Everyone is gaga for Facebook's planned IPO, which might be described in their S-1 filing as early as Wednesday. Facebook promises to be the biggest offering of the year. But there are three big Chinese tech IPOs that you should look out for.
Vancl is one of the leading Chinese online apparel retailers. You can think of them as being the equivalent of the Gap/Banana Republic of China, if those companies were online only with no retail stores. Vancl has been spending enormously on marketing for the last 18 months in order to increase its market share.
On my last trip to China last year, I was amazed at the number of outdoor ads Vancl was spending to get its brand out there. Vancl keeps prices low and also has to offer special incentives to get people to order clothes over the Internet rather than going to a store to try on. It offers free shipping and the delivery man will even wait outside your front door while you go inside and try on all the outfits you ordered. If you're unhappy with any items and how they fit, you simply give them back to the delivery man and he'll return them for free. Vancl also decided to invest in its own network of delivery people, rather than rely on third-party delivery services in China that cover only certain cities and can be expensive. The net result of that decision has been much bigger logistic costs draining the company's venture capital dollars. To this point, Vancl has raised $1.5 billion in venture money from more than seven rounds from big names such as IDG Capital, Tiger Fund and Temasek Holdings. Most recently, there were rumors that the company was waiting until after the Chinese lunar New Year (which ended on Sunday) before announcing plans for its IPO. Investors had been nervous about the state of the IPO markets in December, but the gains of the stock market in January should be enough to get everyone onside to get this company out the door. When you're draining cash the way they are, there's no doubt they need another financing round soon.
360Buy (Jingdong Mall) is the second-biggest online retailer in China. It specializes in shipping electronics and bigger items that are harder to ship logistically (such as washing machines and refrigerators). Because it started in electronics, it is used to low margins. Like Vancl, 360Buy has had to spend heavily on marketing and logistics over the last 18 months. It has also been sucked into different price wars with other retailers such as Dangdang (DANG) and Taobao and Tmall (both owned by Alibaba Group). Because of this, 360Buy has also had to raise several rounds of venture financing.
The company's investors include DST and it raised $1.5 billion in its last financing round in April which valued the company at $10 billion. But the company leaked to the media last September that it planned to do an IPO in the second half of 2012, targeting to raise $4–5 billion, making it one of the largest tech IPOs ever. Google (GOOG) only raised $1.67 billion in its 2004 IPO.
The mother of all Chinese tech IPOs would be Alibaba Group. This network of companies controlled by founder and CEO Jack Ma includes Taobao, Tmall, Alipay, Alibaba.com and several new businesses in the logistics space, search, and mobile OS and handset business. Of course, the focus in the media of late has been on when/if Alibaba Group will be able to buy back a majority of its 40% stake held by Yahoo! (YHOO). That is a precursor to an IPO. Jack Ma has played coy about his desire to do an IPO.
"We don't need to. We don't need the money" has been the mantra out of Ma and his top lieutenants. But it's likely he's looking at doing an IPO later this year or early next. If 360Buy was to hold a successful IPO this year, that would certainly put some pressure on Ma to keep up as he wouldn't want to see any of his properties lose share in the fiercely competitive Chinese ecommerce market. This will be a monster of an IPO. I suspect that Alibaba Group will receive a $65 billion market cap when it does go public, making it the most valuable Chinese tech company in the world.