Top25-SA-Banner
IPOdesktop

About the Author IPOdesktop

During the IPO season Francis Gaskins, editor of IPOdesktop.com & director of research for Equities.com, regularly appears on CNBC TV, Bloomberg, thestreet.com & other financial cable channels. On the day of the Visa IPO he appeared on four cable TV financial shows including Bloomberg & CNBC. Over the past five years he has been quoted over 500 times by such financial media as the Wall Street Journal, Bloomberg, Reuters, Associated Press, USA Today among others. Those quotes are available at IPOdesktop.com. His varied personal interests include violin playing. For example, he is concertmaster of the Palisades Symphony. He also holds an MBA from Harvard Business School (finance) and an AB from Princeton University (economics).

IPO Preview: Wowo Ltd


Based in Beijing, China, Wowo Ltd (Pending:WOWO) scheduled a ‘best efforts’ $60 million IPO on Nasdaq with a market capitalization of $422 million at a price range midpoint of $10 for Wednesday, Feb. 25, 2015.

The full IPO calendar is available at IPOpremium

SEC Documents

Manager, Joint-managers: Axiom

Co-managers: None

End of lockup (180 days): Monday, August 24, 2015

End of 25-day quiet period: Monday, March 23, 2015

Summary

WOWO operates one of China’s leading third-party e-commerce platforms, focusing on local entertainment and lifestyle services such as restaurants, movie theaters and beauty salons.

WOWO does not compete with its merchant clients by offering its own goods and services nor does WOWO keep inventory of any merchandise.

Valuation

Glossary

Valuation RatiosMrkt Cap ($mm)Price /SlsPrice /ErngsPrice /BkVlue*Price /TanBV% offered in IPO
annualizing Sept 9 mos
Wowo Ltd$42215.4-9.9111-1.09%
*If 100% sold

Conclusion

Negative

Rev change -25%, Gross profit change -34%

Loss is -157% of rev

73% gross margin

Significant cash drain relative to market cap for an e-commerce co, P/E is -9.9

Dilution more than price range mid-point

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

WOWO’s goal is to make direct interaction possible between local lifestyle merchants and their target customers through unique offerings.

WOWO helps local customers discover food, shops, activities and events near the places where they live and work, while supporting local merchants to grow their businesses exponentially and raise awareness of their brands.

WOWO operates one of China’s leading third-party e-commerce platforms, focusing on local entertainment and lifestyle services such as restaurants, movie theaters and beauty salons.

WOWO does not compete with its merchant clients by offering its own goods and services nor does WOWO keep inventory of any merchandise.

WOWO’s unique platform allows local merchants to customize and arrange their online stores, make direct sales to their target customers and process a large volume of online sales for consumption at their brick and mortar stores.

According to iResearch, WOWO’s platform represents the largest e-commerce platform for local lifestyle services in terms of number of merchants and registered users as of June 30, 2014.

As of September 30, 2014, WOWO has also established a nationwide network of merchant service centers to support local businesses in 150 major cities and population centers across China.

WOWO’s platform consists of an e-commerce website, “WoWo Mall”, a mobile commerce infrastructure, “WoWo Mobile”, and an electronic management system, “WoWo EMS”.

The three components of WOWO’s platform are designed to create an integrated network that enhances the interaction between businesses and consumers that reinforces brand awareness and fosters repeat customers for its merchant clients.

WOWO’s “WoWo Mall” website located at 55.com is used to promote and market its company’s brand eminence and complete e-service platform by exhibiting its merchant client’s online stores and introduce certain selected services and products.

Potential customers may then be directed to 55tuan.com to obtain information on the latest attractive offerings available through such merchants. WOWO began its business as a group buying website under the brand “WoWo Buy” located at 55tuan.com in March 2010.

WOWO quickly found that the group buying business model did not fully meet the needs of local service providers. While the group buying business model often helps merchants increase their sales by selling extra capacity, WOWO believes it does not, as a stand-alone offering, significantly promote brand awareness for the merchants or create customer loyalty to the merchants.

Merchants also face additional margin pressure from the fees charged by these group buying sites that could further erode their margins.

For example, flash sales conducted by third-party group buying websites often promote the brands of the websites over the brands of the merchants.

At the same time, local merchants continue to have limited branding power or control over the marketing direction.

By June 2012, WOWO augmented its WoWo Buy model with its promotional portal at 55.com to complete its WoWo Mall. WoWo Mall not only permits merchants to establish their own online stores, it also allows the merchants to increase their branding power by providing them with customizable features to establish the look and feel they want to be associated with their brands.

In the third quarter of 2014, WOWO hosted and provided operating services to over 100,000 local entertainment and lifestyle merchants on its websites.

Intellectual property

As of September 30, 2014, WOWO has 18 trademarks registered with the Trademark Office of the State Administration for Industry and Commerce, and WOWO had registered 90 domain names, including 55.com and 55tuan.com. These websites are not a part of this prospectus.

Competition

The e-commerce service providers in China can be categorized into two sectors.

One sector consists of self-operated vendors modeled after Amazon (NASDAQ:AMZN) and Groupon (NASDAQ:GRPN), including jd.com, meituan.com and the group buy channel of dianping.com.

Another sector consists of third-party platform operators such tmall.com, which focuses on the sales of goods, and us, focusing on sales of local services.

5% shareholders pre-IPO

Maodong Xu 36.30%

Xiaoyi Niu 16.45%

Yongming Zhang 9.69%

Jianguang Wu 7.79%

CDH Barley Limited 16.45%

Tianyou Investment Limited 9.69%

Dividends

No dividends are planned.

Use of proceeds

WOWO expects to receive $40 million from its IPO and use it for the following:

Working Capital $25,000,000

Research and development on mobile applications$6,200,000

Marketing $3,100,000

Other $3,100,000