IPO Pick of the Week: Jiayuan.com International

Based in Beijing, China Jiayuan.com International (proposed DATE) is scheduling a $78 million IPO with a market capitalization of $341 million at a price-range mid-point of $11 for Wednesday May 11, 2011. The IPO calendar includes nine others for the week of May 9.

SUMMARY -- DATE is a Chinese dating site company. For the year ended December 2010 versus 2009, DATE sales increased 150% to $25 million from $10 million, and earnings increased 185% to $2.5 million from $.9 million.

DATE has also shown very good sequential quarterly growth in sales from $3.5mm in the March quarter to $8.9 in December 2011. Gross margin grew from 57% to 67% in the last four quarters. Net income grew from -$200,000 to $1.5mm in the last four quarters.

VALUATION -- Given the sequential quarterly sales increased, increased gross margin and increased income leading up to a very good December 2010 quarter, DATE seems reasonably priced at 57 times annualized December 2010 quarter results and 4.6 times book value.

However, IPO after-market buyers should be aware that all recent Chinese Interrnet IPOs, except for Youku (NYSE:YOKU), have traded down from their first day of trading. And DATE’s success makes it a target for other Chinese Internet sites that are also heavily trafficked.

DATE Valuation Metrics

Each ADS represents 1.5 ordinary shares.

BUSINESS -- DATE operates the largest online dating platform in China. According to iResearch, DATE ranked first and commanded a 43.7% share in the total amount of money spent in China's online dating market in 2010.

Jiayuan.com also ranked first in terms of number of unique visitors, average time spent per user and average page views per user among all online dating websites in China in 2010, according to iResearch.

COMPETITION -- Principal competitors include Baihe.com and Zhenai.com, both of which operate online dating platforms. In addition, DATE faces competition from Internet portals such as Sina.com.cn, Sohu.com (NASDAQ:SOHU), QQ.com and 163.com and social networking websites such as Renren.com (NYSE:RENN) and Kaixin001.com.

USE OF IPO PROCEEDS -- Shareholders intend to sell 400,000 ADSs. DATE plans on selling 6.7mm ADSs to net $66mm. $4 million is allocated to pay dividends on preferred stock, the balance is allocated for general corporate purposes.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.