Tech’s 2018 IPO Class Has At Least One More Offering

Morning Markets: There is one last 2018 tech IPO on our radar. Say hello to Mogu.

This year’s IPO crop has included marquee deals like Dropbox and Spotify, a host of offerings from China, and a number of SaaS debuts. And 2018’s IPO class was larger than 2017’s own, helping a slice of private market wealth become liquid.

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But there’s at least one more tech IPO hoping to go out in 2018. And we haven’t discussed it yet, so let’s correct that error.

Everyone, please meet Mogu.

What’s That?

A good question. Here’s how the company stacks out. Mogu, the company going public, operates the Mogujie app. Mogujie is an ecommerce and fashion-focused application that the company’s IPO filing calls a “leading online fashion and lifestyle destination in China.”

How popular is Mogujie? According to Mogu, the application had “62.6 million mobile MAUs” on average during the twelve-month period ending September 30 of this year. And in the same month of 2018, Mogujie “had live video broadcasts totaling approximately 3,000 hours on a daily basis.”

I’m no mobile usage expert, but dozens of millions of MAUs and thousands of hours of broadcasts daily seems substantial. We’ll check the financials in a moment, but first let’s highlight who is helping Mogujie grow: Tencent.

Tencent owns 18 percent of the company, making it the single largest shareholder among its investors. In comparison, all executives and company directors own a combined 19.4 percent, while 11 other investors divvy up most of the rest. IDG Capital, Bertelsmann Asia, Qiming Venture Partners, Hillhouse Capital Group, and Zhixin Capital along with Ping An make up good portion of its external capital sources, and therefore external shareholders.

Mogu raised around $411 million during its life as a private company, according to Crunchbase.

So, how is the company doing? That’s complicated.

Why Isn’t It Growing?

Mogu is a deeply unprofitable, slowly-growing company. In the two quarters (six-month period) ending September 30, 2018, Mogu posted $71.3 million in revenue. That was up less than two percent from the year-ago period.

The firm’s revenue mix shifted during the year. Revenue from “Marketing service[s]” fell, revenue from  “Commission[s]” grew slightly, while “Other” revenue made up the gap left by falling marketing incomes. What is “Other” in this case? According to the company that category of top line “primarily consist[s] of revenues from financing solutions and other services.”

The slow growth posted by Mogu was not offset by profits. Indeed, Mogu posted a GAAP loss of $44.2 million before certain preferred share accretion costs are tallied. Its net loss swelled to $111.1 million with those charges included.

The firm wasn’t profitable during the two-quarter period on an “Adjusted EBITDA” basis, losing $25 million. Another provided profit metric, “Adjusted net loss,” showed a similar $27 million deficit for the six months.

Mogu wrapped the September quarter with just under $130 million in cash. When you sum its operating cash flow from its most recent two quarters (negative $38.5 million), its investing cash flow (negative $21.1 million), its financing cash flow ($1.8 million) and impacts of forex, Mogu burned through $48.5 million. That means its tank will soon be uncomfortably empty without a capital influx.

Hello, IPO. But who will want to buy Mogu shares when the company is losing so much money with effectively no growth to show for the burn? Not as many as it had hoped, it turns out. The firm cut its expected IPO raise and valuation. Deal Street Asia pegs the company’s expected worth at around $2 billion, a third under its last private valuation of $3 billion. Mogu’s ADS to Class A and Class B share conversions are slightly annoying, but Crunchbase News’s calculations yield a similar if slightly smaller figure.

What matters is that Mogu may go public raising less cash, and worth fewer duckets than it hoped.

So that’s Mogu. It’s supposed to start trading in a week. More when, and if, it prices.

Top Image Credit: Li-Anne Dias.