BlueCity Holdings Limited (BLCT) Misled Investors Regarding the Company’s Capability for Sustainable Growth
BlueCity conducted its IPO on July 8, 2020, issuing 5.3 million shares of the Company’s ADSs at $16.00 per share. The Offering Documents prepared in connection with the IPO purportedly contained untrue statements of material fact and were not prepared in accordance with applicable rules. Specifically, the Offering Documents represented that BlueCity has “invested significant resources to … ensure the sustainable growth of [its] platform,” that the Company has “a highly-scalable, cloud-based technology infrastructure to ensure the sustainable growth of [its] platform,” and that “[t]alent development is fundamental to [BlueCity’s] sustainable growth.”
These statements were false or misleading and failed to disclose that: (i) defendants had overstated BlueCity’s business and financial prospects; (ii) the Company was ill-equipped to absorb the costs of becoming a publicly traded company, including IPO- and growth-related costs; and (iii) therefore, defendants had misrepresented the Company’s capability for sustainable growth.
On December 2, 2020, BlueCity announced its unaudited financial and operating results for the third quarter of the Company’s fiscal year 2020. BlueCity reported that the Company’s cost of revenues had increased 41.3% year-over-year, selling and marketing expenses had increased 86.3% year-over-year, technology and development expenses had increased 49.5% year-over-year, and general and administrative expenses had increased 4349% year-over-year. BlueCity attributed these increased costs to the growth of revenue-sharing costs, expenses related to the IPO, and increased advertising and promotion expenses and staff costs, among other things. On this news, the price of BlueCity ADss fell $3.30 per share, or almost 23%, to cloase at $11.15 per ADS on December 2, 2020.
Then, on March 23, 2021, BlueCity announced its results for the fourth quarter 2020. BlueCity announced revenue of $42.7 million, which missed consensus estimates by $3.92 million. The Company also reported that its cost of revenues had increased 29% year-over-year, selling and marketing expenses increased 56.7% year-over-year, technology and development expenses increased 9.0% year-over-year, and general and administrative expenses had increased 345.5% year-over-year. On this news, BlueCity ADSs fell $3.25 per share, or almost 27%, over the following two trading sessions, to close at $8.92 per ADS on March 24, 2021, and has yet to recover.
BlueCity Holdings Limited (BLCT) shareholders have legal options.
All representation is on a contingency fee basis. Shareholders pay no fees or expenses.