The 25 day quiet period on underwriter research reports on Chinese travel comparison website Qunar Cayman Islands Ltd (NASDAQ:QUNR) following the firm's October 31 IPO will come to an end on November 25. On that day, the firm's underwriters will be permitted to begin releasing reports into the market, likely causing at least a temporary surge in the price of QUNR shares.
After pricing well above the expected range of $9.50-$11.50 per share at an impressive $15 per share, QUNR has gained ground, peaking at $34.99 per share before falling to a more terrestrial price, closing at $26.39 on November 21.
The IPO's underwriters, including Goldman Sachs, Deutsche Bank, Stifel, Pacific Crest, and China Renaissance Securities (Hong Kong), may seek to capitalize on the stock's price and push it back towards its peak by releasing positive investment reports once the quiet period has expired.
The past two years of our research along with recent academic studies on the effects surrounding the end of the quiet period have empirically evidenced a correlation between the number and quality of IPO underwriters and an increase in the price of stock as the quiet period comes to a close.
Typically the effect will begin to take hold a few days before the period actually expires; some investors begin to purchase shares in advance because they assume that the underwriters will improve the stock's image with exclusively positive information, as there is little incentive for them to release negative information. This increases the perceived demand for the stock and pushes prices upward.
Qunar, a subsidiary of Chinese web giant Baidu (NASDAQ:BIDU), is the largest private Chinese travel search site as measured by unique monthly visitors. The site finds and condenses results from thousands of travel service providers to generate an easy-to-view interface. The firm collects data from the searches performed on its site to gradually improve its functionality.
QUNR's user base has grown rapidly in the past few years, increasing from 71.7 million users to 187.3 million users between 2010 and 2012; its mobile base has also taken off, growing from 0.2 million mobile users in 2010 to 39.6 million for the year ended June 30, 2013.
CEO and co-founder Chenchao Zhuang has been with Qunar since it was founded in 2005, and became CEO in 2011. He served as the firm's president before becoming CEO. He previously worked as a core member the System Architecture team at the World Bank, where he developed an intranet used in 130 countries. He also co-founded Shawei.com, a leading Chinese sports portal website.
We view the upcoming quiet period expiration as a short term long opportunity for aggressive investors.
Disclosure: I am long QUNR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.