IPOs: Xunlei’s Strong Debut, Tiange Eyes HK
After a 2 week pause with no new listings, the market for overseas tech IPOs has come chugging back to life with a strong trading debut for video sharing site Xunlei (Nasdaq: XNET). That solid performance could bode well for online karaoke company Tiange, which has just filed for its own new listing in Hong Kong, continuing a recent trend towards more Chinese Internet listings in the former British colony. Both news bits provide the latest evidence that the overseas market for Chinese IPOs is finding a second wind after a losing momentum in April and May. That new momentum is likely to last through August when e-commerce leader Alibaba is expected to make what could be the largest IPO ever by an Internet company.
I’ll admit I was a bit surprised by the strong performance of Xunlei, which has developed a spotty reputation over the last few years. The company had to abort an IPO attempt in 2011 due to lackluster demand, and it has also been dogged by problems with piracy on some of its websites. But the company has spent the last 2 years cleaning up its business, and investors seem to believe the problems are in the past, at least based on the strong performance of its IPO.
Xunlei priced its American Depositary Shares (ADSs) at $12 each, above a previously indicated range of $9-$11, raising $88 million. (Chinese article) The shares then debuted strongly, rising as much as 30 percent on their opening day before ending up a healthy 24 percent at $14.90. The debut is even stronger than the last company to list, online recruitment site Zhaopin (NYSE: ZPIN), whose shares rose 8.5 percent on their first trading day 2 weeks ago and are now up 13 percent from their IPO price. (previous post)
Xunlei’s top executives were hyping a growing relationship with smartphone sensation Xiaomi, which may have been part of the reason for the strong debut. (Chinese article) Xunlei is the last big online video site without a major strategic partner, so investors could be betting that the Xiaomi pairing could mark the start of a major new relationship. If more signs continue to emerge that such a pairing is indeed coming, there could more upside for Xunlei’s stock.
Next let’s look at Tiange, which is better known to Chinese Internet users as operator of the popular 9158 online karaoke social networking (SNS) site. Rumors of the an IPO for the company backed by leading web portal Sina (Nasdaq: SINA) first emerged early this year, and now Tiange has made its first formal filing for the offering. (Chinese article)
Tiange has set a price range of HK$4.50 to HK$5.30 for its shares, with a target of raising up to HK$1.61 billion ($200 million). It’s worth noting that figure is down a bit from the $300 million fund-raising target given in reports back in February when the offshore market for Chinese Internet IPOs was at a peak.
But the figure still looks quite solid, and I would expect we could see the shares price and debut strongly. I’m not very familiar with the company, but I quite like the description of its business model. That combines social networking, karaoke and online entertainment, in a potent mix that should appeal strongly to young Chinese who are always looking for the latest popular recreation trends.
From the broader perspective, Tiange’s choice of listing location continues a recent trend for some privately funded Chinese companies to choose Hong Kong over traditional listings in New York. I expect this trend could accelerate a bit and perhaps Hong Kong could account for as much as one-third of new Chinese Internet listings in the next 1-2 years. In the meantime, both Xunlei’s strong debut and Tiange’s IPO filing indicate there’s still a bit of life in the IPO market, meaning we could see 3 or 4 more major offerings before Alibaba’s highly anticipated debut most likely in August.
Bottom line: Xunlei’s shares could have some upside following its strong debut amid hopes for a Xiaomi tie-up, while Tiange should also perform well in its upcoming Hong Kong IPO.
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