Chunkong Set For Tepid IPO, 58.com Eyes M&A
Mobile game operator Chukong is back in the headlines with its latest filing for a New York IPO, while recently listed 58.com (NYSE: WUBA) is also making news with word that it’s eying strategic acquisitions to complement its popular online classified advertising site. Chukong’s newly released financials reveal that it’s growing at lighting speed in the attractive mobile games space, even as its losses also mount. Meantime, 58.com’s M&A plan looks quite attractive to me, as it attempts to build a diversified classified advertising site that we haven’t seen emerge in China so far.
Let’s start with Chukong, whose newly released financials describe a company that looks like it’s not quite ready to make an initial public offering. That’s because Chukong is still very clearly in the red, and its growing losses show that it’s still in the development stage as it seeks to build up its users and scale.
Chukong filed its first documents last week for a New York IPO to raise up to $150 million (previous post), and this latest filing so soon afterwards indicates it probably wants to make its offering as quickly as possible. That’s not too surprising, since a recent window of positive investor sentiment appears to be fading following a lackluster performance for the IPO from Sina’s (Nasdaq: SINA) popular Weibo (Nasdaq: WB) microblogging service late last week. That offer saw Weibo raise far less than its original fund-raising target, but then managed to post a respectable trading debut. (previous post)
According to its first public filing, Chukong has seen its revenue explode over the last 2 years, jumping from just 8.7 million yuan ($1.4 million) in 2011 to 555 million yuan last year. (Chinese article) The 2013 figure was up more than 7-fold from the previous year, indicating this company is clearly expanding very fast. But Chukong’s losses are also growing quickly, jumping to 88 million yuan last year from 52 million in 2012.
Investors will clearly like the explosive revenue growth, which is quite impressive by any standards for a company of Chukong’s youth. But the mounting losses, even if they’re growing more slowly, aren’t too appealing in the climate of fading sentiment for Chinese Internet IPOs. The modest size of Chukong’s offering should enable it to go ahead with the IPO, but I would expect it to price in the middle of its range and only post some modest gains of perhaps 5-10 percent on its trading debut.
From Chukong let’s look quickly at 58.com, whose shares soared after their own IPO late last year and at one point were more than 3 times higher than their offering price. Since then shares of the company, sometimes called the Craig’s List of China, have given back some of those gains, but are still about 150 percent ahead of their offer price.
The latest media reports say 58.com, which raised nearly $200 million in its IPO, is now looking to use some of that cash to make a strategic acquisition in the online recruitment space. (English article) The company had previously said it was earmarking $300 million for such investment. There’s not much more detail in the latest reports, except to say that 58.com is currently talking with several potential acquisitions targets and is hiring an M&A adviser.
There are certainly several interesting targets out there, including Lietou.com, which recently raised $70 million in new funding. From a broader perspective, I do like 58.com’s strategy of trying to assemble a diversified online classified advertising firm by bringing together different kinds of specialists. Right now the space is highly fragmented, with different companies specializing in online ads for jobs, car sales, real estate and other areas. A combination of 58.com’s existing general service with an online job site could create an exciting new platform that could eventually emerge as an industry leader in the broader online classified advertising space.
Bottom line: Chukong will get a mildly positive reception for its IPO that could come as soon as this week, while 58.com’s plan to buy an online recruitment site looks like a smart diversification strategy.
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