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Why Do Investors Hate These 3 Asian IPOs?

By Leo Sun - May 28, 2018 at 11:08AM

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Huami, Secoo, and Sea Limited failed to excite investors.

The number of Asian IPOs on U.S. exchanges surged over the past few years, as cash-hungry companies courted American investors looking for high-growth stocks. Some of these stocks surged after their public debuts, but others floundered and were forgotten.

Today, we'll take a look back at three Asian IPOs which failed to excite investors -- Huami (HMI -0.49%), Secoo (SECO -3.06%), and Sea Limited (SE) -- and see what went wrong.

"IPO" spelled out with blocks.

Image source: Getty Images.


Huami, which produces Xiaomi-branded and self-branded wearables, went public at $11 in February and raised $110 million. However, the stock remains below $11 as of this writing, seemingly due to concerns that it could become the next Fitbit.

On the surface, Huami's growth looks solid. Its revenue rose 77% year over year to 585.9 million yuan ($93.4 million) last quarter, and its total shipments rose 50% to 4.8 million. Its adjusted net income rose more than ninefold to 92.5 million yuan ($14.8 million), or 0.39 yuan ($0.06) per American depositary share.

But for the second quarter, Huami expects just 32%-37% annual sales growth as it faces tougher competition in the wearables market. The company is also heavily dependent on Xiaomi-branded devices, which generated over 80% of its sales last year.

Xiaomi notably shoulders the design, marketing, and production expenses for Huami's Xiaomi devices. The critics note that if Xiaomi stopped paying those expenses, Huami would be unprofitable. Huami is also intentionally pivoting away from Xiaomi's devices and investing in its own Amazfit brand -- which could crimp its operating margins over the next few quarters. That's why investors don't seem eager to buy Huami -- even though it can be considered cheap at 17 times this year's earnings.

Huami's Amazfit Pace.

Huami's Amazfit Pace. Image source: Amazfit.


Chinese luxury e-tailer Secoo went public at $13 and raised $110 million last September. However, Secoo still trades at about $10, due to concerns about its decelerating growth and competition from (JD 2.52%) and Alibaba (BABA 0.94%), which both recently launched their own high-end marketplaces.

Secoo's claim to be the "biggest" luxury e-tailer in China -- which is based on a Frost & Sullivan study -- is also questionable, since it only processed just over $800 million in gross merchandise volume (GMV) last year. Alibaba and JD -- which don't separately disclose their sales of luxury goods -- processed $768 billion and $203 billion in GMV, respectively, last year.

Yet Secoo's growth is decent. In the fourth quarter, its revenue rose 61% from the prior-year period to 1.41 billion yuan ($217 million), its GMV rose 44% to 1.94 billion yuan ($299 million), its number of active customers rose 66% to 200,000, while its total number of orders climbed 58% to 348,700. Its non-GAAP net income more than tripled to 87.5 million yuan ($13.4 million).

However, Secoo anticipates just 35%-38% sales growth for the current quarter, which would mark a significant slowdown from previous quarters. By comparison, analysts expect JD's revenue to rise 30% this quarter, and for Alibaba's revenue to climb 53%. That's why investors are avoiding Secoo -- although its stock looks dirt cheap at 10 times this year's earnings.

Sea Limited

Sea Limited, a gaming, e-commerce, and payments company based in Singapore, went public at $15 last October and raised $884 million. Hopes were high for Sea, which was backed by Chinese tech giant Tencent, but the stock still trades below its IPO price -- due to concerns about the ever-widening losses at its e-commerce unit and rising competition from Alibaba-backed Lazada.

Sea's revenues rose 65% annually to $155 million last quarter, which marked a deceleration from its 73% growth in the previous quarter. However, its "adjusted" revenue -- comparable to gross billings -- jumped 81% to $197 million. Yet Sea remains deeply unprofitable -- its adjusted EBITDA loss widened from $41 million a year ago to $145 million, as its GAAP net loss widened from $73 million to $216 million.

News ticker on Times Square announcing Sea's IPO.

Image source: Sea Limited.

Sea's gaming, e-commerce, and digital payments businesses are all generating solid top-line growth. But on the bottom line, its e-commerce unit Shopee is a money pit -- and the unit's adjusted EBITDA loss of $180 million erased its gains from its gaming business.

Sea's stubborn expansion of its e-commerce ecosystem is worrisome because its main rival, Lazada, has much-deeper pockets. Sea's stock also doesn't look cheap at six times this year's sales. That's why many investors are still avoiding Sea, which was once dubbed "the Tencent of Southeast Asia."

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Stocks Mentioned

Spectra Energy Corp Stock Quote
Spectra Energy Corp
Secoo Holding Limited Stock Quote
Secoo Holding Limited
$0.25 (-3.06%) $0.01
Huami Corporation Stock Quote
Huami Corporation
$2.02 (-0.49%) $0.01, Inc. Stock Quote, Inc.
$65.62 (2.52%) $1.61
Alibaba Group Holding Limited Stock Quote
Alibaba Group Holding Limited
$118.73 (0.94%) $1.11

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