IPOs: 55Tuan Kicks Off 2015 Listing Parade
Bottom line: 55Tuan’s listing plan stands a 50 percent chance of succeeding due to its modest size and broadly positive market sentiment, but could ultimately fail due to its loss-making status.
I spent much of December predicting we’d see the first listing of a Chinese group buying site this year, and now that may happen with the first official IPO filing by a Chinese Internet company in 2015. But my prediction that the listing would come from sector leaders Dianping or Meituan was off the mark, and now it appears that 55Tuan may take the prize as China’s first listed group buying site. It’s still not completely certain that 55Tuan will be the first, since the company made previous attempts at such an offering but ultimately had to scrap the deal due to lack of interest.
According to the latest reports, 55Tuan is being quite modest with its latest IPO plan, aiming to raise just $40 million through an offering on the Nasdaq. (Chinese article) Details of the plan are contained in the company’s first public filing for the offering, made late last week in the US. It’s not difficult to see why 55Tuan is being quite conservative this time, as its financials don’t look too impressive.
The company is still losing money, reporting an operating loss of $32.3 million in the first 9 months of last year. That was even larger than the year-ago period, when 55Tuan reported an operating loss of $22 million. The trend based on those 2 figures is that 55Tuan’s losses are rapidly widening, which is never good for a company about to go public. If 55Tuan goes ahead withe offer, I suspect it could release some preliminary fourth-quarter data that shows the losses may finally be starting to shrink.
The company’s other financials also don’t look that impressive, with revenue contracting to $20.6 million in the first 9 months of last year from $27.6 million a year earlier. Its expenses also dropped at a similar rate over the same period, indicating 55Tuan was in a state of downsizing between 2013 and 2014 amid a broader sector cleanup. There’s some other financial data in the report as well, but most of it reinforces the image that 55Tuan is a survivor of the recent clean-up in the group buying space, but is clearly a second-tier player in need of cash.
55Tuan is quite young, founded in 2010 at the start of an explosion in China’s group buying space that coincided with the rise of US sector leader Groupon (Nasdaq: GRPN). The company was once one of the leading players, raising $200 million from a group that included Goldman Sachs (NYSE: GS) at the height of a fund-raising frenzy in 2011. (previous post) The funding later dried up as the sector became overheated, leading to a major clean-up that saw most mid-sized and smaller players either close or get bought.
The money taps turned on again late last year, when Dianping and Meituan, now the 2 clear sector leaders, raised $800 million and $700 million in new funding, respectively. (previous post) That led to my prediction that either of those companies might consider an IPO this year, since both are profitable and whoever listed first would get a first-to-market premium.
It’s still not clear if 55Tuan will succeed this time and finally become China’s first listed group buying site. The company attempted such a listing in 2012, but ultimately aborted the deal due to lack of investor interest. Rival LaShou also tried to list that year, but aborted its plan as well. Both listing failures made it clear that investors weren’t interested in money-losing companies with no near-term prospects to become profitable. Broader market sentiment has certainly improved since then, though I would only give 55Tuan a 50-50 chance of finally becoming the first group buying site to make a successful IPO.
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