Sohu Video, Qunar in IPO Marches 搜狐视频、去哪儿网加紧上市步伐
The latest news bits indicate the video sharing unit of web portal Sohu (Nasdaq: SOHU) and online travel services firm Qunar are both marching rapidly towards overseas IPOs, with both companies positioning themselves to move quickly if and when the current market freeze ever eases. Sohu has been saying for much of the last year that it wants to spin off its video unit into a stand-alone company for an eventual overseas listing, and now the company has formally separated the unit’s sales force into a separate entity. (Chinese article) Meantime, domestic media are also quoting a top executive of Qunar, which is backed by online search leader Baidu (Nasdaq: BIDU), as saying his company has passed industry leader Ctrip (Nasdaq: CTRP) in air ticket sales, in what sounds like a drive to raise the company’s profile in the run-up to its own IPO. (English article; Chinese article)
Let’s look at the Qunar news first, as this one looks the most interesting due to the company’s rapid rise after receiving a $300 million investment from Baidu last year. Qunar is posing one of the first serious challenges in years to Ctrip, which has long been the industry leader but admitted earlier this year it was facing pressure from this fast-rising up-and-comer. (previous post) Now media are quoting Qunar Vice President Yang Wei as saying his company has officially passed Ctrip in air ticket revenue, and is looking at an IPO as soon as next year.
I’ve read about the online travel wars and Ctrip has mentioned them in interviews before, but in order to understand them better I made my own quick trip to the 2 companies’ web sites to compare prices. A check of flights on 2 random dates revealed that Qunar is indeed systematically undercutting Ctrip’s prices, with my check revealing that Qunar’s prices are almost always about 10 percent lower than Ctrip’s for identical flights.
With that kind of pricing and support from Baidu’s leading search engine, it’s no huge surprise that Qunar has risen so quickly to challenge the industry leader. I suspect that Qunar’s aggressive pricing and marketing have caused the company to quickly burn through the $300 million it received from Baidu last year, and that this company will quickly make an IPO to raise more cash as soon as the first quarter of next year if investor sentiment ever improves towards Chinese stocks.
Meantime, Sohu’s formal separation of its video sales team from the rest of the company shouldn’t surprise anyone since Sohu chief executive Charles Zhang has been saying for quite a while that he wants to make an IPO for the unit, China’s second largest video sharing site after dominant leader Youku Tudou (NYSE: YOKU). Frankly speaking, Sohu’s long-running reputation as a company that’s relatively well run but lacks big vision means I can’t get too excited about this offering.
In a similar move, Sohu previously spun off its online gaming unit Changyou (Nasdaq: CYOU) for a New York listing, which has been moderately successful. But the key word in all this is “moderate”. Despite its relatively solid execution of strategy, Sohu’s market capitalization remains at a solidly boring $1.6 billion, about the same level it was at 5 years ago. Look for another boring IPO from Sohu’s video unit when it comes, while Qunar could be more interesting if it can convince investors of its longer-term prospects for profitability.
Bottom line: Qunar and Sohu’s video unit are both positioning themselves for IPOs early next year, with the former more likely to generate excitement due to its strong growth prospects.
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