IPOs: Year Ends In Tech Whimper With Feiyu, Momo
Bottom line: Feiyu’s weak IPO isn’t surprising and its shares will keep trading down, while Momo’s New York listing could get a slightly better reception but will open flat to up slightly in its trading debut this week.
The usual flurry of offshore Chinese IPOs has materialized as we head into the end of 2014, capping a banner year for such offerings. But the year-end rush has been surprisingly devoid of tech names, though we’ve just seen what could be one of the final such IPOs of the year with the Hong Kong debut late last week of mobile game developer Feiyu Technology. Feiyu’s weak debut comes as mobile social networking (SNS) firm Momo also gets set to make its New York trading debut this week, in what could well be the last 2 tech offerings in a banner year for the group.
Each year often ends with a mini-rush of IPOs, as companies try to raise cash before the typically quiet first quarter of the following year when many investors are on vacation during the western and Chinese winter holiday periods. This year has been no different, though the year-end rush has been concentrated in more traditional sectors like energy and property, as names like nuclear plant builder CGN Power and real estate giant Dalian Wanda line up to make new listings in Hong Kong.
Tech offerings have been much quieter, even though the sector raised nearly $30 billion this year, much of that in New York with the record-breaking $25 billion September IPO by e-commerce giant Alibaba (NYSE: BABA). The recent quiet from tech firms is most likely due to the fact that nearly all companies that were at the right stage for such listings have made their IPOs by now. Thus the few firms now lining up to offer shares are mostly second-tier names or companies that may not really be ready for listings, but are making them anyhow to take advantage of this year’s strong investor sentiment.
All that said, let’s take a look at what could be one of the last technology listings of the year with Feiyu’s IPO that raised HK$570 million ($73 million) in Hong Kong. (Chinese article) Word of the listing for this firm, whose Chinese name means “flying fish”, first emerged in September when the company made its first public filing. (previous post) The plan was apparently delayed, most likely due to lukewarm investor sentiment for game designers, but finally went ahead and made its trading debut last Friday.
The company ultimately sold its shares for HK$2.20 a piece, which was squarely in the middle of a previous range of HK$2.55 (33 cents) to HK$1.85. That’s actually not too bad, as other gaming companies have fared poorly in the recent environment. But the shares have dropped steadily downward since then, shedding 5.4 percent on their first day and on track to lose a similar amount in their second day on Monday.
According to previous filings, Feiyu posted explosive revenue growth in 2012, but then saw the figure stall last year as revenue actually fell about 9 percent to 145 million yuan ($24 million). The company appeared to be heading back to a growth track this year, reporting nearly 130 million yuan in revenue for the first 6 months of 2014.
The company’s profit has followed a similar track, peaking in 2012 before falling by about a third to 80 million yuan last year. But the figure looked to be rebounding this year, with Feiyu reporting its profit rose 66 percent in the first half of 2014. This kind of performance is quite typical for game developers, whose success or failure can often vary widely due to their reliance on popularity of individual game titles. For that reason, new gaming IPOs haven’t performed very well this year and older listings have also stumbled.
Against that backdrop, Feiyu’s weak debut wasn’t too surprising, and we could see the stock move steadily downward from here. Fellow tech company Momo could get a better reception when its shares price and debut later this week, in part due to its backing by Alibaba. But even Momo’s listing has shown signs of a cool reception from investors, and I do expect these last 2 tech IPOs will perform weakly when they make their trading debuts.
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