Morning Report: PPDai priced cheap, helping it trade up in its first day as a public company.
The Chinese IPO wave here in the United States continued today, with PPDai listing on the New York Stock Exchange (NYSE). The firm, a Chinese P2P lending platform, priced its shares at $13 apiece, far under its expected range of $16 to $19. The firm sold 17 million shares, bringing it just around $221 million before expenses and other adjustments.
What is PPDai and why are we keeping an eye on it? The firm, born in 2007 according to Crunchbase, has had the backing of Sequoia. The VC firm led the Chinese startup’s Series A ($4.6 million in 2012), took part in its Series B ($15 million in 2014), and Series C ($46.7 million in 2015).
In its first day of trading, PPDai is up just over 2.5 percent, to $13.33, a somewhat muted result.
The firm’s financials are interesting. In the first two quarters of 2017, PPDai posted $255.9 million in revenue, generating a net profit of $154.7 million (after some notable “Other income” items were taken into account). However, that profit number isn’t our final line in its F-1/A filing. Instead, from that net profit number the firm had to pay “Accretion on Series A, B and C convertible redeemable preferred shares to redemption value” of $214.8 million in the same half-year period.
Goodbye final profit. After that final expense, the firm lost just over $60 million over the 6-month period.
PPDai follows Sogou into the markets, making it a pair of Chinese tech IPOs going off here in the United States this week. Sogou, a search engine, also posted a slim first-day pop in the value of its shares. And continuing the theme of Chinese IPOs occurring here, domestically, we had a good chat yesterday on Equity.
Before we let you go, what is “Accretion on Series A, B and C convertible redeemable preferred shares to redemption value”? Good question. Tucked away on pages F-39 to F-43 are various notes on the topic. What matters is that there are various coupons and other instruments attached to its Preferred shares. The firm effectively marks them up as their value goes up. Or as the F-1 puts it:
The Company recognized accretion to the respective redemption value of the Preferred Shares over the period starting from issuance date to the earliest redemption date.
What caused that accretion? Here are some hints:
The redemption price for each Series A and Series C Shares shall be equal to the greater of (i) 100% of the Series A Preferred Share Purchase Price, plus an annual compounded return of 8% accrued thereon, and plus all declared but unpaid dividend; and (ii) the fair market value of each Series A and Series C shares, respectively, which shall be determined by independent appraisal, exclusive of liquidity or minority ownership discounts, which shall be conducted by an independent third party valuer as approved by a majority of the Board (including the affirmative votes of at least three (3) Preferred Directors, which affirmative vote shall not be unreasonably withheld).
The redemption price for each Series B Shares shall be equal to the greater of (i) 150% of the Series B Preferred Share Purchase Price, plus all declared but unpaid dividend; and (ii) the fair market value of each Series B Shares, which shall be determined by independent appraisal, exclusive of liquidity or minority ownership discounts, which shall be conducted by an independent third party valuer as approved by the Board (including the affirmative votes of at least three (3) Preferred Directors, which affirmative vote shall not be unreasonably withheld).
If that was too much, just keep in in mind that Chinese tech companies are taking advantage of the record American stock market. Now the question is whether this is a longer wave of debuts or merely a statistical blip.
From the Crunchbase Daily:
Musical.ly acquired for up to $1B
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Bolt Threads raising $106M
Bolt Threads, which develops a manmade version of spider silk fabric, is seeking $106 million in Series D financing, according to a securities filing. So far, the Emeryville, Calif.-based company has raised more than half that sum for the round, with backing from existing investors Foundation Capital and Formation 8.
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