Wall Street Beat: China Tech IPOs Create US Buzz
Chinese tech companies are once again creating U.S. IPO market buzz, with social-networking site RenRen going public Wednesday, software security vendor NetQin Mobile launching Thursday, and several more companies set for public offerings next week.
RenRen, dubbed "the Facebook of China," made a big splash, raising US$743 million with its IPO on the New York Stock Exchange. In what was one of the more highly anticipated Chinese IPOs of the year so far, shares skyrocketed almost 71 percent up from the initial offering of $14.00 Wednesday to settle down at $18.00.
RenRen shares edged down to close at $16.87 Thursday and were trading at $16.64 Friday afternoon, still up from its opening price. There are some shadows on the horizon for RenRen, however.
The resignation of the head of the company's audit committee, Derek Palaschuk, opens questions about accounting procedures. The resignation came in the wake of a Citron research report last month about alleged fraud at the company where Palaschuk is chief financial officer, Longtop Financial Technologies.
And despite the excitement over the IPO, RenRen has competition in its local market. With the real Facebook blocked in China by censors, local social-networking players have proliferated. Pengyou, for example, has an 18 percent share to Renren's 25 percent share of the social-networking market, even though it launched less than four months ago. RenRen was launched in 2005. Though its revenue was $76.5 million last year, a 63.9 percent year-over-year jump, it was still losing money -- a total of $64.2 million.
In a research note on its site, Renaissance Capital raised some concerns. "While Renren's growth over the last several years has been very impressive, its revenue fell sequentially in the two most recent quarters, which is a cause for concern," Renaissance said. "Although there is seasonality to the business, the trend may suggest that monetization of its user base is becoming more difficult."
NetQin Mobile, meanwhile, may have overreached a bit in its own IPO Thursday, also on the NYSE. The provider of consumer-centric mobile security and productivity applications set its offering price at $11.50, at the high end of expectations, with the goal of generating $89 million. Though trading in the stock hit $11.90 per share at one point during the day, it closed at $9.30. It was trading at $8.99 Friday afternoon.
Next week, two more tech-oriented Chinese companies will launch on the NYSE. On Wednesday, the "Match.com of China," Jianyuan, is slated to offer 7.1 million shares priced between $10 and $12, expecting to raise up to $178 million. On Thursday, Phoenix New Media, an online and mobile video content provider, is set to offer 12.76 million shares priced between $12 and $14, expecting to raise up to $178.7 million.
This latest batch of Chinese IPOs follows on a string of successes. On March 30, Internet and mobile security products company Qihoo 360 priced its shares at $14.50, but they soared to close at $34. They have maintained a premium over the asking price, trading Friday afternoon at $26.75.
Last year, more than 30 Chinese companies went public in the U.S., about 20 percent of the total number of U.S. IPOs. A large percentage of those -- and some of the biggest successes -- were tech-oriented. Many of the successes also tend to be popularly assigned monikers associated with U.S. companies. In December, for example, Youku.com, the "YouTube of China," jumped 161 percent on its first day of trading. Dandang.com, the "Amazon.com of China," rose 87 percent in its first day on the U.S. market.
The U.S. market appears to have a big appetite for Chinese IPOs even though RenRen has not been the only company to have a brush with accounting issues. Chinese TV advertising company China Century Dragon, which launched its IPO in February, had trading on shares halted on the NYSE in March. Securities lawyers are looking into fraud claims, and are also investigating China Electric Motor and China Intelligent Lighting.
Qihoo, in its offering letter to the U.S. Securities and Exchange Commission, said it had identified that "there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented."
Why are U.S. investors scooping up shares of companies that might not pass accounting muster in the U.S.?
"East is East and West is West," said John Fitzgibbon, founder of IPO Scoop, noting that investors might be making allowances for companies that they hope might grow into the Microsoft or Google of China. "China is a big market, investors are chasing the sizzle," Fitzgibbon said.
China has about 457 million Internet users, according to the China Internet Network Information Center. The Internet population has made the country a big IT market.
"Hope and greed are running wild," Fitzgibbon said.