Feiyu IPO Fuels Gaming Migration To HK
Much of the world is fixated on the upcoming IPO of e-commerce giant Alibaba in New York, but a far smaller new listing plan by mobile game developer Feiyu Technology is shining a low-key spotlight on a recent jump for such listings in Hong Kong. Many have said that Hong Kong should be the most attractive offshore listing ground for Chinese venture-backed IPOs, since the former British colony is closer geographically and culturally than the currently favored site of New York. But strict listing rules on profitability and ownership structure have kept most Chinese venture-backed tech firms looking to New York instead.
Alibaba itself made it clear last year that Hong Kong was the preferred location for its IPO, which is likely to be the biggest public offering of all time. But it ultimately picked New York after failing to receive an exemption it was seeking from Hong Kong’s listing rules regarding its ownership structure. The one glaring exception to the New York bias to date has been Tencent (HKEx: 700), currently China’s largest publicly traded Internet company and the nation’s biggest online gaming firm, which listed in Hong Kong in 2004.
Perhaps Tencent’s leading position in the gaming space is partly what’s drawn a recent flurry of other Chinese gaming companies to Hong Kong, including Feiyu’s new application to make a listing on the local stock exchange. (Chinese article) According to media reports, Feiyu has just made its first public filing for such a listing, in a report that includes plenty of financials for the company but no specifics on its actual IPO plan.
Feiyu posted explosive revenue growth in 2012, but then saw the figure stall last year as revenue actually fell about 9 percent to 145 million yuan ($24 million). The company appeared to be heading back to a growth track this year, reporting nearly 130 million yuan in revenue for the first 6 months of 2014. The company’s profit has followed a similar track, peaking in 2012 before falling by about a third to 80 million yuan last year. But the figure looked to be rebounding this year, with Feiyu reporting its profit rose 66 percent in the first half of 2014.
Feiyu’s erratic growth is typical of companies from this space, whose performance can vary widely from year to year due to their dependence on individual games for revenue and profits. Thus a company with a blockbuster game could post booming revenue and profits one year, and then 2 years later see those figures drop sharply if it fails to find new hit games. US investors didn’t like that business model, which led shares of gaming firms like Shanda Games (Nasdaq: GAME), The9 (Nasdaq: NCTY) and Perfect World (Nasdaq: PWRD) to stagnate, and also fueled a wave of privatizations.
Against that backdrop, it’s not too surprising that gaming firms may be looking for more investor interest in Hong Kong, which has a higher percentage of retail investors who tend to focus more on impulse buying and less on fundamentals. The list of such gaming firms to list in Hong Kong over the last year is growing, and includes Forgame (HKEx: 484) and Ourgame (HKEx: 6899), as well as Linekong, which launched its Hong Kong IPO processs earlier this month.
The only problem is that the companies listing in Hong Kong haven’t really done spectacularly well. Ourgame has done ok, with its shares up 3.5 percent since its listing in late June. Forgame has done much worse, and its shares have lost more than two-thirds of their value since their IPO last fall. With such a spotty record, it’s far from clear that Hong Kong investors will be any different from their New York counterparts in welcoming online game companies. But these companies don’t really have too many choices, and at least Hong Kong offers the advantages of more familiarity and faster and cheaper travel for executives when they go to meet their investors.
Bottom line: Feiyu’s upcoming Hong Kong IPO is likely to post a lackluster performance, but continues a trend of Chinese gaming companies choosing Hong Kong over New York.
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