China IPOs: A Banner Year Where Firsts Win Big

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Includes: ATHM, BABA, GOMO, JMEI, WB, WUBA, XNET
by: Doug Young

Bottom line: New IPOs by Chinese tech firms will slow sharply next year, with profitable, sector-leading companies the most likely to make successful offerings.

On this final day of 2014, I thought I'd take a look at the scorecard for high-tech IPOs this year, including how they've performed since their debuts and what we might expect for next year. It seems fitting to start the discussion with the final high-tech IPO of the year, which came with a flat trading debut on Tuesday for mobile gaming company Linekong (traded in Hong Kong). That may sound bad, but it's actually quite good for gaming stocks that have become investor pariahs over the last two years.

Meantime, the year's best performances were logged by two online leaders that also were first in their sector to list, with classified advertising site 58.com (NYSE:WUBA) and car seller Autohome (NYSE:ATHM) taking the top two spots. That kind of first-to-market premium isn't unusual, and is one of the reasons I'm predicting that one of next year's biggest IPOs could come with the first listing for a Chinese group buying site from either Meituan or Dianping (previous post).

Let's begin with a look at the year's final IPO by Linekong, which happened in Hong Kong, contrasting with most of the year's major other offerings that occurred in New York. Linekong ultimately sold its shares at HK$9.80 ($1.26), at the very bottom of their price range. The shares rose slightly to just over HK$10 when trading began, but ultimately closed back at HK$9.80.

That performance may look bad, but it's actually quite good for Chinese gaming stocks that were easily the worst IPO performers of this year. That's one reason Linekong and several of its peers chose Hong Kong after New York investors gave such stocks a cold shoulder.

One of the few gaming companies that went ahead with a New York listing was Sungy Mobile (NASDAQ:GOMO), which actually debuted late last year. After seeing its shares briefly surge to more than double their IPO price amid a broader wave of positive investor sentiment, Sungy's shares have moved steadily downward since a peak in March. They ended the year down 55 percent from their IPO price, making them the year's worst performer among major new listings.

Other major losers in this year's parade of tech IPOs were online video site Xunlei (NASDAQ:XNET) and e-commerce cosmetics specialist Jumei (NYSE:JMEI). The former has been plagued with issues, from piracy to lack of scale, that made it a dubious offering from the start. The latter initially looked like a high-flyer, but later got clobbered by reports of numerous fake goods on its site. Accordingly, the two stocks both ended the year down about 38 percent from their IPO price.

But the biggest disappointment of the year has to be former social media high-flyer Weibo (NASDAQ:WB), which once looked invincible but is increasingly losing ground to Tencent's (OTCPK:TCEHY) popular WeChat mobile instant messaging app. Realizing its momentum was fading, the money-losing Weibo rushed ahead with its IPO and briefly saw its shares rise with everyone else's. But they've been falling since September, and are now down 16 percent below their IPO price.

We'll end with the year's big winners, which were led by 58.com, sometimes called the Craigslist of China, which is now up 142 percent from its IPO price. It was followed by Autohome, which is up 117 percent. The year's biggest IPO from Alibaba (NYSE:BABA) also ended up a solid 55 percent from the price of its record-breaking IPO in September. The second biggest offering from e-commerce rival JD.com (NASDAQ:JD) also did reasonably well, ending up 22 percent from its IPO price.

All of that said, the big question is: What's ahead for next year? The latest trends have been quite subdued, with most Chinese Internet stocks moving steadily downward over the last two months. Alibaba reflects the broader trend, with its shares down 11 percent from their peak in early November. The downward pressure will cool the IPO market in the New Year, though we're likely to see at least one or two major new offerings by stronger companies like Meituan or Dianping in the first half of 2015, which could do reasonably well.

Disclosure: None.