |
|---|---|---|
| Net revenue | 2,185.3 million (US$316.8 million) | 2,119.5 million |
| Gross profit / margin | 716.3 million / 32.8% | 617.0 million / 29.1% |
| Operating income (loss) | 66.7 million | (138.5) million |
| Net income (loss) | 86.5 million (US$12.5 million) | (127.3) million |
| Operating cash flow | 136.3 million | (40.4) million |
| Investing cash flow | (122.8) million | 52.1 million |
| Financing cash flow | 4.8 million | 212.7 million |
- Net margin was approximately 4.0% in 2022, versus approximately (6.0)% in 2021. Basic and diluted earnings were RMB0.08 per ordinary share, or RMB1.67 per ADS, compared with losses of RMB0.13 per share and RMB2.57 per ADS in 2021.
- Audio entertainment generated RMB2,174.3 million, or 99.5% of 2022 revenue. Podcast, advertising and other revenue was RMB11.0 million, or 0.5%.
- At year-end, cash and cash equivalents were RMB568.2 million; short-term investments were RMB111.4 million and restricted cash was RMB10.3 million. Total current assets were RMB723.5 million and current liabilities RMB371.5 million, giving reported positive working capital of RMB352.0 million.
- Short-term loans were RMB73.8 million, compared with RMB69.0 million in 2021; the weighted-average interest rate on outstanding loans was 4.6%. Loans mature in less than six months. Lease liabilities totaled RMB26.6 million.
Changes versus the prior comparable period
- Revenue increased 3.1%, which management attributed primarily to higher average user spending on audio entertainment.
- Gross profit increased 16.1% and gross margin rose 3.7 percentage points. Cost of revenue fell 2.2%, mainly due to lower revenue-sharing fees after policy adjustments, lower headcount-related costs and lower share-based compensation; higher bandwidth costs partly offset the decline.
- Operating expenses fell 14.0%. Selling and marketing expense declined to RMB259.6 million from RMB386.2 million, while research and development expense rose 7.0% to RMB283.3 million and general and administrative expense rose 2.0% to RMB106.7 million.
- The company moved from operating and net losses in 2021 to operating and net income in 2022. Government grants were RMB14.4 million in 2022; income tax expense was RMB0.2 million.
- Average total mobile MAUs fell to 50.4 million from 58.4 million, and average monthly paying users edged down to 483.9 thousand from 488.0 thousand. Management attributed the declines primarily to optimizing user acquisition to focus on users with stronger willingness and ability to pay. Audio entertainment MAUs increased to 9.33 million from 8.99 million.
- Operating cash flow improved to RMB136.3 million. Investing cash flow turned negative, principally reflecting purchases of short-term investments; financing cash flow was limited after prior-year follow-on offering proceeds.
Outlook, risks and notable items
- No formal revenue or earnings guidance is provided. Management expects available cash and anticipated operating cash flows to meet working-capital needs and capital expenditures for at least the next 12 months, while noting that business changes or investment needs could require additional financing.
- The company has not declared or paid dividends and says it intends to retain available funds and future earnings for its business.
- VIE exposure is significant: VIEs generated 98.6% of 2022 revenue. Investors hold shares in the Cayman Islands parent, not the VIEs; contractual control arrangements have not been tested in court and could be challenged under PRC law. The VIE arrangements for Guangzhou Huanliao were transferred to a different PRC subsidiary in July 2022 and amended and restated in January 2023.
- Regulatory risks include evolving PRC rules on online content, licensing, cybersecurity, data privacy, foreign listings and VIE structures. The CSRC’s overseas listing filing measures took effect March 31, 2023; future offerings may require filing. Management reported no CAC cybersecurity review or CSRC inquiry concerning prior securities issuance as of the report date.
- The PCAOB reported full inspection access in mainland China and Hong Kong in 2022, and the company did not expect to be identified as an HFCAA Commission-Identified Issuer for 2022. Future access remains uncertain; two consecutive years of identification could lead to a U.S. trading prohibition.
- Nasdaq notified the company of a minimum-bid-price deficiency. Following transfer to the Nasdaq Capital Market, the filing reports an extension through October 9, 2023 to regain compliance; verify subsequent listing status.
- Management identified a material weakness in internal control over financial reporting: insufficient accounting and financial-reporting personnel with appropriate U.S. GAAP and SEC reporting expertise. Disclosure controls and internal control over financial reporting were reported ineffective as of December 31, 2022. Remediation steps include hiring, training and establishing an internal-control department; completion was not assured. The auditor issued an unqualified opinion on the financial statements but did not attest to internal-control effectiveness.
- Two securities class actions concerning alleged IPO-registration-statement misstatements were dismissed in full in 2022. The company reported no other material legal or administrative proceedings, while ordinary-course claims remain possible; RMB3.2 million was recorded as a litigation provision at year-end.
- The filing says the company was likely a passive foreign investment company (PFIC) for 2022 and that PFIC status could continue, potentially creating adverse U.S. tax consequences for U.S. investors.
Important facts for investors to verify
- Confirm the issuer identity and ticker: the filing names LIZHI INC., while the request metadata names Sound Group Inc.
- Review the full audited statements and notes, especially the drivers and sustainability of 2022 profitability and the cash-flow impact of short-term investment purchases.
- Track user, paying-user and spending trends to assess whether revenue growth can continue despite lower overall MAUs.
- Assess the VIE structure, PRC regulatory exposure, required licenses and any CSRC filing obligations for future offerings.
- Check the status of the internal-control remediation, Nasdaq bid-price compliance and PCAOB inspection access after the filing date.
- Consider the concentration of revenue in virtual gifts and key paying users, the absence of dividends, and potential PFIC tax treatment for U.S. holders.