IPOs: JD Sets Range, Tuniu Lumbers Up

Includes: CMCM, TOUR
by: Doug Young

Just when it looked like the New York market for Chinese IPOs was running out of steam, we're seeing new positive signs with the modestly successful trading debut of online travel site Tuniu (Nasdaq: TOUR) and the setting of a relatively upbeat price range for JD.com, China's second largest e-commerce firm. Both signals continue a current trend of softening sentiment in the market, as investors tire of giving billions of dollars in new money to Chinese Internet firms. But they also show there may still be some life left in the market, leading me to return to a prediction I made early this year that the current IPO window could last through the end of June.

There have been so many mixed signals in the IPO market these last few weeks that I won't recount all of them here. One of the most emblematic was the IPO last month for leading microblogging site Weibo (Nasdaq: WB), which had to sharply cut the size of its offering but then made a fairly respectable trading debut (previous post). The stock has moved steadily downward since then, though it is still 5 percent above its offering price of $17 per American Depositary Share (ADS).

All that said, let's look at the latest news starting with JD.com, which has finally announced a price range for an offering to raise up to $1.7 billion (English article). I use the word "finally" here, because JD actually made its first filing for a New York IPO all the way back in early February, meaning it has taken the company more than 3 months to take the second step in its march to market. That's a huge time gap in the typical IPO process, indicating the company and its bankers had to work extra hard behind the scenes to get investors interested in the offering.

But JD has finally achieved the interest level it was seeking, and has put together a listing plan that could value the company at as much as $25 billion. That's not too bad for a company that was reportedly worth about $10 billion 3 years ago, though it's certainly not the kind of rapid valuation inflation that some companies have seen in the market over the last 2 years.

JD has set a price range of $16-$18 per ADS, and I expect it will set a final price and make its trading debut either this week or next. Given recent trends and the large fund raising amount, I wouldn't be surprised if JD prices at the bottom of its range, and its fund-raising ends up at closer to $1 billion. Still, even that performance would be respectable in the current market.

Meantime, Tuniu has logged its own debut that looks typical of the current market, sending a range of mixed signals. The company priced its offering at $9 per ADS, which was at the very bottom of its previously given range. Tuniu ultimately raised a relatively modest $117 million, but then the stock debuted strongly and rose as much as 17.6 percent before closing its first day up a respectable 11.9 percent.

Last week's IPO and trading debut for security software maker Cheetah Mobile (NYSE: CMCM) posted a similar performance thanks to support from a trio of wealthy backers, and Tuniu also got some help from its recent alliance with leading online travel company Ctrip (Nasdaq: CTRP). All this shows that companies that are industry leaders or have ties to leaders could still perform respectably well in the current environment. But companies without such ties could do poorly, especially if they're losing money, and I do expect we'll see one or two big duds before the current IPO window finally closes next month.

Bottom line: The current IPO window for Chinese listings in New York is likely to last through next month, but will heavily favor firms that are industry leaders or have ties to such leaders.

Disclosure: No positions