SecProbe.io

CORRESP
1
filename1.htm

WiMi Hologram Cloud Inc.

December 14, 2023

VIA EDGAR

Division of Corporation Finance

Office of Technology

Securities and Exchange Commission

Washington, D.C. 20549

    Attn.:
    Ms. Kathleen Collins

Ms. Megan Akst

    Re:

    WiMi Hologram Cloud Inc.

    Form 20-F for the Fiscal Year Ended December 31, 2022

    Filed April 13, 2023

    File No. 001-39257

Ladies and Gentlemen:

WiMi Hologram Cloud Inc. (the
“Company”, “we”, “us” or “our”) hereby transmits its response to the letter received
from the staff (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”), dated November
30, 2023 regarding its Form 20-F for the fiscal year ended December 31, 2022 filed on April 13, 2023.

Set forth below are the Company’s
responses to the Staff’s comments in the Comment Letter. The Staff’s comments are retyped below in bold for your ease of reference.
The Company respectfully advises the Staff that where the Company proposes to add or revise disclosure in its future annual reports on
Form 20-F in response to the Staff’s comments, the changes to be made will be subject to relevant factual updates and changes
in relevant laws or regulations, or in interpretations thereof.

Item 18. Financial Statements

Note 13. Goodwill, page F-50

 1. We
note your responses to prior comments 1 and 2, however, it remains unclear to us how you determined that the fair value of your reporting
units was approximately $192 million when the company’s total market capitalization was only $64 million at the time of your goodwill
analysis. We further note that the company’s total market capitalization has remained significantly below the total fair value
of your reporting units throughout fiscal 2023. Please address the following:

 ● The
growth rate projections used in your analysis do not appear to be in line with historical revenue trends for the consolidated company
and specifically the AR advertising services segment for which Shenzhen Yidian and Shenzhen Yitian are included. Provide all evidence
used to support the expected revenue growth for both reporting units or explain in further detail the basis for such assumptions.

 ● Describe
the trends in these two reporting units over the last several years and explain how such trends factored into your assumptions.

 ● Tell
us whether your revenue growth projections still reflect management’s view of future performance. If so, explain how you considered
the decrease in Holographic AR advertising revenue during the first half of fiscal 2023 compared to your growth rate projections of 200%
and 707% for the Shenzhen Yidian and Shenzhen Yitian reporting units, respectively.

 ● Explain
how the discount rate used in your valuation was determined and how management determined such rate was appropriate.

 ● Tell
us whether a sensitivity analysis was performed for the Shenzhen Yidian and Shenzhen Yitian reporting units and if so, what those results
were.

 ● Tell
us whether you performed any interim impairment analysis or tell us how you determined that such analysis was not necessary.

The Company respectfully advises the Staff that in
the Company’s view, market capitalization is often driven by earnings-based multiples that do not capture the value of an issuer’s
businesses on a standalone basis. Instead, the Company believes that its carrying value (inclusive of goodwill) is a more objective reflection
of the Company’s condition. In other words, we believe the fair value data of our reporting entities as provided by our appraisal
firm is not necessarily correlated or should be deemed reflective of the total market value of the Company. However, in recognition of
the significant difference between the Company’s value and its market capitalization, in future filings the Company will incorporate
the following disclosure into its Critical Accounting Policies, to describe the consideration of market capitalization in its goodwill
impairment testing:

With respect to performing a qualitative
assessment:

For each industry in which the reporting units operate,
we considered growth projections from independent sources, significant developments within the industry and market factors, including
changes in our market capitalization.

With respect to performing a quantitative
assessment:

For the quantitative goodwill impairment test we calculate
an estimated fair value to determine whether it exceeds the carrying value of the respective reporting unit. We also consider the
reasonableness of the market capitalization of our Company in relation to the estimated aggregate fair value of our reporting units.

As part of our goodwill impairment testing, in assessing
the fair value of the Company, our appraisal firm factored in various assumptions in determining fair value of our reporting units, including
but not limited to the macroeconomic conditions of China, industry data, and discounted cash flow. Importantly, the Company has received
offers to purchase Shenzhen Yitian and Shenzhen Yidian which valued the entities above the value of the entities at the time they were
acquired by the Company. In terms of growth rate projections of the acquired entities, as further described below, we note that the Company
observed an upward trend in revenue generated by the AR advertising segment as a result of further integration of the core IP of the acquired
entities on an intra-company basis allowing our other subsidiaries to integrate such core technologies in their revenue generating activities.

In addition, we surveyed the following China-based
issuers and noticed that their market capitalization was significantly lower than their carrying value, reflecting a tendency of China-based
issuers’ market capitalization and carrying value to deviate by a significant margin, which suggests that market sentiment and other
factors may significantly impact market capitalization of China-based issuers.

    Trading Symbol
    Total assets
 (Hundred
 million
 USD)
    Total liabilities
 (Hundred
 million
 USD)
    Net assets
 (Hundred
 million
 USD)
    Total market
 cap
 (Hundred
 million USD)

    QH
      1.52
      0.80
      0.72
      0.09

    PBTS
      1.31
      0.28
      1.03
      0.05

    CMCM
      7.38
      2.92
      4.46
      0.68

    XNET
      4.63
      1.55
      3.08
      1.00

    WIMI
      1.81
      0.16
      1.65
      0.61

    SOHU
      19.78
      8.67
      11.11
      3.22

The Company believes that its carrying value (inclusive
of goodwill) is a more objective reflection of the Company’s condition.

In terms of our goodwill, the chart below shows that
the net asset of each of the entities is substantially greater than their respective goodwill and a percentage of carrying value in relation
to goodwill:

      Goodwill
      Net
                                            Assets
      Carrying
                                            value

                                            (Net Assets+

                                            Goodwill)
      Percentage
                                            of

                                            carrying value in

                                            relation to

                                            goodwill

    Entity
      2022.12.31

      a
      b
      c
      d=c/a

      (in
                                            USD thousands)

    Shenzhen Yidian
      19,680
      27,767
      47,447
      241 %

    Shenzhen Yitian
      13,352
      30,741
      44,093
      330 %

    Total
      33,032
      58,508
      91,540
      277 %

    2

Further, the chart below is a comparison of
the carrying value of each of the entities at the time of acquisition and the carrying value ended on December 31, 2022:

      Acquisition
                                            Price

                                            (Net Assets+Goodwill)

      Carrying
                                            value

                                            (Net Assets+Goodwil)

      Net
                                            Assets

                                            (Cash Value)

      Percentage
                                            of

                                            carrying value in

                                            relation to

                                            acquisition price

    Entity

      Time
                                            of Acquisition

      2022.12.31

      (in
                                            USD thousands)

    Shenzhen Yidian
      25,872
      47,447
      27,767
      183 %

    Shenzhen Yitian
      29,568
      44,093
      30,741
      149 %

    Total
      55,440
      91,540
      58,508
      165 %

 The data above demonstrates that the carrying value
of each of Shenzhen Yitian and Shenzhen Yidian for the year ended December 31, 2022 exceeded the carrying value of each respective entities
at the time of their acquisition by the Company. Importantly, we have received offers from potential buyers to acquire these two entities
which valued the entities at above their carrying value for the year ended December 31, 2022. Considering factors discussed above and
the circumstances further described below, the Company is of the position that the goodwill valuation of each of Shenzhen Yitian and Shenzhen
Yidian is reasonable.

The Company believes that ideally the carrying value
of an issuer should be a more suitable indicator of market capitalization, but as discussed above, market capitalization is often not
driven by the market’s assessment of a Company carrying value. The following table shows the proportion of the Company’s cash,
goodwill to the net assets:

    Item
    2022.12.31
    Percentage of

Net Asset

    (In USD thousands)

    Cash
      82,242
          50 %

    Goodwill
      34,939
      21 %

    Net Asset
      165,030

As the chart above shows, goodwill accounts for a relatively small portion
of the net asset distribution of the Company while cash accounts for a relatively large portion. When goodwill accounts for only 21% of
net assets, we believe that goodwill does not constitute a major influence on the Company’s market capitalization. The Company’s
net assets and cash value are the main influencing factors on the market capitalization. However, the Company’s market capitalization
is lower than the company’s net assets value of $165 million, and even lower than the company’s cash value of $82 million
alone, indicating that the company’s market capitalization is mainly affected by market sentiment, trading volume, transaction scale
and other factors, consistent with our survey of other China-based issuers. Therefore, the low market capitalization of the company indicates
that investors did not fully consider the actual net asset value of the Company including our goodwill (which accounted for 21% of our
net assets). The pessimism of the investment market is the dominant factor of the company’s suboptimal market capitalization.

    3

The Company respectfully advises the Staff
that the growth rates projections provided in our previous response was extracted from the comprehensive forecast provided by our
appraisal firm. We are aware that in assessing the growth rate of our reporting units, the appraisal firm considered the three
following factors:

Lifting of China’s
stringent pandemic controls. The appraisal firm believes that China’s economy will recover quickly as pandemic controls are lifted.
The market environment will generally improve driving increasing customer demand for AR advertising services, growing our business as
a result. The company has been deeply engaged in the AR advertising industry for many years, based on its technical advantages and service
capabilities. Therefore, the appraisal firm predicted that the Company’s future business revenue will increase significantly when overall
market conditions and sentiment become more favorable.

Entry into framework
cooperation agreements with real estate sector and advertisement integration sector customers. In forecasting revenue and growth,
the appraisal firm had considered that the Company has entered into certain framework cooperation agreements on AR advertising with advertising
integrator customers and customers in the real estate sector. As China’s real estate market is a government-oriented market, the government’s
real estate policy gradually began to relax in the past year. Therefore, the appraisal firm believed that the company’s AR advertising
business revenue is optimistic.

Loosening of monetary
policy and interest rate cuts.  After the easing of pandemic controls, China has liberalized its monetary policy and cut interest
rates frequently towards the end of 2022, and the market is expected to generate a flood of RMB liquidity. Under the premise of frequent
interest rate cuts by China’s central bank, the appraisal firm believes that the Chinese market is adequately funded and customers will
invest more money in AR advertising and promotion products.

Over the last several years, the Company’s holographic AR advertising
revenue has trended upwards because of greater and ever more efficient intra-company integration with the acquired entities. After the
acquisition of Shenzhen Yitian and Shenzhen Yidian, the Company has worked efficiently to monetize the core IP of these acquired entities
on a wider basis. The Company is now utilizing the core IP in an increasing intra-company basis, such that all subsidiaries with sales
functions have begun to promote services and applications derived from such core IP competencies. As a result, revenue of AR advertisement
in the company has gradually increased. As the core IP rights of these acquired entities have begun to gain market recognition, the revenue
generated as a result of such core IP and the contribution rate to the overall revenue of the Company is also increasing. Presently and
into the future, the Company will further strengthen intra-company synergy as Shenzhen Yitian and Shenzhen Yidian further “settles
in” the Company after their respective acquisition. The Company is also moving to gradually integrate more streamlined and unified
management to further integrate and departmentalize to further scale up the AR advertisement business. The Company foresees that the integration
strategy as described above will allow the core IP of Shenzhen Yitian and Shenzhen Yidian to act as a great driver of Company growth as
a whole. Note given that the two reporting units have been departmentalized and their core intellectual property rights are shared within
the group, it is no longer possible to clearly distinguish the classification of individual units within the enterprise, but the overall
purpose is to increase the proportion of their intellectual property use to improve their value and role. In addition, at the end of 2022,
China’s epidemic prevention and control eased, the appraisal firm believes that the future economy will recover quickly, the market
environment will improve, based on this, the appraisal firm predicts that the company’s business will continue to grow in the next
few years.

As noted above, growth forecast was derived from our appraisal firm,
which mainly considered the three following factors when making the revenue forecast:

When our appraisal firm determined growth, the Company had entered
into certain framework cooperation agreements on AR advertising with advertising integrator customers and customers in the real estate
sector. As China’s real estate market is a government-oriented market, the government’s real estate policy gradually began
to relax in the past year, and people were no longer restricted from buying real estate. According to the past experience of the market
outbreak after the liberalization of China’s real estate policy, the appraisal firm predicted that the