Tencent E-Commerce: Another Money Loser IPO 腾讯电商：将又一个失败的

By newsdoug on May 22, 2012

I was amused to read this morning that Internet titan Tencent (HKEx: 700) may choose its money-losing e-commerce platform for its first IPO, following its recent reorganization into 6 business units to allow each of those areas to sink or swim by themselves. The reports are a bit unclear about the timing of a potential IPO, and indeed say that such an offering is just one possibility for the newly formed unit as it seeks to raise more money to eventually create a broader e-commerce platform, presumably similar to Alibaba’s highly successful TMall. (English article) If that’s the case, I hope that executives are reading the newspapers these days, as investor appetite for money-losing Chinese Internet IPOs is extremely low these days and showing no signs of improving anytime soon. The only company to make an overseas Internet IPO this year so far has been Vipshop (NYSE: VIPS), a money-losing discount retailer, and that was a complete disaster. Other potential offerings from Shanda’s online literature unit, called Cloudary, and leading group buying site LaShou have all been delayed or disappeared completely, although Shanda appears to be moving ahead with its offer after its surprise disclosure that Cloudary recently turned profitable. (previous post) In terms of Tencent’s e-commerce business, it seems to me like the unit’s biggest asset is the Tencent name itself, since Tencent is clearly China’s biggest Internet firm and its leading player in online games and instant messaging. On the other hand, Tencent has had much less success in areas like e-commerce, which rely on an older, more cash-rich demographic of users unlike games and its instant messaging that tend to draw people in the 15-25 year old age range. Tencent’s newly formed e-commerce unit contains its older Paipai online auctions business, also known as C2C, along with a more recently established B2B platform that I’ve never heard of. The unit’s new head says that one of its strengths is its strong social networking element, which presumably helps to create a community among online buyers. Social networking is certainly one of Tencent’s strengths, but I doubt whether its core base of young users, with their low consuming power, would be very attractive to most e-commerce sellers. All that said, I wouldn’t expect to see Tencent make an IPO for this new e-commerce unit anytime soon due to the current frosty market. If I were advising Tencent founder Pony Ma on how to proceed, I would tell him to make an IPO first for one of the company’s more successful units, such as its social networking or online games business, which would certainly create a bit more excitement among investors. But if e-commerce does go first in the march to market for these new little Tencents, look for weak investor interest and a stock that probably won’t go anywhere but down after its trading debut.

Bottom line: Tencent’s spin off and potential IPO for its money-losing e-commerce unit looks like a poor choice for its first IPO following its recent reorganization.

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