Bottom line: Mobile SNS firm Momo is likely to raise far less than the $300 million it has targeted for its IPO, as it kicks of a mini-surge of loss-making Chinese tech firms racing to list in New York by year end.
A record year of fund raising for Chinese firms on Wall Street could still have some life left, with word of another major offering plan by Momo, operator of mobile-based social networking (SNS) service. The company’s plan to raise up to $300 million would have looked ambitious at this time last year, when New York IPOs by Chinese firms were just starting to gain momentum after a nearly 3 year deep freeze. But that kind of target has become the norm in the current climate, and I expect we could see a flurry of similar-sized offerings over the next 5 or 6 weeks before the final curtain comes down on a banner year for Chinese tech IPOs in 2014.
When all is said and done, Chinese Internet firms will have raised nearly $30 billion in New York listings this year — far more than any other time in history. Of course the lion’s share of that came from Alibaba’s (NYSE: BABA) New York listing in September, which ultimately became the world’s biggest IPO when it raised a whopping $25 billion. The only other IPO that raised more than $1 billion came from Alibaba’s biggest rival JD.com (Nasdaq: JD), which raised $1.8 billion in its listing. A number of other deals also raised relatively large sums in the $100-$300 million range.
New listings have been relatively quiet since Alibaba’s mega deal in September, though at least one company — car rental services firm eHi — filed for a New York offering to raise up to $130 million about a month ago and is set to price and list its shares later this week. (previous post) Now we can add Momo’s name to the list of year-end IPO candidates, as it becomes the first major tech company to file for an IPO since Alibaba’s blockbuster deal.
Momo made its first public filing for a listing late last week, saying it plans to raise up to $300 million through a listing on the New York Stock Exchange. (English article) The company is still relatively small, generating just $13.9 million in revenue in the first 6 months of the year. It’s also still spending heavily on expansion, which pushed its net loss to $48.6 million in the same period, a 6-fold increase over the year before. The deal is being underwritten by Morgan Stanley, JPMorgan and Credit Suisse.
Assuming that the listing would represent around 20 percent of Momo’s shares, the offering would value the company at around $1.2 billion. That’s certainly not sky-high in the current climate, though it does seem a bit high for a company that’s not earning very much revenue yet and is also posting big losses. Accordingly, I wouldn’t be surprised if investors give the offering a lukewarm response and the company’s ultimate fund raising total and valuation come down a bit.
More broadly speaking, Momo’s rush to market looks a bit similar to a mini-stampede that occurred in late 2010 and early 2011 at the end of the last IPO boom. That rush saw money losing companies like video sharing site Youku (NYSE: YOKU) and SNS site Renren race to market before they were really ready, seeking to cash in on the positive investor sentiment. As a result, those companies’ share haven’t done so well in the last 3 years, and even their own CEOs may regret their hasty decisions to list so soon.
If history repeats itself, we could see a similar rush of IPOs occur at the end of this year, many of which may be money-losing names like Momo rushing to raise money before the current window of positive sentiment closes. I expect we’ll see at least 3-4 more such listings before mid December, and the results will be mixed as investors buy into some names with more concrete growth stories while giving others a pass.