IPOs: Momo Jumps In Debut, Spring Air Set To Take Off
Bottom line: Momo’s stock should continue to perform well over the next few months as investors ignore a scandal around its CEO, while Spring Airlines stock should also debut strongly later this month in its newly approved IPO.
It seems investors aren’t too concerned when CEOs of their companies are accused of corporate crimes, at least based on the strong trading debut for mobile social networking app maker Momo (Nasdaq: MOMO). Frankly speaking, I’m not surprised about the strong performance for Momo, whose CEO was accused of stealing property from his former employer NetEase (Nasdaq: NTES) and using that property to start up his new company. The fact of the matter is that such dishonesty and unethical behavior is quiet common in China’s corporate sector, and thus is unlikely to result in any punishment, be it a jail sentence or even negative investor sentiment.
Meantime, I’m a bit more upbeat on the new regulatory approval for a year-end domestic IPO from Spring Airlines, which is leading a new wave of budget carriers into China’s fast-growing travel industry that’s now dominated by stodgy, state-run companies. Spring has just received the green light for a domestic IPO expected to raise up to $285 million, as China’s regulator accelerates its approval of new listings following a year-long freeze.
I’ve been writing about IPOs nearly every day this week, as the seasonal year-end rush of new listings is quite a bit stronger this year than usual. That strength is at least partly due to China’s IPO freeze, which lasted all of 2013 and has only been eased very slowly this year. That means there’s a huge pipeline of companies waiting to list, and some are finally getting the nod to do so on domestic markets while others have run out of patience and are flocking offshore to Hong Kong to make their listings.
Then there are companies like Momo, which was part of another wave of venture-backed tech firms that have raised billions of dollars in IPOs this year, mostly in New York. Momo continued this year’s tradition of strong trading debuts when it launched its IPO on Thursday and saw its stock jump 26 percent in its first trading day. (English article) Momo ultimately priced the offering at $13.50 per American Depositary Share (ADS), or exactly in the middle of its range, and raised $216 million.
Momo’s offering suddenly came under attack earlier this week when NetEase, a leading Chinese online game operator, accused former employee and Momo CEO Tang Yan of stealing NetEase property to make the original Momo app. (previous post) I previously said the brouhaha looked timed to upset the IPO, and have to commend Momo for going ahead with the plan despite the negative publicity. Momo is also benefiting from its backing by e-commerce leader Alibaba (NYSE: BABA), and I expect the NetEase issue won’t have much short-term impact on its shares.
Next let’s look at Spring Airlines, which is quickly moving ahead with its long-stalled IPO plan after just getting approval from the China Securities Regulatory Commission (CSRC). (English article) Founded in 2005, the company is China’s oldest budget airline and is quite well run and profitable despite a system that heavily favors the dominant state-run carriers. But China has made recent moves to liberalize the sector, which will favor Spring as a number of other new budget carriers get ready to launch.
According to the latest reports, Spring is aiming to raise up to 1.76 billion yuan ($285 million) through the IPO on December 22 in its hometown of Shanghai. (English article) The most exciting part about this offer is that domestically-focused Spring intends to use part of the funds to fuel a planned global expansion that could provide an important new revenue source going forward. With that kind of positive buzz, look for the offering to get a strong reception and for the stock to perform well over the next couple of years.
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