IPOs: Inke Pops in Trading Debut, Xiaomi Bounces Back

Bottom line: Live broadcasting specialists Inke and Huya should do well over the next year but could face difficulty after that as popularity of such services fades, while Xiaomi’s stock gains over the last two days look like a dead-cat bounce.

Following the unimpressive debut of smartphone maker Xiaomi (HKEx: 1810) earlier this week, live streaming site Inke (HKEx: 3700) is the latest high-tech listing in the headlines with a more impressive debut in Hong Kong. This latest deal follows the US listing for Huya (NYSE: HUYA), China’s first live streaming site to make an IPO, which has tripled since its New York IPO in May.

There are some mixed messages in here, perhaps indicating mixed investor sentiment towards many of these new-economy companies as investors try to separate the wheat from the chaff. If that’s the case, investors certainly seem to think that Huya and perhaps Yinke represent the wheat in the hot online streaming category. Meanwhile, they seem less certain about Xiaomi, which fizzled in its trading debut on Monday but has come bouncing back somewhat since then.

Let’s start with the news that’s hottest off the press, with a relatively strong opening for Yinke. The company priced its IPO shares at HK$3.85, near the low end of their range, helping it to raise a relatively modest HK$1.05 billion, or about $135 million. The stock darted out of the gate with an opening price of HK$4.32, and was up to HK$5.20 at my last check, representing a nice 35 percent gain.

At that latest level, Inke’s market cap now stands at about HK$10.5 billion, putting it squarely in the unicorn category for startups worth more than $1 billion. That’s quite impressive for a company that is just three years old, and speaks volumes to Inke’s position in a booming Chinese market for live streaming video.

The broader picture for the company is a little more nuanced, since its user base and revenue both began to decline last year after early explosive growth. (English article) The company’s user base fell to 25 million last year after peaking at 30 million the previous year, and its revenue also fell by 9 percent in 2017 to 3.9 billion yuan ($580 million).

The company has been profitable from almost the get-go, and that figure has been going up each year even as revenue declined. That probably reflects a movement from quantity to quality, as these live broadcasting companies cast off less profitable users and focus on the ones who are willing to spend money watching people do things like offer instruction and eat food live over the internet.

Solid Short-Term Outlook

The strong performance for Inke is probably at least partly due to hype and support from banks in the trading debut. But the even stronger performance for US-listed peer Huya certainly seems to bode well for this category in general. Since its listing in May, Huya’s shares have soared from an IPO price of $12, to their latest close just about the $36 mark.

Personally speaking I would be slightly dubious of the sustainability of this industry, due to the faddish tendencies of smartphone-addicted Chinese app users. But that said, a few names like Weibo (Nasdaq: WB) and Momo (Nasdaq: MOMO) have done quite well by essentially broadening into new areas when their original business lines became a bit passe. But not everyone can successfully do that, and I imagine perhaps only one or two of the major live broadcasting players will be able to make such a transition.

I’ll close this IPO roundup with a look at Xioami’s shares, since they have embarked on a bit of a U-turn since I wrote about the company’s lukewarm debut on Monday. (previous post) After dropping slightly on their first trading day, the stock has come bouncing back and is now up about 13 percent from its IPO price.

Some might argue this is a dead-cat bounce, since the company was quite beaten down before the actual trading debut. Some had previously said the company could be worth up to $100 billion, but the final IPO pricing put it at about half that amount. I personally commented that the company looked mostly like a maker of cheap smartphones in a very competitive market. Accordingly, I would probably agree with the dead-cat bounce theory, and stick by my earlier forecast that the stock will come under pressure for at least the next year until Xiaomi can prove that it has some staying power.