Tuniu Races To Internet Bull Market

Tuniu eyes bullish IPO market

When does an 87 percent rise in your share price in just 3 months make you a laggard? The answer: When your name is online travel agent Qunar (Nasdaq: QUNR), and the 87 percent rise makes you the worst performer among a quartet of Chinese Internet companies to make New York IPOs at the end of last year. The sudden surge in investor interest towards these companies will almost certainly lead many Chinese Internet firms to speed up their New York listing plans in the first quarter of this year, starting off with word that Tuniu, another online travel services firm, is accelerating its plans for a listing in the next few months.

I personally have been quite surprised by the surge in shares of the 4 companies to list in the last 2 months of 2013, ending a 2-year-old drought of new offerings by Chinese tech firms in New York. The long drought was caused by investor concerns after a series of accounting scandals at some US-listed Chinese companies starting in 2011. A handful of companies bravely tested out the market at the end of last year to see if the drought had finally ended, and all have been handsomely rewarded for their courage.

Qunar, the online travel company controlled by Internet search leader Baidu (Nasdaq: BIDU), was the first to test the market at the end of October. Since then its shares have risen 87 percent. That figure may look good, but shares of the other 3 companies to list around the same time have all more than doubled from their IPO price. Online game company Sungy Mobile (Nasdaq: GOMO) is up 108 percent; online classified advertising site 58.com (NYSE: WUBA) is up 140 percent; and online lottery ticket seller 500.com (NYSE: WBAI) is up a staggering 240 percent. Of the 4 newly listed companies, Qunar was probably hampered by its status as the only one that was losing money with no near-term prospects of becoming profitable.

Against that backdrop, let’s take a look at the latest news on Tuniu, operator of an online travel site by the same name that translates to “traveling cow” in English. Sensing the hugely bullish market for Chinese Internet stocks, Tuniu has reportedly hired investment banks Credit Suisse and Morgan Stanley to underwrite a New York IPO that would raise around $100 million, according to media reports citing several unnamed sources. (English article; Chinese article)

There’s not any financial information in the reports, which point out that Tuniu’s investors include big name venture capital investors DCM, Sequoia Capital and Gobi Partners, as well as Japanese online retailing giant Rakuten (Tokyo: 4755). The hiring of investment banks usually means an IPO is still around 6 months away, though in this case I suspect that Tuniu will try to accelerate that process to take advantage of the positive market sentiment.

In this case, I also suspect Tuniu is probably still losing money, similar to Qunar, which could limit its attractiveness to investors. Unlike 500.com and 58.com, which were both the first to list from their product areas, Tuniu will also be less attractive because it will have to compete with a number of other listed online travel agents for investor attention, including industry leader Ctrip (Nasdaq: CTRP) and eLong (Nasdaq: LONG), a site backed by US industry giant Expedia (Nasdaq: EXPE).

The first 3 months of the year are usually a quiet time for Chinese IPOs in New York due to the Chinese New Year that falls in January or February. But this sudden wave of investor enthusiasm for Chinese IPOs could prompt many local Internet executives and bankers to work through the holidays and expedite their listing plans, meaning we could see a flurry of new offerings announced staring as soon as mid- to late February.

Bottom line: Tuniu’s hiring of investment banks for a New York IPO signals that Chinese Internet firms may be accelerating their listing plans to take advantage of an extremely bullish market.

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