Chinese company Loyalty Alliance Enterprise Corporation (LAEC) is the only company making its debut in the United States this week. The company is selling 5.1 million American Depository Shares in a price range of $12 to $14. The shares will be traded on the Nasdaq, with the lead underwriters being Macquarie Capital and Needham & Company. The company is a leader in the direct marketing segment across mobile platforms in China.
The company has three major segments by revenue:
- Multi-channel direct marketing
- Predictive data analytics solutions
- Data-driven customer loyalty solutions
In 2011, the segments broken down by revenue were:
- Direct marketing services: $24.9 million, 80.1%
- Predictive data analytics services: $4.7 million, 15.1%
- Customer loyalty services: $1.5 million, 4.8%
Total revenue for 2011 was $31.1 million. The previous two years saw revenue of $17.7 million and $12.6 million, respectively. Loyalty Alliance Enterprise Corporation has seen compound annual growth of 57%. The company posted a net loss of $0.8 million in 2009. The following year, the company turned a profit of $0.8 million. In 2011, the company posted a profit of $8.6 million.
The company's strategies are:
- Continue to improve the depth, quality and size of the consumer information database.
- Enhance data analytics capabilities to better understand Chinese consumer behavior.
- Expand services to other selected growth sectors in China.
- Broaden the merchant network to increase the attractiveness of open-loop loyalty programs.
- Expand the geographic reach of operations in China.
- Pursue strategic acquisitions that complement the company's leadership position.
One of Loyalty Alliance's biggest risk factors is its large dependence on two Chinese mobile companies. The company relies on China Unicom (CHU) and China Telecom (CHA) for almost half of its revenue. China Unicom made up 40.3% of all of 2011's net revenue for Loyalty Alliance Enterprise Corporation. Either one of these mobile carriers could do the research on their own or hire another company.
The company has a complicated ownership structure as a holding company in the Cayman Islands. After the Initial Price Offering, directors and officers of the company will own 37.6% of the newly listed shares.
Loyalty Alliance is hoping to raise $60.4 million. The money will be used for:
- Geographic expansion and acquisitions: $30 million
- New technologies and products: $5 million
- Pay off debt: $11.5 million
- Working capital: remaining
I recommend staying away from the shares of this Chinese company. Chinese companies always pose concerns over financials and this company's complicated ownership structure will likely add Loyalty Alliance to that list. The company faces competition from many firms. The company also appears too loyal to one customer and one business segment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.