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Based in Shenzhen, China, 500.com (NYSE:WBAI) scheduled a $58 million IPO on the NYSE with a market capitalization of $329 million at a price range midpoint of $10 for Friday, November 22, 2013. The price range midpoint was recently increased to $12.

Ten operating company IPOs are scheduled for this week. The full IPO calendar can be found at IPOpremium.

F-1 filed November 8, 2013

Manager, Joint managers: Deutsche Bank

Co-Managers: Piper Jaffray, Oppenheimer & Co.

Summary

WBAI is a leading online sports lottery service provider in China.

WBAI had the largest market share of 29% in terms of purchase amount of sports lottery products in the six months ended June 30, 2013, as compared to taobao's 24%, according to the iResearch Report.

Revenue for the September 2013 nine months was up 29% from the year earlier period, gross margin was 88% (very high) and net income was 12% of revenue.

Valuation

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing Sept 9 mos

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

500.com Ltd

$330

9.2

75.0

3.8

3.7

18%

The accumulated deficit is ($46 million)

Glossary

Conclusion

WBAI has a leading position in the Chinese sports lottery business, with very high gross margins, earning 12% net income. The P/E multiple of 75 is high but the earnings stream appears secure - barriers to entry are high.

The rating on WBAI is buy.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:

Business

WBAI is a leading online sports lottery service provider in China with the largest market share in the six months ended June 30, 2013 and the second largest market share in 2012 in terms of purchase amount of sports lottery products, according to the iResearch Report.

WBAI acts as an aggregator and processor of lottery purchase orders from its registered user accounts and currently derives substantially all of its revenues from service fees paid to WBAI by provincial sports lottery administration centers for the purchase orders of sports lottery products that WBAI directs to such centers.

WBAI offers a comprehensive and integrated suite of online lottery services, information, user tools and virtual community venues to its users.

One of the first

WBAI was among the first companies to provide online lottery services in China, and WBAI is one of the two entities that is authorized by the Ministry of Finance, or the MOF, to provide online lottery sales services on behalf of China Sports Lottery Administration Center, the government authority in charge of the issuance and sale of sports lottery products in China.

To the best of WBAI's knowledge, the other approved entity has not commenced the provision of online lottery sales services as of the date of this prospectus.

Through continued and significant investments in the past 12 years, WBAI has built a prominent brand, 500wan, which means "five million" in Chinese and is the typical amount of top prizes of most lottery products in China. WBAI believes its brand is known in the industry and by its users for its credibility and reliability.

Voluntary suspension

Historically, WBAI provided online sales services for, and generated service fees from, both sports and welfare lottery products. From March to November 2012, WBAI voluntarily suspended its online lottery sales services to substantially all of its customers, in response to a newly promulgated regulation which mandates, among other things, that online lottery sales services can only be provided by entities approved by the MOF (Ministry of Finance).

During this period, WBAI continued to provide lottery sales services via its mobile applications to mobile users and via its online platform to a limited number of loyal customers as a means of customer maintenance.

78.5% of WBAI's service fees during the voluntary suspension period were generated from its mobile applications. WBAI resumed online lottery sales services for sports lottery products in November 2012 after WBAI obtained the relevant approval for such lottery products from the MOF. Simultaneously, WBAI ceased to provide sales services for welfare lottery products.

Intellectual property

WBAI relies on a combination of trademark, copyright and trade secret protection laws in the PRC and other jurisdictions, as well as confidentiality procedures and contractual provisions to protect its intellectual property and its brand.

Competition

WBAI's main competitors are the other online lottery service providers and traditional offline lottery agents. WBAI believes it currently possesses distinctive competitive advantages over its competitors in both online and offline channels.

WBAI's major online competitor is taobao.com, which had approximately 32% and 33% market share in terms of total purchase amount in 2011 and 2012, respectively, as compared to WBAI's market share of 23% and 12% for the same year, according to the iResearch Report.

In 2012, WBAI had 23% and the second largest market share in terms of purchase amount of sports lottery products, also behind taobao.com's largest market share of 31%, according to the iResearch Report.

WBAI had the largest market share of 29% in terms of purchase amount of sports lottery products in the six months ended June 30, 2013, as compared to taobao's 24%, according to the iResearch Report. WBAI is dedicated exclusively to servicing the lottery business and its website offers users a community experience, provides experienced users with a lottery focused environment and provides new users a sense of trust given its track record.

5% stockholders

Clear Treasure Group Limited 10.3%

Delite Limited 12.5%

Brothers Union International Limited 11.1%

Smart Mega Holding Limited 10.9%

HWL Partners Limited 6.3%

Vivoland Limited 7%

Use of proceeds

WBAI expects to net $65 million from its IPO. Proceeds are allocated as follows:

  • US$20 million for sales and marketing initiatives including advertising;
  • US$10 million for research and development;
  • US$5.0 million for continuing investment in its technology platform; and
  • the balance for other general corporate purposes, including working capital needs, incremental costs associated with being a public company, and potential acquisitions (although WBAI is not currently negotiating any such acquisitions).

Disclaimer: This WBAI IPO report is based on a reading and analysis of WBAI's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: 500.com