IPOs: New Noise From Xunlei, Jingdong 迅雷看看、京东商城或明年上市
New noises are coming from online video site Xunlei and e-commerce giant Jingdong Mall that indicate a US or Hong Kong IPO or other equity sale may be coming soon, as each looks for new cash to fund its money-losing operations. But that said, the latest signals from these 2 Internet companies indicate that neither will be able to tap a rare window in the offshore IPO market that appeared last week when commercially-focused social networking site YY (Nasdaq: YY) made the first successful public offering by a Chinese firm in New York in more than a year. (previous post)
The US market for IPOs by Chinese companies has been in deep freeze since spring of 2011, as investor sentiment tanked after a series of accounting scandals emerged at US-listed Chinese companies. But following aggressive action by the US securities regulator and a steady series of short-seller attacks, many of the most problematic companies have been weeded out of the system and investors seem finally to be willing to buy shares of some higher quality names again. Most notably, investors are looking for companies that are earning a profit, which was likely a key to YY’s success last week that saw its shares rise 8 percent on their trading debut.
I said after YY’s offering that we could see a flurry of similar IPOs before the end of the year, with perhaps 2-4 more companies seizing on the window of positive sentiment to make quick offerings. Now it appears the neither Xunlei or Jingdong Mall will be among those year-end offerings, based on signals contained in the latest Chinese media reports.
Let’s start with Xunlei, as that’s the most interesting of the 2 cases and was previously one of the most likely candidates to make an IPO before the end of this year. Xunlei actually tried to make an IPO last year, but had to abandon the offering at the height of the confidence crisis. The company has now announced that it has spun off its premium video content service, called Xunlei Kankan, into a separate unit with its own new domain. (Chinese article) The move looks designed to create a unit that is free of pirated content, which would be far more attractive to investors than the company’s other P2P services where trading of illegally copied material is most likely rampant.
Xunlei will most likely make a US IPO for this newly independent unit, perhaps in the first quarter of next year; but another intriguing possibility could see the company bring in online search leader Baidu (Nasdaq: BIDU) as an investor. Recent signs have indicated that both options are possible, and perhaps the most likely scenario might see Xunlei make its offering and sell a big equity stake to Baidu at the same time. (previous post) This latest spin-off by Xunlei would seem to indicate a Baidu investment is likely, since Baidu itself has recently said it wants to make more big acquisitions and has also been quite vocal about wanting to rid its sites of pirated content.
From Xunlei let’s move on to Jingdong Mall, which also took some early steps towards an offshore IPO early this year, only to scrap the plan due to the chilly investor climate. Media are now quoting Jingdong’s outspoken founder and CEO Liu Qiangdong boasting of big new financials, including estimated 2012 revenue of about 60 billion yuan, or nearly $10 billion. (Chinese article) Another media report cites a different unnamed source at Jingdong, which also goes by the name 360Buy, saying the company expects to post nearly 200 million yuan in advertising revenue this year. (Chinese article)
But perhaps most significant is Liu’s forecast that his company will become profitable on a quarterly basis sometime in 2013. That’s a very important forecast, since investors are still wary of money-losing companies in the current tepid climate for Chinese IPOs, especially in the e-commerce space where cutthroat competition has driven many players deeply into the red.
I personally find this profit forecast a bit difficult to believe, as most people think that Jingdong is rapidly burning through its huge cash pile due to both the cutthroat competition and also its steady stream of new business initiatives. Its cash shortage was on prominent display earlier this month when it reportedly raised an additional $400 million in new funds that valued the company at $7.25 billion — far below previous levels. (previous post)
But Liu’s wording in these latest reports is quite convenient, as it could simply mean his company could use some accounting tricks, such as one-time investment gains, to post a profit for a single quarter next year, perhaps at the end of the year. Regardless of its financial situation, this new flurry of numbers coming from Jingdong now seems like Liu’s latest attempts to test market sentiment for an IPO. If sentiment looks positive, we could see the company try to relaunch its offering as soon as the first half of next year.
Bottom line: New signals from Xunlei and Jingdong Mall indicate they may try to make offshore IPOs in the first half of next year, with Xunlei potentially signing up Baidu as a strategic investor.
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