Game Operator Linekong Heads For HK IPO
The latest headlines about an upcoming IPO for online game operator Linekong made me realize it’s been quite a while since we last saw any news of offshore listing plans by Chinese Internet and tech firms. Such listings were coming nonstop earlier this year, and saw a wide range of names including the Twitter-like Weibo (Nasdaq: WB), e-commerce giant JD.com (Nasdaq: JD) and real estate services site Leju (NYSE: LEJU) all make IPOs in New York. But the Internet IPO pipeline has gone largely silent since early August, when mobile game operator iDreamSky (Nasdaq: DSKY) made its trading debut.
Of course, anyone who follows the Chinese Internet knows that the big story behind this recent IPO silence is e-commerce titan Alibaba, which is expected to start a roadshow this week for its highly anticipated New York listing. That offering could be the biggest in US history, raising up to $20 billion — an amount that would be far more than all of the other Chinese Internet IPOs this year combined.
Against that backdrop, it’s not too surprising that prospective Chinese Internet firms looking to list in New York or even Hong Kong might be waiting for the Alibaba IPO to happen first. Attempting an IPO at the same time as Alibaba’s would be an invitation for disaster, since most investors who follow the Chinese Internet would be reserving their funds for the much larger and higher profile Alibaba offering.
But Alibaba’s overwhelming presence hasn’t deterred Linekong, a veteran game operator which made its first public filing over the weekend for a listing in Hong Kong. (Chinese article) Linekong is clearly in a completely different category of IPO from Alibaba, which perhaps explains its decision to list at this time. Not only did the company file for an offering in Asia rather than New York, but it also chose Hong Kong’s Growth Enterprise Market exchange, which is far more low profile than its main board where all of the largest companies trade.
There’s quite a bit of financial information in the company’s first filing, though no word of how much money it plans to raise. The company, which operates from the online platform 8864.com, saw its revenue nearly double over each of the last 2 calendar years, reaching 515 million yuan ($84 million) in 2013. Its adjusted profit quadrupled over that period. Revenue growth slowed a bit to 69 percent in the first quarter of this year, with profit tripling for the period.
Linekong has attracted some well respected investors in its 4 funding rounds to date, which have raised a collective $100 million. The latest of those saw search leader Baidu (Nasdaq: BIDU) invest $20 million, but past investors have also included big names like IDG, Softbank and Fosun.
Linekong’s choice of Hong Kong for its offering shows the former British territory is emerging as an alternative for IPOs by online game companies, whose shares have been neglected lately by investors in New York. Other online game companies to list in Hong Kong over the past year include Forgame (HKEx: 484) and Ourgame (HKEx: 6899), and the related online karaoke company Tiange (HKEx: 1980) also made a Hong Kong listing in July.
What’s clear in all of this is that we won’t see any more major Chinese Internet IPOs until Alibaba’s mega-offering is well in the past, meaning we could still see a flurry of new offerings starting around mid-October. The year-end rush could include a few smaller offerings in Hong Kong, but most are likely to occur in New York where the group has developed a more mature investor base. All that said, look for Linekong’s offering to be largely ignored as it gets dwarfed by Alibaba, meaning it should see weak investor interest and an equally weak trading debut.
Bottom line: Linekong’s Hong Kong IPO is likely to get ignored due to Alibaba’s much larger upcoming offering, with few or no new Chinese Internet IPOs likely until after mid-October.
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