Quick Notes On Chinese FinTech Company 9F Before Its Impending U.S. IPO

Morning Markets: 9F is set to price tomorrow and trade Thursday. Let’s take a look.

Good morning from Drift’s office in Boston. The company is hosting the Equity crew this morning so we can record our second ever East Coast episode. I’m holed up in a conference room for a minute, so this Morning Markets will be brief.

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We’re looking at 9F, a China-based financial services and technology company that is going public in the United States this week. Currently, 9F is targeting a $7.50 to $9.50 per-share IPO price, selling 6.75 million shares itself, with extant shareholders selling 2.15 million.

Let’s peek at its financial history, its operating results, and finally its impending valuation range.

History

Based in Beijing, 9F Group was founded in 2006. That makes the company middle-aged for an IPO. During its life as a private company, 9F has raised hundreds of millions of dollars, most notably in a $400 million, late 2017 investment led by China Cinda Asset Management.

Working in the financial services and financial technology worlds, 9F attracted over 60 million users in mainland China by 2018. The company is best known for its consumer lending and is looking to expand to new markets in other countries. Indeed, the company’s F-1 filing states that 9F has “planned expansion into more overseas markets” in the future.

9F also raised a $65 million round in mid-2018. Plentiful International, according to Crunchbase data, led that round.

What matters in all of this is that 9F attracted large amounts of private capital before prepping to go public. Now that it is, however, ready to go, let’s see what the firm got done with all of that money.

Results

9F is an odd company in that it has experienced revenue declines in recent years while maintaining profitability. Most tech, and venture-backed companies that we track in 2019 are growing quickly and losing lots of money. The pace of loss and the pace of growth vary from business to business, but they are nearly laws.

Not so much with 9F. The firm’s 2018 fell from RMB 6.7 billion in 2017 to RMB 5.5 billion. That second figure, which works out to $827.9 million in full-year 2018 revenue. And from that figure net income and “[t]otal comprehensive income attributable to 9F” each landed around $300 million for the year.

That’s a lot of profit. More recently, things are looking up in terms of growth. 9F grew its Q1 2019 revenue from around RMB 1.1 billion in Q1 2018 to RMB 1.2 billion. That $179.4 million haul led to about $78.5 million in net income for the firm.

So, the company is big in terms of revenue-scale. It’s profitable. It shrunk in 2018. And as 2019 kicks off, the company is posting some growth, and continued profits.

Worth

At the midpoint of its range, 9F is worth around $1.65 billion. If that feels incredibly light, I understand. The figure rises some if we take into account shares reserved for underwriters, or if it prices higher than its midpoint. But either way, from a revenue multiple perspective the company is cheap.

I suspect due to its negative growth in 2018 and its moderate growth in Q1 2019. Toss in U.S.-China trade tensions, a slipping Chinese economy, and rising authoritarianism in the country and you get more context around the valuation.

9F has yet to formally price, so its valuation could yet rise. More when we know what the bankers think it’s worth.

Illustration: Dom Guzman.