IPOs: Autohome Zooms In Debut, Cloudary Lines Up

Cloudary CEO resigns

Newly listed car website Autohome (NYSE: ATHM) got an early Christmas present, as its shares soared in their trading debut in what’s likely to be the final IPO by a Chinese firm on Wall Street this year. Meantime in other IPO news, online literature company Shanda Cloudary could be moving closer to its long-delayed listing with talk that its longtime CEO has resigned. These 2 news bits cap a bumpy year for Chinese IPOs in New York, where new offerings were nearly non-existent for most of 2013 before a sudden flurry of activity in the last 2 months.

Since the end of one year is always a good time to look forward to the next, I thought I’d start with my own forecast of what’s ahead for offshore IPOs by Chinese tech firms in 2014. Clearly the highlight of next year will be the highly anticipated IPO by leading e-commerce company Alibaba, whose offering is likely to raise several billion dollars and occur in Hong Kong. The new year should also see a continued flurry of new IPOs in both Hong Kong and New York in the first half, though that could slow down in the second half as speculators lose interest in these companies.

All that said, let’s look more closely at Autohome, whose IPO reflects the broader bumpy road for Chinese new listings in New York this year. The company had to initially scale back its fund-raising plans after getting a tepid reception for its offering, but then demand suddenly heated up and it boosted its target. In the end it raised $133 million, beating its original target of $120 million. (English article)

The company ultimately sold its American Depositary Shares (ADSs) for $17 each, well above their original range. The shares soared as much as 85 percent on their trading debut in New York, and ended up a comfortable 77 percent. Its first-day trading volume reached 9.5 million ADSs, meaning most or all of the 7.8 million ADSs it sold in the offering changed hands on the first trading day.

This kind of high volume has been typical for the other 4 Chinese tech firms to list in the last 2 months, and reflects a high degree of speculation in the market. I’ve previously said that I expect prices for many of these newly listed companies to slowly come down in the next 6 months following strong debuts, as speculators leave the market to pursue other targets. As that happens, look for sentiment towards new Chinese IPOs to cool considerably in the second half of next year.

Meantime, let’s take a quick look at Cloudary, the online literature unit of web entertainment company Shanda. I’ve had a long-term interest in Shanda, as it was China’s first online game company to list. But its strong-willed founder Chen Tianqiao has seen decidedly mixed results in recent years, and ultimately privatized his original company last year to pursue a series of separate listing for its various business units.

The main listed unit, online game operator Shanda Games (Nasdaq: GAME), has struggled amid slowing growth. But Cloudary looked much more promising due to strong growth in demand for online literature. Cloudary filed for a New York IPO last year but scrapped the plan due to weak sentiment. This year it suffered a big setback when many of its middle managers left to form a rival company.

Now media are reporting that its longtime CEO Hou Xiaoqiang may have left the company, and are speculating that his removal could finally pave the way for the long-awaited IPO. (Chinese article) I don’t know enough to comment on whether Hou was obstructing the IPO, though his departure does appear significant as Chen looks to list more of Shanda’s units. Accordingly, I wouldn’t be surprised to see Cloudary file again for its IPO next spring, and for the company to finally list in April or May.

Bottom line: Chinese IPOs in New York are likely to boom in the first half of next year but could lose momentum after that, with Shanda Cloudary likely to be among new offerings next spring.

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