Public Markets

Profitable Chinese Search Engine Sets Price Range For Its US IPO

Morning Report: The 2017 IPO crop is not done blooming. Here we have a profitable Chinese company prepping to go public on the NYSE.

While political bombshells drop this morning, a Chinese company set a price range for its IPO last week. Here’s what we need to know about it.

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The company, Sogou, is a search engine with deep ties to Tencent. The firm, which according to its Crunchbase page “enables users to search text, images, music, and maps” intends to list on the New York Stock Exchange, and anticipates selling 45 million share in its debut for between $11 and $13 per share.

Inclusive of potential over-allotments, the company could raise up to $672.75 million in its IPO. Looking at merely the regular number of shares that Sogou intends to offer, the figure is a smaller $585 million.

Sogou isn’t too well-known here in the United States, but the firm is a key player in the Chinese search scene. Its F-1 IPO filing, for example, notes that it is the second-largest search engine ni the country, with 18 percent “mobile search market share” and 72 percent “annualized mobile search traffic growth.”

Before we dive into the firm’s financials, its ties to Tencent are notable. As Bloomberg noted on Friday, the firm’s largest shareholder provides with it with critical space online:

Sogou is the default search engine in Chinese tech giant Tencent’s Mobile QQ browser and, according to the filing. Sogou said it’s exploring additional ways to collaborate with Tencent.

Turning to its financial performance, Sogou is both profitable and growing.

In the first half of 2017 compared to the same period in the preceding year, revenue grew from $322.9 million to $373.2 million, driving its profit (GAAP net income) from $25.3 million to $35.8 million over the same period.

All that and the firm has over $310 million in cash in the bank.

Why then go public? Because in the pre-unicorn period that’s what companies that grew up did. That it feels odd to see a firm that makes money and doesn’t need cash go public merely shows how long we’ve lived in the Upside Down this cycle, and not the opposite.

Read the F-1 for more. This IPO is going to be fun.

From the Crunchbase Daily:

Why big tech is getting bigger

  • Shares of Microsoft, Alphabet, and Amazon rallied to fresh highs last week in the wake of favorable earnings reports. That means the value of tech’s Big 5 – the three aforementioned companies plus Apple and Facebook – now totals well over $3 trillion. Crunchbase News looks at what’s behind the rise.

LA startup scene stays bullish

  • Funding for Los Angeles-area startups has exploded over the past few years. Venture capitalists pumped $5.3 billion into L.A.-area startups in 2016, a fourfold increase over four years earlier, according to a Crunchbase News analysis. While funding is down some this year, industry insiders remain bullish.

Teforia shuts down

  • Teforia, a developer of high-priced tea infusers and seller of loose leaf teas, has shut down. In a note on its website, the company said it was unable to raise follow-on funding amid “a very difficult time for hardware companies in the smart kitchen space.” Silicon Valley-based Teforia previously raised $17 million in venture funding.

Valley valuations rose in Q3

  • Valuations of venture-backed companies in Silicon Valley substantially increased in the third quarter of this year, following modest increases seen in the prior two quarters, a survey by law firm Fenwick & West found. The strongest valuation results came from the life sciences sector.

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