Morning Markets: DouYu’s IPO pricing isn’t as bullish a signal as it could have been. Let’s examine.
Late last night DouYu, a China-based private technology company focused on streaming content and esports, announced that it priced its IPO at $11.50 per share. The company sold just under 45 million shares at that price in the transaction, while existing shareholders sold around 22.5 million.
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According to DouYu, the IPO sold a total of $775.0 million in shares, a figure that could rise to $891.2 million if its underwriters purchase allotted optional shares. Reporting from CNBC indicates that the company’s IPO is the largest China-based offering on U.S. markets, besting Luckin Coffee’s earlier debut.
It’s a big darn offering, making DouYu’s final pricing interesting.
The company had targeted a range of $11.50 to $14.00 per share, meaning that DouYu went public at the bottom-end of its expectations. No company wants to price at the low-end of its range. Companies want to post a range, raise it after seeing strong demand, and then price above the higher interval.
DouYu will go public, and it will put even more cash onto its balance sheet (the firm had over $600 million in cash on hand at the end of its most recent reporting period). But it won’t start life at the price that it hoped. The company’s shares will begin trading this morning.
If I’m doing the math correctly, DouYu’s 32.46 million ordinary shares (the firm’s American Depositary Shares are worth 1/10th an ordinary share in the company) value the firm at $3.73 billion. If we count the underwriters’ option, the tally rises to $3.81 billion.
At the top end of its range, those numbers could have risen to $4.54 billion and $4.63 billion, respectively; that valuation gap shows how important a firm’s IPO pricing is, in practice, when a company debuts.
Illustration: Li-Anne Dias.