Chapter 108

Yu Xing spent two days in anticipation, constantly paying attention to and thinking about the changes in Focus Media's stock price.

However, although Focus Media's stock price fluctuated around 15 US dollars, it didn't seem to be affected by Guoshanfeng; it was still because of the overall economic environment and market changes.

Throughout 2008, Focus Media's stock price had been falling. Its peak stock price in November 2007 was 65.1 US dollars, with a market value of nearly 8 billion US dollars, while the already slowly declining stock price fell to 20 US dollars after the financial crisis, with a market value of only 2 billion-plus US dollars.

Entering January of this year, Focus Media's stock price didn't hold the barrier and had already entered the 15+ US dollar range, and its market value had also fallen from the 2 billion US dollar mark.

With such a decline, the bad news from an unknown Xiangjiang research company and a few media outlets seemed to make it like a flea-ridden dog that doesn't itch—there was absolutely no reaction, and there was no official response on the surface.

"Xiao Ying, seeing Focus Media fall like this, I suspect that even if we don't short it, we could make a profit just by buying PUTs..." Yu Xing was somewhat helpless in his call with Liu Wan Ying.

"Are you going to talk about operations with someone who has lost a lot of money in the financial market?" Liu Wan Ying asked for Boss Yu's opinion.

Yu Xing found it funny: "Don't look down on yourself. It's all the market's fault, not yours."

Liu Wan Ying was also rarely worried: "Logically speaking, when our detailed research report comes out and the US agent lawyer contacts the SEC, Focus Media's stock price will inevitably fall. But I'm a bit worried now that Focus Media's stock price has already fallen too hard, and we won't be able to get much profit."

Yu Xing said categorically: "Impossible!"

Liu Wan Ying asked: "Do you have any brilliant ideas? Have you studied the calculation formulas I sent you?"

"I haven't studied them, but I can see from the logic that Focus Media still has a market value of over a billion US dollars. If there is a problem with financial fraud, how could it not be affected?" Yu Xing expressed confidence. "You are worried because you care. Even if the SEC doesn't move before the New Year, it will move sooner or later after the New Year."

Liu Wan Ying was silent for a moment and sighed faintly: "Also, the logic is like that. But if the SEC doesn't move, I'll have to spend this New Year feeling uneasy. The PUTs were bought until March 20th; the time is ample no matter how you calculate it."

A PUT is a put option, a common means of profiting from short selling, and its nature is a right.

That is, once bought, one possesses the right to sell a certain stock at an agreed price and quantity within a certain time.

Just like Focus Media's PUTs, Liu Wan Ying bought PUTs from a brokerage, agreeing to expire on March 20th, with an exercise price of 12.5 US dollars, and the option premium paid was 2.5 US dollars per share.

This meant that no matter how much Focus Media's stock price fell, she could sell the stock at a price of 12.5 US dollars.

If Guoshanfeng's action took effect and Focus Media's stock price suddenly fell to 5 US dollars, the whole process would be Liu Wan Ying buying the stock at 5 US dollars from the Nasdaq circulation market and still selling it to the brokerage at 12.5 US dollars, making a profit of 7.5 US dollars per share.

Of course, in actual operation, Liu Wan Ying doesn't need to buy the stock in the market to exercise the option; the brokerage will automatically handle this process, and what she receives is the difference in cash profit.

Buying PUTs -> stock price falls -> exercise -> profit. Liu Wan Ying doesn't need to actually own the stock; the price paid is the option premium.

Focus Media's option premium is 2.5 US dollars per share, and a standard PUT is 100 shares, so the cost is 250 US dollars.

According to the current stock price of 15 US dollars, this 250 US dollars leverages 100 shares of stock worth 1500 US dollars, using low cost to gamble for high returns.

It's just that the future of stocks is always unpredictable. If the option isn't exercised or the PUT isn't traded by the expiration date, this 250 US dollars will go down the drain.

What Guoshanfeng is doing now is to suppress the stock price and create space for exercising the option to profit.

Yu Xing received a detailed explanation from Liu Wan Ying, even with relevant formulas from the BSM model to demonstrate the unreasonableness of the brokerage's pricing of PUT option premiums, but it was indeed a bit complicated.

He was very happy to learn new knowledge, but the short-term treasury bond interest rate, the annualized volatility of the underlying asset price, and the cumulative distribution function of the standard normal distribution in the Black-Scholes-Merton model... always made people want to shift their attention to company affairs.

"The financing matter isn't as easy as I thought, but Shen Nanpeng of Sequoia replied to me. We might be able to talk before the New Year." Yu Xing confided in Liu Wan Ying. "However, seeing that Guoshanfeng has taken action, Xiao Ying, have you considered forming an equity private equity fund like Shen Nanpeng and Xu Xin?"

Liu Wan Ying laughed dumbly: "Your ideas change every so often. You don't want me to do a small consulting company anymore? Now that you've seen the style of investors, you want me to do it?"

"I hadn't seen it before, but now that I have, it's indeed not bad, but it seems it's just that kind of 'not bad'." Yu Xing smiled. "The first thought I had after seeing Xu Xin that day was, what am I, Xiao Ying, lacking?"

Liu Wan Ying said bluntly: "No interest, and no resources."

"If Focus Media's money makes a profit and we can't find a second target in a short time, what do you plan to do with your money? I think we can try it." Yu Xing instigated. "Or, if you're not interested, I'll learn from Shen Nanpeng and start a private equity fund. You have money; are you willing to be my LP?"

LP is Limited Partner, a partner who provides capital to a private equity fund.

Liu Wan Ying thought for a moment: "If I can make big money, I'll invest some for you and be an LP; that's fine."

"LP, hello." Yu Xing said seriously, "Are you spending the New Year at my house this year?"

Liu Wan Ying was bewildered, not knowing how it shifted from career planning to New Year arrangements.

She recalled for a moment and had to sigh: "You confusing abbreviations like this is really boring."

"Is it? If you don't be my LP, I'll have my teacher introduce an LP to me for the New Year." Yu Xing smiled. "Xiao Ying, are you looking forward to the moment when the short selling succeeds?"

Liu Wan Ying suddenly remembered something; it seemed they had chatted about waiting until the short selling succeeded before talking about love.

She asked back: "Aren't you waiting for my brother to introduce one to you?"

"Yes, I'll learn from Shen Nanpeng and start a fund, have the teacher introduce fund partners to me, and then invest the money into Baixiaosheng." Yu Xing teased. "If the short selling succeeds and your money has nowhere to go, why not invest it in Baixiaosheng? Aren't you looking forward to it?"

"Boss Yu, I'm wondering why you're instigating me to start a fund. It hasn't succeeded yet, and you've already set your sights on my money." Liu Wan Ying realized. "It's just that I don't know if this mouth of yours is actually useful with investors."

"How is it not useful? Xiao Ying, I believe this short selling will definitely succeed. There is nothing more solid than counting the screen myself. If I were willing, I could have raised money from Xu Xin a few days ago, and Shen Nanpeng also said he would take a look. Think about it, if you are willing to invest money, you are investing in a project that has been vetted by Xu Xin and Shen Nanpeng."

He said his plan: "If Today Capital and Sequoia can't give me the price I want, then I'll use the money from Focus Media first and look for them in the next round."

Liu Wan Ying was dumbfounded: "Now this is a project vetted by Xu Xin and Shen Nanpeng? When you see other investors in the next round, will you be using this banner?"

"Is there a problem?" Yu Xing said righteously. "Today Capital is just waiting for my signature."

Liu Wan Ying thought left and right: "Are you really going to invest the short-selling money? Although I invested in an angel round, but... are you that confident in building Baixiaosheng?"

"Even if it can't go public, early money can still bring returns." Yu Xing said firmly.

There is no problem with Baixiaosheng's model.

This point can be referenced to the "Maimai" company. Although it didn't go public, Maimai could raise 200 million US dollars in its Series D round, with a valuation of over 1 billion US dollars, which is naturally a far increase compared to the current Baixiaosheng.

Advertising, users, recruitment—the revenue structure is very clear.

What's more, there is a wave of PC shifting to mobile in the next few years.

Yu Xing thinks that no matter how he does it, as long as he grasps this model and direction, he won't be unable to earn back the money invested. If he really can't open up a new world, he can just sell the company like "Gui'ai Net," and he will surely be able to achieve cold financial freedom.

With such a bottom line, as the company grows, the users increase, the experience becomes more sufficient, and the team grows larger, Yu Xing wants more.

Seeing that there was no sound on the other end of the phone, Yu Xing probed: "Or, since you're free during the New Year anyway, shall I send you a financing intent letter?"

The procedures that need to be followed still need to be followed.

Liu Wan Ying put away her thoughts and ended the call: "Let your teacher introduce an LP to you, and let the LP look at your intent letter."

Yu Xing put down his phone, feeling that this Xiao Ying is more prone to having a temper after losing her job.

He pondered short selling and financing for a while, and waited for the third-in-command, Zhong Zhiling, who had returned from ground promotion.

Zhong Zhiling hadn't been idle after returning to Shencheng; he had been wholeheartedly continuing the targeted promotion work, hoping to add a bit of weight to the company's financing chips.

He walked into the President's Office, and the first thing he saw was the formula derivation on the whiteboard.

"Hmm? Brother Xing, what are you calculating?" Zhong Zhiling looked for a few seconds and said somewhat strangely, "Is this the cumulative distribution function of a standard normal distribution?"

"Yo, the one recommended for graduate school is here." Yu Xing smiled. "Your math is pretty good."

"It's a special normal distribution, with a mean of 0 and a standard deviation of 1. I almost went to study in the math department back then." Zhong Zhiling sat down and handed over the work report.

Yu Xing flipped through it casually; it was the latest week's ground promotion results for five cities, with an average of 150-200 new users per day.

Approaching the New Year, Baixiaosheng needed to roughly make the work plan for the coming year first.

"Once our money is in place and coordinated with brand promotion, your work will certainly be easier to do." Yu Xing said. "Hmm, let's work overtime tomorrow, the few of us, to discuss recent work. Your work is certainly qualified, the atmosphere of the website operation is also good, and Xiao Ying's work is also qualified."

With the growth and stabilization of users, a large part of the content that has emerged on Baixiaosheng in the past week is the comparison of year-end bonuses and New Year goods of different companies.

This is what Yu Xing is happy to see, and it is also the direction Lu Haiying is striving to promote.

Although positioned as a workplace social and workplace topic platform, Baixiaosheng's main actions since going online have been "workplace topics," continuously releasing big topics like "college student employment," "internet matchmaking industry," and "Xiecheng layoffs and insurance policies," successfully bringing the total number of users to 100,000+.

The activity of these users is certainly highest when the topic appears, and then it slides down significantly.

An important task Baixiaosheng needs to do now is to transform into common small topics and cultivate the users' spontaneous social atmosphere.

The New Year is a good node. Things that workplace people are closely concerned about, such as year-end bonuses, New Year goods, and job hopping after the holiday, are not as explosive as big topics, but they are enough to maintain good daily activity.

This is a good phenomenon for the development of the website, and, like "college student employment" at a fixed time every year, it has sustainability.

Lu Haiying has already made relevant plans: New Year, spring recruitment, autumn recruitment, Mid-Autumn Festival, user favorite company selection, user worst company list, industry salary secrets, and other topic activities.

Coupled with topics that easily appear anonymously, the soil for user activity and the traffic diversion mechanism of the website have formed a framework.

"As for Brother Feng, he shed blood for the company, and his work is also qualified. His girlfriend hasn't been here long, and the budget hasn't been allocated, so there's no need to evaluate it."

"Calculating this New Year, it seems my work isn't qualified enough; the financing money still hasn't been raised."

Yu Xing reflected.

Zhong Zhiling quickly said: "Brother Xing, if it weren't for your guidance, how could our work be qualified? As for the financing, it's their loss if they don't invest."

Yu Xing gave a thumbs up and gave a preventive injection: "Xiao Ying is also helping us continue to look for money. If Today Capital and Sequoia don't have very good conditions, their money doesn't have to be taken in a hurry."

Zhong Zhiling vaguely felt that this was the key point of what his Senior Disciple was saying.

He hesitated slightly but still asked: "Brother Xing, is there bad news from Today Capital and Sequoia?"

Yu Xing shook his head: "No, still waiting."

As soon as he finished speaking, his phone on the table received a message, exactly from Shen Nanpeng of Sequoia, inviting the Baixiaosheng team to meet and chat, but the location was unexpectedly the Today Capital office.

"Fine, the new news is here. Shen Nanpeng wants to meet and chat." Yu Xing thought for a while and said, "But he is actually seeing us at Xu Xin's place. This is indeed bad news. Do the two have a good relationship? Did they communicate in advance?"

Zhong Zhiling naturally had no answer.

Yu Xing also didn't intend to get an answer, just feeling that according to this situation, the price Shen Nanpeng would give certainly wouldn't be raised.

He casually analyzed the situation where the two institutions reached a tacit understanding.

Zhong Zhiling asked with worry: "What should we do?"

"The worst condition is 2 million US dollars for 30% of the shares, which is actually acceptable." Yu Xing said slowly. "But what I want to strive for is 3 million US dollars for 20%. If it can land on an amount toward the upper limit, that's fine. If they don't budge at all, it's somewhat..."

The valuation of the upper limit and the lower limit differs by more than two times.

He thought for a long time and said: "Let's see the situation of the meeting on the 18th. If they add some, we'll have a good New Year. If they don't add any, we'll drag it until after the New Year..."

If there is a result from Xiao Ying's side, then whoever it is, if they want to invest, they can wait for the next round.

The time Shen Nanpeng set is January 18th, which is one week until the New Year, while the agent lawyer Liu Wan Ying found will take action on January 17th US time. At the same time, the Guoshanfeng official website will soon release the full version of the research report.

Yu Xing let out a breath and patted the desk with his right hand: "There are plenty of domestic institutions. Their one dollar can't be counted as two dollars. No rush!"

No rush, Today Capital and Sequoia China have a tacit understanding, and Focus Media over there is still waiting to invest money!