Maoyan-Weying Files for IPO: What Investors Need to Know

Continuing this year's trend of Chinese companies going public, Maoyan-Weying, the online movie ticketing and entertainment website backed by internet giant Tencent (TCEHY 3.23%), recently filed to go public on the Hong Kong Stock exchange under the English name Entertainment Plus. Earlier this year, Bloomberg had reported that the company might look to raise around $1 billion.

Maoyan is not only interesting in and of itself, but also for what it stands for in the battle between Tencent and leading Chinese e-commerce giant Alibaba to gain control of China's rising consumer class. Alibaba has its own ticketing company, Tao Piao Piao, and production wing under majority-owned Alibaba Pictures. Tencent, by contrast, has chosen to keep a minority stake in Maoyan to let it operate more independently, and will now be selling part of it to the public.

Image source: Getty Images.

What is Maoyan-Weying?

Maoyan was founded in 2015 by executives of another Tencent-backed company, Meituan-Dianping, which is also set to go public soon. In September 2017, Maoyan merged with rival ticketing company and film distributor/producer Weying. That merger, unsurprisingly, happened with additional investment from Tencent. The combined company formed a powerhouse that currently has 60.9% market share of the Chinese online movie ticketing market, ahead of the second-place company, which has 33.9% market share, according to the company's prospectus. The No. 2 spot is held by Alibaba's Tao Piao Piao. Maoyan had 133.5 million monthly active users in the first half of 2018.

Maoyan is kind of like a combination of film information site IMDb and movie ticketing site Fandango in the U.S. It includes:

• Online movie ticketing, with concessions and seat pre-ordering.
• Online ticketing for other entertainment events such as concerts and sports.
• Film distribution and production investment.
• Entertainment news.
• Maoyan Pro, which serves entertainment industry professionals (not unlike IMDb Pro).
• Cinema management software-as-a-service.

By having access to a large amount of customer ratings, comments, and buying habits within the movie and broader entertainment sector, Maoyan believes it has formidable competitive advantages with its own film investment and distribution strategies, which began only in 2016. The company's current controlling shareholder and Chairman is Enlight Media owner Wang Changtian, who bought a 48.8% of Maoyan-Weying through his various production company entities.

When you combine Maoyan's broad reach with the fact that Tencent and Meituan are also strategic investors (and can thus provide even more user data from their internet properties), you can see how the "ecosystem" creates formidable barriers to competition. Maoyan is the exclusive ticketing portal for Tencent's WeChat and QQ apps and Meituan and Dianping's apps, and already works with 95% of all cinemas across 600 cities across China .

Fast and furious growth

"Movie ticketing" and "high-growth" may not seem like they go hand in hand, but the growth over Maoyan's short life has been impressive.

In millions of RMB. Data source: Maoyan company filing.

As you can see, while ticketing revenue grew strongly at over 50% in 2017, the company's distribution and production wing is becoming an increasingly big part of the business, at almost 30% of revenues in the first half of 2018.

Will it be cheap?

Should an IPO happen, shares likely won't come cheap. At the time of the Maoyan-Weying integration last year, Tencent invested RMB 1 billion at a RMB 20 billion valuation. Should the stock go public, it's likely Maoyan would be priced much higher than that. The company currently makes no significant profits, and RMB 20 billion is still about 8 times 2017 sales and about 5 times this year's sales, should the company achieve RMB 4 billion in revenue.

Still, its growth prospects are enticing, as evidenced by the company's 85% revenue growth last year. According to iResearch data that's been reported, China's movie exhibition industry (including concessions) is expected to grow at 20.7% annualized through 2022, reaching RMB 194.5 billion (or roughly $28.5 billion). The Chinese market also has room to grow, as entertainment makes up only 4.2% of China's GDP, versus 6.7% for the U.S.

A bet on China's consumer

Without knowing more about Maoyan's valuation, I can't judge whether the stock might make a good buy. However, there's no denying Maoyan is well-positioned in China's entertainment industry, which is projected to grow by leaps and bounds. And a newly public Maoyan-Weying would shine more light on how Tencent is taking on Alibaba in the fight to win over the Chinese consumer class. No date for the IPO was provided.