Seeking Alpha
, Google+ (408 clicks)
Long/short equity, special situations, momentum, event-driven
Profile| Send Message|
( followers)  

November 25 marks the end of the 25 day quiet period on underwriter research publishing following 58.com (NYSE:WUBA)'s October 31 IPO.

The firm's underwriters will be permitted to release research reports about the firm into the market, likely leading to at least a temporary jump in the stock's already soaring price. Since pricing its IPO at $17 per share, beating an expected price range of $15-$16 that had already been revised upward, the stock has shown incredible growth, peaking at $38.50 per share and closing at $34.11 per share as of November 15.

The IPO's underwriters, which include Morgan Stanley, Credit Suisse, Citi, and Pacific Crest, will seek to push the stock's thus far exceptional performance even further with a flood of positive information surrounding the firm as the quiet period comes to a close.

Both recent academic studies and two years of our own research have given empirical indications of a positive relationship between the number and visibility of underwriters and a jump in stock price at the close of the quiet period. New IPOs generally start to see increasing prices a few days in advance of the expiration of the quiet period, as investors begin to push prices upward by purchasing shares in anticipation of the underwriters' research reports; these investors realize that the underwriters will release generally positive reports, since they would hardly have an incentive to release negative information about a firm that they recently backed.

BUSINESS
58.com and its various competitors have no choice but to confront China's archaic bureaucracy, which has had a less than savory history with the internet. Websites may be banned or restricted at any time without warning, so competition is inconsistent, though the WUBA's F-1 filing does mention significant competition from similar online classified companies. Like all sites operating in China, 58.com must overcome its users' knowledge that there is no governmental respect to be had for internet privacy.

MANAGEMENT
Founder Jinbo Yao has been with 58.com since its inception. He currently acts as WUBA's CEO and Chairman. Mr. Yao is considered something of a pioneer in the Chinese internet industry, having previously founded domain name transaction firm domain.cn; he served in managerial roles with net.cn after it acquired domain.cn. He received his bachelor's degrees in chemistry and computer science at Ocean University of China.

CONCLUSION
58.com's meteoric rise is hardly an accident, and its common designation as "the Craigslist of China" seems entirely appropriate.

Over the course of the past few years, the website has posted impressive revenue growth, with revenues of $87.1 million, $41.5 million, and $10.7 million in 2012, 2011 and 2010, respectively. Even more impressive, the firm has managed to convert its revenue growth into profitability: after posting losses of $13.9 million in 2010 and $83.4 million in 2011, WUBA reduced its losses to $30.4 million in 2012 and managed a positive income of $0.3 million for the six months ending June 30, 2013.

WUBA doesn't seem likely to cool off any time soon, and the upcoming quiet period expiration gives prospective growth investors an opportunity to purchase the stock with strong immediate growth potential.

Source: 58.com Quiet Period Expiration Provides Opportunity For Aggressive Investors