Qihoo, 58.com Look For Support, eHi Files For IPO
US-listed Chinese companies have made a flurry of strategic moves on Wall Street over the long October 1 holiday, with former high-flyers Qihoo 360 (NYSE: QIHU) and 58.com (NYSE: WUBA) taking steps to prop up their sagging share prices. The correction now taking place is long overdue, following huge run-ups in New York-traded Chinese stocks over the last year and a half. Still, the sell-off doesn’t bode too well for car rental firm eHi Car Services, which has just become the first major Chinese firm to file for a Wall Street IPO following the blockbuster listing for Alibaba (NYSE: BABA) last month.
I’ll start by apologizing to readers who may have seen some of these news bits already, most of which came out during the long Golden Week holiday. The collective news on security software maker Qihoo and 58.com highlights recent sell-offs in each company’s shares, as investors begin to realize that growth for many Chinese Internet firms won’t be nearly big enough to justify their lofty valuations. That could be bad news for the broader sector, as well as for eHi’s upcoming IPO.
Let’s begin with Qihoo, which announced it will repurchase up to $200 million of its shares to support its stock. (company announcement) That kind of money is pocket change for Qihoo, which has nearly $2 billion in cash, and I wouldn’t be surprised to see it expand the buy-back program if its shares continue to sag.
Qihoo became a darling of investors about a year ago, after it launched a search engine that quickly gained major market share from dominant player Baidu (Nasdaq: BIDU). The company’s stock had quadrupled at one point from its levels in early 2013, as investors bet its fast-rising market share would quickly translate to big profit gains. But so far Qihoo has yet to score any major success in monetizing its impressive market share.
Realizing that big profits might not come quite so soon, investors began selling off Qihoo shares in August, and they now trade at about half of their highs from earlier this year. The shares got an initial bump after Qihoo first announced the buyback last week. But they resumed their downward trajectory after that, dipping 3 percent over the last 2 days, and I expect we’ll see a bit more downward movement before the sell-off ends.
Next there’s 58.com, an online classifieds site sometimes called the Craigslist of China, whose shares initially soared after their New York IPO late last year. But sentiment has cooled since then, and the shares have lost about a third of their value since July. In a bid to prop up its stock, the company has disclosed that major stakeholder Tencent (HKEx: 700) has boosted its share in 58.com to nearly 25 percent from a previous 20 percent through share buying in the open market. (English article)
I don’t feel too badly for 58.com since its shares are still about double the level of their IPO price, even after the sell-off. Still, I do suspect there will be more downside for this company’s stock through the rest of this year and probably well into 2015, as investors realize the company’s business might not grow quite as quickly as they had hoped.
All of this doesn’t look too good for car rental firm eHi, which also made its first public filing over the holiday for a New York IPO to raise $100-$200 million. (English article; Chinese article) eHi’s offering would come about a month after the successful Hong Kong listing of rival CAR Inc (HKEx: 699), previously known as China Auto Rental, whose shares jumped 29 percent in their first trading day last month.
Since then CAR’s shares have continued to climb, and are now up 38 percent from their IPO price. Perhaps that bodes well for eHi, since it’s in the same sector and both companies are really quite different from all the Internet firms that are suffering now. Still, there’s no question that the broader market for New York-listed Chinese stocks is due for a cool-down, which ultimately could affect both technology and non-tech firms.
Bottom line: Chinese Internet stocks are due for more downside through the first half of next year despite company efforts to support their shares, and pressure could ultimately also affect non-tech players like eHi.
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