Cheetah Spices Up IPO With Q1 Results
Security software maker Cheetah Mobile is trying to add some spring to its sputtering New York IPO with newly released data showing it was quite profitable in the first quarter, with mobile revenue accounting for 17 percent of its revenue. It’s hard to interpret too much from these newly announced numbers since no year-ago figures were given in the report I read. But what seems clearer is that Cheetah is trying hard to revive interest in its public listing, which is rapidly stumbling as the current window for IPOs in New York and Hong Kong quickly closes.
Before I go any further with Cheetah, it’s worth pointing out that the cluttered pipeline of Chinese IPOs waiting to list in New York has gone silent over these past 2 weeks, following a very mixed trading debut for leading microblogging site Weibo (Nasdaq: WB) in mid April. Other companies that have made public filings for New York IPOs include mobile game developer Chukong, online cosmetics seller Jumei and JD.com, China’s second largest e-commerce company. And yet we’ve heard little or nothing from any of these companies in the last few weeks.
Cheetah is moving ahead with its offering despite the rapidly fading interest in Chinese tech IPOs that has already forced it to cut its fund raising target to around $200 million from a previous goal of $300 million. The company, the security software arm of Hong Kong-listed Kingsoft (HKEx: 3888), went so far as to announce a price range for its proposed American Depositary Shares nearly 2 weeks ago. The setting of such a range is usually followed by a final pricing within a week or so, and a trading debut shortly thereafter.
But in Cheetah’s case no final pricing ever came, indicating the company was having difficulty finding investors despite its sharply reduced fund-raising target. Last week, the company was back in the headlines in an attempt to drum up interest, with reports that the company planned to sell $50 million of its IPO shares — a quarter of the total — to the trio of leading Internet search engine Baidu (Nasdaq: BIDU), along with Kingsoft and smartphone sensation Xiaomi.
That news should mean that Cheetah only needs to find investors for another $150 million. But even that relatively modest target appears to be a challenge in the current climate, prompting Cheetah to issue its first-quarter results in a new IPO filing. The results themselves look relatively solid, with Cheetah reporting a profit of 18.7 million yuan ($3 million) on revenue of 316 million yuan. (Chinese article)
Publication of this latest information shows that Cheetah is determined to move ahead with the offering, regardless of how weak demand becomes. I applaud the company for its endurance, as it has probably spent lots of time and money already and I do think it looks like a solid play with good longer-term prospects.
Of course investors may not agree with me in the shorter term, and I wouldn’t be surprised if Cheetah has to sell its shares below the previously announced price range of $12.50 to $14.50 per American Depositary Share (ADS). But that said, I also wouldn’t be surprised if the shares debut strongly, as I do think there’s still strong interest in this group from retail investors despite the flagging sentiment from large institutional buyers.
In terms of the broader market, Cheetah’s struggles could mean that JD.com may have to delay its offering indefinitely, since the company has no interest in a small listing and wants to raise up to $1 billion. Jumei and anyone else who was hoping to raise more than $150 million may also have to shelve their plans until later in the year, when a highly-anticipated listing by e-commerce leader Alibaba could help to revive investor interest in the market.
Bottom line: Cheetah Mobile is likely to move ahead with its IPO and could make a respectable debut, but its shares will price weakly and it could ultimately raise less than $150 million.
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