Bottom line: iQiyi won’t make an IPO next year even though Baidu would like to get the company off its books, while Renren’s privatization marks one of the last buyouts for a US-listed Chinese firm from a wave dating back to last year.
The year 2016 is winding down as an unmemorable one for Chinese IPOs, thanks to a rocky start that cast a chill over the entire space. That said, the new year could be a bit more lively, amid signs that China’s securities regulator is opening the gates a bit wider to new offerings. That signal could bode well for offshore listings as well, with word that loss-making online video site iQiyi, controlled by online search leader Baidu (Nasdaq: BIDU), is contemplating such an offering next year.
At the same time, Internet stalwart Renren (NYSE: RENN) has finally taken a step that I’ve predicted for a while now and announced a plan to go private. This announcement also seems quite fitting coming now, since the end of the year is an appropriate time to mark the end of life as a public company for Renren, once billed as the Facebook (Nasdaq: FB) of China. Renren’s announcement is also likely to be one of the last in a flagging stream of similar buyout offers that peaked more than a year ago for undervalued US-listed Chinese companies .
Let’s jump right in with iQiyi, which has been caught between a rock and a hard place for quite some time now. The video site has been a drag on Baidu for a while due to its huge losses, which totaled 2.4 billion yuan ($343 million) last year, CEO Gong Yu told me in an interview in September. (English article)
Baidu tried to offload the asset earlier this year, but ended up scrapping the deal after investors complained the sale price was too low. That deal had valued the company at $2.8 billion, though at least one rebellious investor calculated the company should be worth around twice that amount. (previous post)
Now media are reporting that Baidu is contemplating an IPO for iQiyi as soon as next year, in a deal that would value the company at around $5 billion. (Chinese article) The report is quite vague, which indicates that Baidu probably hasn’t even hired an investment bank just yet but is just contemplating the idea.
The reality is that Baidu really wants to get iQiyi off its books, since its own profits are already suffering from a scandal involving misleading search results earlier this year. Getting rid of iQiyi would quickly give it a nice boost on the bottom line. The only problem is that iQiyi will still be losing money next year, at least according to what Gong Yu told me just 3 months ago.
He added that the earliest the company could become profitable would be 2018, and wouldn’t comment on an IPO timetable at that time. Such a money-losing company wouldn’t be all that attractive to investors, which is why next year seems unlikely for an offering despite this latest report. Of course the company could do some accounting shuffling to accelerate its drive to profitability, but I really do think a 2017 IPO is unlikely and 2018 is probably the fastest we’ll see iQiyi go to market.
Renren Waves Bye-Bye
Next there’s Renren, which I write about occasionally more for nostalgia reasons than because anyone really cares about the company. The site billed itself as China’s next Facebook when it made its IPO in 2012, generating lots of buzz at that time. But then it quickly lost its status as a leading social networking (SNS) site to the better-run Tencent (HKEx: 700), which has built up an SNS juggernaut with its older QQ and newer WeChat messaging services.
Renren has dabbled in a few businesses since essentially abandoning its original SNS service, and the company now bills itself as operator of both an SNS and Internet finance business. I doubt anyone really cares too much what the company does these days, which is why Renren has just announced its management has made an offer to take the company private. (company announcement)
No buyout price was given in the announcement, which only says the offer would value Renren at $500 million. The company’s shares actually rose 3.6 percent after the announcement came out, giving the company a $580 million market value. This particular deal does look a bit complex, as it also involves a spin-off, which perhaps is the reason for the discrepancy. Whatever the case, this is certainly a company that won’t be missed by anyone on Wall Street, and its buyout is long overdue.