Wandoujia App Store Gets Big Funding, Sale Ahead?
App stores have suddenly become a hot ticket in China’s online space, with word that 4-year-old operator Wandoujia has just landed $120 million in funding from a group led by Japanese tech investor giant Softbank. The deal comes just a half year after online search leader Baidu (Nasdaq: BIDU) acquired another app store, 91Wireless, for more than $1 billion, leading me to wonder if Wandoujia could soon become a target for one of China’s cash-rich and recently very acquisitive top Internet companies. Such a purchase would certainly make sense for names like e-commerce leader Alibaba and social networking giant Tencent (HKEx: 700), which, along with Baidu, are all spending heavily to build up their mobile Internet business.
According to the latest reports, Wandoujia’s new funding represents the third major round for the company since its founding in 2009. (English article; Chinese article) Besides Softbank, other members of the group behind this new investment include DCM, as well as Innovation Works, an Internet incubator set up in 2009 by former Google (Nasdaq: GOOG) China chief Lee Kai-fu. The reports point out that Wandoujia was one of Innovation Works’ first investments, and that the app store now has 300 million users and 1 million apps.
No additional terms were given in the latest investment news. But previous reports had indicated that Softbank was preparing to pay $100 million for 20 percent of Wandoujia, which would give the company a valuation of $500 million. The size of the new funding is relatively large for a company like Wandoujia, whose costs are probably relatively modest since it operates in the Internet space and doesn’t need funds for capital-intensive manufacturing. That indicates to me that perhaps the company’s backers are aiming to recoup some of their investment this year through an IPO or sale of the company.
The deal comes after the 91Wireless sale last July, which saw Baidu pay more than $1 billion for the 57 percent stake of China’s third largest mobile app store owned by Hong Kong-listed NetDragon (HKEx: 777). (previous post) The purchase was the largest last year by the cash-rich Baidu, which also made major acquisitions in the video sharing and group buying spaces, and launched a successful New York IPO for its Qunar (Nasdaq: QUNR) online travel site.
So now that we’ve established that online app stores are a hot commodity, the next question becomes: What’s in store for Wandoujia in the year ahead? As I’ve said above, I suspect we’ll see a sale or IPO for the company, either of which is likely to value it at more than $1 billion — putting it in the same general league as 91Wireless.
As to which option looks more likely, I would predict the company’s founders and top managers would prefer an IPO to take advantage of a recent strong market for new Chinese Internet listings. All 4 of China’s Internet companies that made New York IPOs in the last 2 months of 2013 now trade well above their listing prices, with shares of 58.com (NYSE: WUBA) and 500.com (NYSE: WBAI) both more than double their IPO levels.
But the presence of Softbank as a major stakeholder indicates a sale of Wandoujia could also be a strong possibility. The Japanese high-tech investor has strong ties to Alibaba, and was one of the e-commerce leader’s earliest investors. Alibaba was also quite acquisitive last year, making major purchases and launching new initiatives in the mobile and social network (SNS) spaces. Accordingly, I wouldn’t be surprised to see Alibaba make a generous offer for Wandoujia. Regardless of the outcome, I do expect to see a sale of the company soon, which should yield a final valuation in excess of $1 billion.
Bottom line: A new mega investment in online app store Wandoujia indicates the company could soon be sold or make an IPO in New York, either of which would value it at more than $1 billion.
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