Cian Proposes Terms For $269 Million U.S. IPO
Summary
- Cian PLC has filed to raise $269 million in a U.S. IPO.
- The firm operates a leading residential and commercial real estate online portal in Russia.
- CIAN has rebounded in revenue growth but is producing higher operating losses than ever, so I'll watch the IPO from the sidelines.
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A Quick Take On Cian PLC
Cian PLC (NYSE:CIAN) has filed to raise $269 million in an IPO of its American Depositary Shares representing underlying ordinary shares, according to an F-1/A registration statement.
The firm operates a real estate classified advertising platform in Russia.
CIAN is growing revenue quickly but producing high and increasing operating losses with no path to breakeven, so I'll pass on the IPO.
Company & Technology
Larnaca, Cyprus-based Cian was founded to develop an online platform to connect buyers, sellers, lessors, and renters of real estate property in Russia and provide additional related services.
Management is headed by Maksim Melnikov, who has been with the firm since February 2014 and was previously a board member at HeadHunter Group PLC and CEO of Media3 Holding.
Below is a video by a user of finding property in Moscow using Cian:
(Source)
The company’s primary offerings include:
Core classifieds platform
Agent finder
Mortgage marketplace
Property valuation
Online transaction services
Cian has received at least $33.8 million in equity investment from investors including Elbrus Capital, The Goldman Sachs Group, and MPOC Technologies.
Cian - Customer/User Acquisition
The service seeks to operate multi-sided marketplaces, and connects real estate sellers, landlords, agents, mortgage companies, and other service providers with property buyers and renters in Russia.
The firm's core business segment is its listing service from which it derives the majority of its revenue.
Management says it believes 'a majority of Moscow and Saint Petersburg real estate developers were present' on its platform during 2020.
Marketing expenses as a percentage of total revenue have dropped as revenues have increased, as the figures below indicate:
Marketing | Expenses vs. Revenue |
Period | Percentage |
Six Mos. Ended June 30, 2021 | 41.8% |
2020 | 42.7% |
2019 | 59.9% |
(Source)
The Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Marketing spend, rose sharply to 0.9x in the most recent reporting period, as shown in the table below:
Marketing | Efficiency Rate |
Period | Multiple |
Six Mos. Ended June 30, 2021 | 0.9 |
2020 | 0.2 |
(Source)
Below is a two-year graphic showing the firm’s website traffic trends by deduplicated audience size, with a drop at the beginning of the 2020 global pandemic and rebounding increase since then but now returning to a pre-pandemic level:
(Source: Similarweb)
Cian’s Market & Competition
According to a 2021 market research report by CEIC Data, the Russian housing market value grew substantially in the year ended June 30, 2021, growing by 17.1% over the previous year.
The chart below shows the overall residential housing market growth in prices as percentage values since October 2018:
(Source)
Also, management believes that the Russian market 'is only starting to digitalize,' and that its 'core online real estate classified market is projected to grow at a CAGR of approximately 27% between 2021 and 2025,' according to a Frost & Sullivan report commissioned by the company.
The firm believes its immediately addressable market is approximately $6 billion in size.
Major competitive or other industry participants include:
DomClick
Yandex.Nedvizhimost
Square Meter
Youla
Avito
Ozon
Others
Cian PLC Financial Performance
The company’s recent financial results can be summarized as follows:
Rebounding topline revenue growth
Variable and increasing operating losses
Fluctuating but positive cash flow from operations
Below are relevant financial results derived from the firm’s registration statement:
Total Revenue | ||
Period | Total Revenue | % Variance vs. Prior |
Six Mos. Ended June 30, 2021 | $ 37,856,000 | 64.7% |
2020 | $ 55,608,000 | 10.1% |
2019 | $ 50,498,000 | |
Operating Profit (Loss) | ||
Period | Operating Profit (Loss) | Operating Margin |
Six Mos. Ended June 30, 2021 | $ (22,974,000) | -60.7% |
2020 | $ (8,078,000) | -14.5% |
2019 | $ (12,152,000) | -24.1% |
Net Income (Loss) | ||
Period | Net Income (Loss) | Net Margin |
Six Mos. Ended June 30, 2021 | $ (23,380,000) | -61.8% |
2020 | $ (8,778,000) | -23.2% |
2019 | $ (11,284,000) | -29.8% |
Cash Flow From Operations | ||
Period | Cash Flow From Operations | |
Six Mos. Ended June 30, 2021 | $ 378,000 | |
2020 | $ 3,220,000 | |
2019 | $ (5,054,000) | |
(Source)
As of June 30, 2021, Cian had $11.3 million in cash and $55.1 million in total liabilities.
Free cash flow during the twelve months ended June 30, 2021, was $3.7 million.
Cian PLC IPO Details
Cian intends to raise $269 million in gross proceeds from an IPO of its American Depositary Shares representing underlying ordinary shares, offering 18.2 million ADSs at a proposed midpoint price of $14.75 per ADS.
One ADS will equal one underlying ordinary share.
No existing shareholders have indicated an interest to purchase shares at the IPO price.
Assuming a successful IPO, the company’s enterprise value at IPO would approximate $965 million, excluding the effects of underwriter over-allotment options.
The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 26.38%. A figure under 10% is generally considered a ‘low float’ stock which can be subject to significant price volatility.
Management says it will use the net proceeds from the IPO as follows:
approximately $27.1 million to repay our obligations outstanding under our Phantom Share Program
the remainder to fund the growth and expansion of our business and other general corporate purposes.
(Source)
Management’s presentation of the company roadshow is available here until the IPO is completed.
Regarding outstanding legal proceedings, management says the firm is not presently involved in any 'material litigation or regulatory actions' which would have a material adverse effect on its financial condition or operations.
Listed bookrunners of the IPO are Morgan Stanley, Goldman Sachs, J.P. Morgan, and other investment banks.
Valuation Metrics For Cian
Below is a table of relevant capitalization and valuation figures for the company:
Measure [TTM] | Amount |
Market Capitalization at IPO | $1,018,375,400 |
Enterprise Value | $964,895,400 |
Price / Sales | 14.45 |
EV / Revenue | 13.69 |
EV / EBITDA | -37.91 |
Earnings Per Share | -$0.37 |
Operating Margin | -36.11% |
Net Margin | -37.58% |
Float To Outstanding Shares Ratio | 26.38% |
Proposed IPO Midpoint Price per Share | $14.75 |
Net Free Cash Flow | $3,724,000 |
Free Cash Flow Yield Per Share | 0.37% |
Revenue Growth Rate | 64.68% |
(Source)
As a reference, a potential partial public comparable to Cian would be Zillow Group (ZG); below is a comparison of their primary valuation metrics:
Metric | Zillow Group (ZG) | Cian (CIAN) | Variance |
Price / Sales | 6.36 | 14.45 | 127.2% |
EV / Revenue | 6.20 | 13.69 | 120.8% |
EV / EBITDA | 60.39 | -37.91 | -162.8% |
Earnings Per Share | $0.60 | -$0.37 | -161.5% |
Revenue Growth Rate | 10.9% | 64.68% | 493.37% |
(F-1/A and Seeking Alpha)
Commentary About Cian’s IPO
CIAN is seeking U.S. public capital investment primarily to fund its general corporate expansion plans.
The firm’s financials show strong topline revenue growth after only tepid growth during the 2020 pandemic period.
Operating losses remain high and there appears to be no credible path to operating breakeven and negative operating margin has grown markedly. The company is producing a small amount of operating cash flow.
Free cash flow for the twelve months ended June 30, 2021, was $3.7 million.
Marketing expenses as a percentage of total revenue have dropped as revenue has increased; its Marketing efficiency rate rose strongly to 0.9x in the most recent six-month reporting period.
The market opportunity for digitizing Russia’s residential and commercial markets is large and likely to continue a favorable growth trajectory.
Morgan Stanley is the lead underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 18.2% since their IPO. This is a mid-tier performance for all major underwriters during the period.
The primary risk to the company’s outlook is that it is subject to the opaque Russian regulatory regime as its operations are primarily in Russia, although the firm's headquarters are in Cyprus.
As for valuation, compared to U.S. firm Zillow, CIAN is seeking significantly higher revenue multiples at IPO, likely due to its higher topline revenue growth rate.
However, the firm hasn’t made any lasting progress toward operating breakeven and is still generating significant operating losses.
For investors who don’t mind paying a premium for a high operating loss company, that may be fine, but I’m a bit more conservative and need to see a path to operating breakeven, so I'll pass on the IPO.
Expected IPO Pricing Date: November 4, 2021
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Comments (4)
And there will be still room for growth:According to Frost &Sullivan, Russian real estate agencies and agents allocated approximately 3.3% of their revenue to marketing in 2020 as compared to 16.0%, 12.9%, 10.4% and 9.9% in the U.S., U.K., Germany and Australia, respectively.