FUND RAISING: 55Tuan Debuts, Jimu Box Flexes P2P Muscle
Bottom line: 55Tuan’s stock is likely to move steadily downward following its long-delayed IPO, while the booming P2P online lending sector could be due for a bust next year similar to the recent one for group buying sites.
After writing far too much about the repeatedly-delayed IPO for group buying site 55Tuan (Nasdaq: WOWO), I’m happy to report the offering has finally happened and now I can stop following this company. The 2 main reasons for writing about this offering at all were its potential to become China’s first publicly listed group buying site, and also the first Chinese Internet firm to list in New York this year. The actual company and offering were both quite small and the debut went reasonably well, which I’ll detail shortly.
Meantime, another new fund-raising story has me a bit more excited, with peer-to-peer (P2P) lending site Jimu Box on the cusp of a major new funding that will reportedly total about $400 million. It does seem somewhat appropriate to group the 55Tuan and Jimu Box stories together, since P2P companies are now in the midst of a similar boom that group buying sites experienced when they first burst on the scene 5 years ago.
Therefore it’s probably safe to say that these P2P companies are headed for a similar bust like the one that group buying sites saw, which will once again leave investors with hundreds of millions of dollars in worthless stock of failed companies. But such boom-busts in new industries are quite common in China, so any investor who comes into the market should be psychologically prepared to lose big money, though obviously there’s also the potential for huge rewards.
Let’s look first at 55Tuan, which was a high flyer when it raised $200 million during the group buying boom of 2010-2011. (previous post) That figure was huge at the time, and even today looks quite impressive for a company that was losing money in a hotly contested space. The figure is also well above the $40 million that 55Tuan, which is also sometimes called Wowo, raised in its just-concluded IPO. (Chinese article)
The company tried to launch an IPO a couple of years ago but failed, and this second attempt was first announced in January and delayed several times for unexplained reasons. The final fund-raising is 50 percent less than 55Tuan previously hoped to raise, and I’m sure the company had to call in many favors to even raise that much.
The American Depositary Shares (ADSs) actually performed respectably in their trading debut, ending their first day up nearly 3 percent from their IPO price of $10. Now that the offering has finally happened, we can stop following this company, which has no real future due to its small size and whose best final scenario would be to get purchased by a larger rival. Accordingly, look for its shares to move steadily downward from here.
Next let’s look at Jimu Box, whose $400 million in new funding hasn’t been officially announced but was disclosed by unnamed industry sources. (Chinese article) The amount is quite impressive when one considers that Jimu Box’s main P2P site, which links individual investors with investment projects, only went live in August 2013. The new funding also comes after Jimu Box raised a much smaller total of $47 million in its first 2 funding rounds last year. (previous post)
There’s no word on the investors for this latest round, but it’s worth noting the company’s previous backers are an impressive group that includes the likes of smartphone sensation Xiaomi and Singaporean sovereign wealth fund Temasek. The new $400 million figure looks lofty, but has actually become relatively routine in the current climate where other firms have raised $1 billion or more.
It’s still obviously way too early to tell if Jimu Box will emerge as a leader in P2P, and how the sector will develop more broadly. But if the last group buying boom is any indicator, I would put the odds of Jimu Box’s longer term success at less than 50 percent, and advise its backers to brace themselves for an industry shake-out next year.
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