Homelink Raises Big Bucks, Alibaba Backs Momo

| About: Alibaba Group (BABA)

Summary

Alibaba has joined a group aiming to privatize social networking app Momo, helping to squash skepticism the offer announced last year might collapse due to insufficient funding.

The common thread to these two stories is that they show funding remains available for high-growth companies in China, fueled by profits from China's real estate market.

That boom has been directly responsible for Homelink's meteoric rise.

Bottom line: Homelink's new mega funding reflects a recent renewed boom for Chinese real estate in major cities, while Alibaba's (NYSE:BABA) backing of Momo's (NASDAQ:MOMO) buyout could presage a tie-up between Momo and Weibo.

A couple of big fundraising stories are in the headlines, led by the latest mega-funding for the fast-expanding real estate agent Homelink. Meantime, separate reports are saying that e-commerce giant Alibaba has joined a group aiming to privatize social networking app Momo (MOMO), helping to squash skepticism that the buyout offer announced last year might collapse due to insufficient funding.

The only common thread to these two stories is that they show big funding remains available for high-growth companies in China, fueled in part by profits being generated by China's booming real estate market. That boom has been directly responsible for Homelink's meteoric rise, and seems like a good place to start this discussion of these twp new mega fundings.

According to the latest reports, Homelink has just secured a hefty 6 billion yuan ($920 million) in new money, valuing the company at about 40 billion yuan (English article, Chinese article). Backers in the latest round include leading search engine Baidu (NASDAQ:BIDU) and may also include Internet social networking giant Tencent (OTCPK:TCEHY), the reports say.

Founded in 2001, Homelink offers real estate services online and through 5,000 brick-and-mortar agencies in 24 Chinese cities. The company is in the process of building a database that has information on more than 56 million properties, and expects to conduct transactions worth 1 trillion yuan by 2017, up 67 percent from last year.

I can personally attest to Homelink's rapid rise as the company has moved aggressively into my adopted hometown of Shanghai over the last year. Its slick shops with their green storefront signs have quickly overpowered many other real estate agents here, helping to fuel a boom that has seen Shanghai home prices rise more than 20 percent over the last year.

But Homelink also has been somewhat controversial, and earlier this year was penalized here in Shanghai for illegally lending money for people to make the big down payments required for new home buying. Requirement of such big down payments is designed to prevent speculation since it should require buyers to pay for a big portion of their new homes with their own cash.

Down Payment Assistance

Homelink said it has set up its own finance unit that lent about 300 million yuan worth of down payments as of the end of February. I suspect the real number could be much higher and is probably growing rapidly as consumers in top-tier cities like Beijing and Shanghai rush to buy homes to take advantage of recently surging prices. But all that could rapidly change if the markets suddenly cool, which could put a big damper on Homelink's growth and also its finances.

Next there's Momo, which announced its plans to privatize last year as part of a growing wave of Chinese firms abandoning New York listings in pursuit of higher valuations back in China. Momo had proposed buying back all of its Nasdaq-listed American Despositary Shares (ADSs) for $18.90 apiece last June, only to see them slip to nearly 40 percent below that level as skepticism grew about its ability to complete the deal.

But now a new regulatory filing shows that Alibaba has joined the group backing the buyout, raising confidence that the deal will get completed after all (English article, Chinese article). Momo's ADSs surged 34 percent after the new disclosure, though at their latest close of $16.09 are still 15 percent below the buyout price.

Speculation is growing that Alibaba might want to buy a strategic stake of Momo, whose app is similar to the popular Tinder "hook-up" app in the US, or perhaps even buy the company outright. Alibaba also holds a major stake in the Twitter-like Weibo (NASDAQ:WB), so some are saying it could somehow engineer a marriage of the two through its stake holdings. I've previously said that Alibaba could make a buyout offer for Weibo, and still believe such a deal could happen. It also seems plausible that Alibaba could ultimately try to force a tie-up between Weibo and Momo, though I doubt it will Momo outright.

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