QUNAR IPO Travels To Investors From Baidu

| About: Qunar Cayman (QUNR)

QUNAR Cayman Islands, Ltd (NASDAQ:QUNR), a Chinese travel search site and subsidiary of Chinese web services giant Baidu (NASDAQ:BIDU), plans to raise $117 million in its upcoming IPO. The firm will offer 11.1 million shares at an expected price range of $9.50-$11.50 per share. If the IPO can reach the midpoint of the expected range at $10.50 per share, QUNR will command a market value of $1.2 billion.

QUNR filed on September 30, 2013.
Joint Bookrunners: Goldman Sachs (NASDAQ:ASIA), Deutsche Bank, Stifel
Co-Manager: Pacific Crest, China Renaissance Securities (Hong Kong) Limited

Qunar is the largest privately-owned Chinese travel web search service in terms of monthly unique visitors. The firm's proprietary technology searches for and condenses information from tens of thousands of travel service providers into a simple interface for potential travelers. The firm's search service improves with data collected from searches performed, so it continues to grow gradually better targeted over time.

The company has seen a rapidly expanding user base in recent years, growing from 71.7 million users in 2010 to 187.3 million in 2012. The firm has also made a significant push onto mobile devices, growing from 0.2 million mobile users in 2010 to 39.6 million in the 12-month period ended June 30, 2013. QUNR generates revenue through travel service providers' listings and through display advertisements.

QUNR offers the following figures in its F-1 balance sheets for the six months ending June 30, 2013:
Total Revenues: $58,426,000
Net Loss: $2,785,000
Total Assets: $158,090,000
Total Liabilities: $91,129,000
Total Shareholders' Equity (deficit): ($95,757,000)

We are neutral to avoid on this IPO at the $9.50 to $11.50 price range.

Investing in internet-based Chinese businesses is even more risky than investing in other Chinese businesses, given that the Chinese regime has a history of unbalanced and arbitrary internet policymaking and censorship. QUNR has yet to convert its growing user base into profitability (the firm has actually seen growing net losses of RMB4.4 million, RMB46.0 million, RMB91.1 million in 2010, 2011, and 2012, respectively), so there simply doesn't seem to be enough upside to merit taking a risk on the China firm.

QUNR benefits from the Chinese population's growing interest in travel and the increasing levels of disposable income in China, especially in combination from the fragmented nature of the Chinese travel industry - in essence, it bridges the gap between small travel service providers, many of which have no other online presence, and would-be travelers.

QUNR must compete with other firms offering online travel and lodging bookings, such as Ctrip.com (NASDAQ:CTRP) and the travel section of Taobao.com. The rapidly developing Chinese internet scene may lead to other competitors entering the market, as well.

Co-founder, CEO and director Chenchao Zhuang has been with QUNR since its 2005 inception; he was appointed CEO in 2011, having served as the firm's President until that time. Mr. Zhuang was previously a core member of the World Bank's System Architecture team, where he was involved in the development of an intranet used in 130 countries in 25 languages. Mr. Zhuang was also a co-founder and CTO of Shawei.com, a leading sports portal website in China which was acquired by the TOM Group in 2000.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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