LightInTheBox Opens New Door For US IPOs
When is a modestly successful IPO cause for big celebration? The answer is: When your name is LightInTheBox, and you’ve just completed the first IPO in New York by a Chinese company in a half a year. Not only is LightInTheBox the first major New York IPO by a Chinese firm this year, but it’s also only the third such offering since the beginning of 2012, reflecting the chilly investor climate that has stifled such listings on Wall Street for more than 2 years.
In all honesty, I should simply congratulate LightInTheBox for completing its IPO at all, since the offering appeared to be running into trouble after the company made its first public filing in mid April. But the final results look quite solid, with LightInTheBox ultimately pricing its American Depositary Shares at $9.50 each, or exactly in the middle of a previously set range of $8.50 to $10.50. (company announcement) That pricing allowed the company to raise a relatively modest $79 million, again not too far off the maximum $86 million it first announced.
But perhaps most encouragingly, LightInTheBox shares performed quite well on their trading debut, rising 22 percent to close at $11.61 on their first day. (English article; Chinese article) That gives the company a market value of about $550 million, roughly comparable with Dangdang (NYSE: DANG), formerly China’s biggest listed e-commerce firm. Both companies are still well behind discount online retailer Vipshop (NYSE: VIPS), whose market value now stands at about $1.6 billion.
Vipshop was one of only 2 major Chinese companies to make New York IPOs last year, launching an offer early in the year that initially flopped due to dismal investor sentiment following a series of accounting scandals at US-listed Chinese firms. But the company’s shares rallied sharply toward the end of last year, as positive sentiment started returning to the market. The other Chinese company to make an offering was commercially oriented social networking site YY (Nasdaq: YY), which also did reasonably well after its IPO late in the year.
LightInTheBox’s relatively successful IPO contrasts with 2 much larger Chinese offerings in Hong Kong late last month, with both Sinopec Engineering (HKEx: 2386) and Galaxy Securities (HKEx: 6681) posting disappointing performances. (previous post) So the big question becomes: How should we interpret LightInTheBox’s modest success, and what are the implications for future IPOs?
First and foremost, we will need to closely watch LightInTheBox’s share price in the next couple of weeks to see if it maintains its first-day gains. I previously noted that the offering had an unusually large number of underwriters — 4 to be exact — reflecting how starved the investment banks were for business. Thus it’s important for the banks to show this offering was successful to encourage other companies to follow suit. That means there may have been some manipulation behind LightInTheBox’s big first-day jump, especially since the offer size wasn’t that big.
If LightInTheBox shares maintain their first day gains and continue to climb, we could easily see a sudden flurry of other companies quickly file for similar-sized offerings. But only companies that are profitable or will soon become profitable soon are likely to apply, as investors have shown little or no appetite for money-losing names.
Thus we could see companies like online clothing seller Vancl or even Jingdong, China’s second largest e-commerce firm, quickly apply for IPOs, as both have repeatedly expressed desire to make such offerings. I would say we’ll have to wait at least a couple of weeks to see how LightInTheBox shares perform. But if they can maintain their current levels, I would expect to see another 3-4 Chinese firms file for similar New York IPOs by the end of July.
Bottom line: The modestly successful IPO by LightInTheBox could pave the way for 3-4 more similar offerings by the end of next month.
