Seeking Alpha
, IPOpremium (934 clicks)
Value, IPOs, long only
Profile| Send Message|
( followers)

Summary

  • Largest independent mobile game publishing platform in China based on the number of active users in 2013, according to the Analysys Report.
  • Big top line rev growth, can it continue?
  • Q2 revenue up only 8% vs Q1 '14. P/E of 27 annualizing Q2 estimate.

Based in Shenzhen, China, iDreamSky Technology (Pending:DSKY) scheduled a $100 million IPO on the Nasdaq with a market capitalization of $554 million at a price range midpoint of $13 for Thursday, Aug. 7, 2014.

The full IPO calendar is available at IPOpremium

SEC Documents

Manager, Co-Managers: Credit Suisse, J.P. Morgan, Stifel, Piper Jaffray

Joint Managers: None

End of lockup (180 days): Tuesday, February 3, 2015

End of 25-day quiet period: Tuesday, Sept. 2, 2014

Summary

DSKY is the largest independent mobile game publishing platform in China based on the number of active users in 2013, according to the Analysys Report.

Valuation

Glossary

Valuation Ratios

Mrkt Cap ($mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing Q2 est

iDreamSky Technology

$554

4.6

26.9

3.8

3.8

18%

Conclusion

Neutral plus

Big top line rev growth can it continue?

Q2 revenue up only 8% vs Q1 '14

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

Business

DSKY is the largest independent mobile game publishing platform in China based on the number of active users in 2013, according to the Analysys Report.

In the first quarter of 2014, DSKY had average monthly active users, or MAUs, of 98.3 million. DSKY's mission is to deliver fun and engaging mobile games and entertainment to mobile users, thereby enriching their mobile lifestyle.

DSKY believes it has redefined the role of a game publisher by redesigning and optimizing third-party games and delivering them to users through its proprietary distribution channels as part of its broader publishing solution.

Distribution

DSKY's proprietary distribution channels include in-game cross promotions and its self-operated iDreamSky Game Center ("LOGO") and uu.cc.

Well-known international mobile game developers grant DSKY access to the source codes of their games, allowing DSKY greater control and efficiency in redesigning their games for the China market.

DSKY distributes its games, referring to third-party games published and operated on its publishing platform, through both its proprietary distribution channels and third-party channels, such as app stores and device pre-installations.

In addition, in 2014, DSKY began to publish and distribute self-developed games and a game that DSKY acquired.

DSKY's proprietary distribution channels have become increasingly significant, having generated 97.7 million game downloads and activations in 2013, representing 36.0% of its total game downloads and activations in 2013 and an increase of 83.4% from 2012.

Q1 '14

In the first quarter of 2014, its proprietary distribution channels generated 23.8 million game downloads and activations, representing 32.2% of its total game downloads and activations in the first quarter of 2014 and an increase of 35.4% from the first quarter of 2013.

Game download and activation refer to a completed download and installation of DSKY's game that successfully connects to its network through log-in or registration by a user.

DSKY also operates games as a service, where it offers live game services and gain user insights through its multi-dimensional data analysis engine to drive ongoing game optimization and monetization.

As a result, DSKY has achieved a track record of consistently and successfully launching popular titles in China, including Fruit Ninja, the Temple Run series and Subway Surfers, each of which was ranked among the top ten casual games by active users in China in the first quarter of 2014, according to the Analysys Report.

Dividend Policy

No dividends are planned.

Intellectual Property

As of the date of this prospectus, DSKY has 18 registered trademarks and 44 registered copyrights in the PRC, and DSKY is in the process of applying for the registration of 253 trademarks and two patents in the PRC. In addition, DSKY has registered two domain names that are material to its business, including idreamsky.com and uu.cc.

Competition

DSKY's competitors include domestic companies with integrated mobile game operation capabilities, such as Chukong Holdings Limited, China Mobile Games and Entertainment Group, Yodo1, Ltd., Shanda Interactive Entertainment Limited, NetEase Inc. and FL Mobile Inc. DSKY also competes with China's leading Internet and technology companies such as Tencent and Qihoo 360, which may capitalize on their significant financial and technical resources and their large user base to develop and publish mobile games.

Overseas mobile game companies looking to directly operate in the PRC market, such as GREE International, Inc., DeNa Co., Ltd., King Digital Entertainment plc and Electronic Arts Inc., may also compete with DSKY.

DSKY competes more broadly with providers of other forms of Internet and mobile entertainment, including social networking and other online activities or content, such as video and music.

5% stockholders

Michael Xiangyu Chen 27.5%

Erhai Liu 20.4%

Dream Data Services Limited 21.9%

THL A19 Limited 26.6%

LC Fund entities 20.4%

Redpoint entities 16.6%

DT01 Holding International Limited 5.6%

Use of proceeds

DSKY intends to use the $114 million in proceeds from its IPO as follows:

US$60 million for the acquisitions of game licenses and other intellectual properties rights related to mobile games;

US$25 million for mergers and acquisitions; and

the remainder for working capital and other general corporate purposes.

Disclaimer: This DSKY IPO report is based on a reading and analysis of DSKY'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.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.