IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

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Global Equity Research Ltd

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<a href="https://www.smartkarma.com/entities/27351" target="_blank" data-smartkarma-citation="entities:27351:1">Babytree Inc (BABYTRE HK)</a> is a leading Chinese online parenting firm which can be described as a combination of a maternity focused online forum and an e-commerce platform. According to Frost &amp; Sullivan, Babytree is the largest maternity and child (M&amp;C) focused platform in China as measured by monthly active users (MAUs). Press reports suggest Babytree plans to raise $1 billion in a Hong Kong IPO at a valuation range of $3-5 billion. It is backed by <a href="https://www.smartkarma.com/entities/787" target="_blank" data-smartkarma-citation="entities:787:1">Alibaba Group Holding (BABA US)</a> (9.9% shareholder), <a href="https://www.smartkarma.com/entities/433" target="_blank" data-smartkarma-citation="entities:433:1">Fosun International (656 HK)</a> and <a href="https://www.smartkarma.com/entities/1124" target="_blank" data-smartkarma-citation="entities:1124:1">Tal Education (TAL US)</a>.While Babytree’s financial performance shows declining revenue growth, it has been accompanied by improving margins and FCF generation. In May 2018, Alibaba made a $214 million investment (at a $2.2 billion valuation) along with entering into “deep collaboration” with Babytree. Advertising is the largest revenue stream and accounted for 51% of revenue in 2017. However, the monetisation of Babytree’s user base through advertising is low. We believe that the Alibaba partnership is sorely needed to unleash Babytree’s potential because of:<ol>
<li>Babytree’s advertising market share is surprisingly low in the context of its substantial user base. Its market share of the China M&amp;C online advertising market is less than 1%, having marginally increased from 0.76% in 2016 to 0.82% in 2017.</li>
<li>Babytree generates advertising revenue from the display and performance-based ads. However, most of the advertising revenue is derived from display-based ads, which accounted for 99% of advertising revenue in 2017. Advertisers are increasingly shifting their spend to performance-based ads to improve the effectiveness of their ad spend. Tardily, Babytree only started offering performance-based ads in September 2017.</li>
<li>For a market leader as measured by MAUs, Babytree’s advertising business has a surprisingly high customer concentration risk. Revenue from the top 5 advertising customers as a percentage of group advertising revenue increased from 40.9% in 2016 to 50.4% in 2017.</li>
</ol><div class="content-highlight">Babytree has successfully amassed the leading user base among China’s M&amp;C platforms. However, it has been far less successful at monetising its user base. Advertising, the primary revenue stream, ought to be a lot higher if Babytree pulls its weight in attracting M&amp;C focused ad spend. The Alibaba partnership could change the equation, but we reserve our judgement awaiting further data points. In our next note, we will examine the prospects of the e-commerce business.</div>

Babytree Inc (BABYTRE HK) is a leading Chinese online parenting firm which can be described as a combination of a maternity focused online forum and an e-commerce platform. According to Frost &amp; Sullivan, Babytree is the largest maternity and child (M&amp;C) focused platform in China as measured by monthly active users (MAUs). Press reports suggest Babytree plans to raise $1 billion in a Hong Kong IPO at a valuation range of $3-5 billion. It is backed by Alibaba Group Holding (BABA US) (9.9% shareholder), Fosun International (656 HK) and Tal Education (TAL US).While Babytree’s financial performance shows declining revenue growth, it has been accompanied by improving margins and FCF generation. In May 2018, Alibaba made a $214 million investment (at a $2.2 billion valuation) along with entering into “deep collaboration” with Babytree. Advertising is the largest revenue stream and accounted for 51% of revenue in 2017. However, the monetisation of Babytree’s user base through advertising is low. We believe that the Alibaba partnership is sorely needed to unleash Babytree’s potential because of:
Babytree’s advertising market share is surprisingly low in the context of its substantial user base. Its market share of the China M&amp;C online advertising market is less than 1%, having marginally increased from 0.76% in 2016 to 0.82% in 2017.
Babytree generates advertising revenue from the display and performance-based ads. However, most of the advertising revenue is derived from display-based ads, which accounted for 99% of advertising revenue in 2017. Advertisers are increasingly shifting their spend to performance-based ads to improve the effectiveness of their ad spend. Tardily, Babytree only started offering performance-based ads in September 2017.
For a market leader as measured by MAUs, Babytree’s advertising business has a surprisingly high customer concentration risk. Revenue from the top 5 advertising customers as a percentage of group advertising revenue increased from 40.9% in 2016 to 50.4% in 2017.
Babytree has successfully amassed the leading user base among China’s M&amp;C platforms. However, it has been far less successful at monetising its user base. Advertising, the primary revenue stream, ought to be a lot higher if Babytree pulls its weight in attracting M&amp;C focused ad spend. The Alibaba partnership could change the equation, but we reserve our judgement awaiting further data points. In our next note, we will examine the prospects of the e-commerce business.

Babytree IPO Preview: In Desperate Need of Alibaba to Unleash Its Potential

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

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<a href="https://www.smartkarma.com/entities/27351" target="_blank" data-smartkarma-citation="entities:27351:1">Babytree Inc (BABYTRE HK)</a> plans to raise up to US$300m in its Hong Kong IPO. Babytree has <a href="https://www.smartkarma.com/entities/787" target="_blank" data-smartkarma-citation="entities:787:1">Alibaba Group Holding (BABA US)</a>, <a href="https://www.smartkarma.com/entities/433" target="_blank" data-smartkarma-citation="entities:433:1">Fosun International (656 HK)</a>, <a href="https://www.smartkarma.com/entities/1124" target="_blank" data-smartkarma-citation="entities:1124:1">Tal Education (TAL US)</a> and <a href="https://www.smartkarma.com/entities/16864" target="_blank" data-smartkarma-citation="entities:16864:1">Jumei International Adr (JMEI US)</a> amongst its backers and was recently valued at over US$2bn at the time of Alibaba's stake purchase.The company offers a platform for expecting and young mothers to share their experience with other mothers. It primarily generates revenue via advertising and has recently started monetizing via e-commerce and content as well. The company has a lot of potential to further monetize its user base, however, its user base itself is limited by the number of new births in a year, which has been flattish for quite a few years. If one were to add up all the live births over the past six years and add another year for expecting mothers, the company's MAU already exceeds this total, implying that the company might have maximised its user base for now. Furthermore, the company has achieved profitability by cutting back on marketing expenses but whether that has come at the cost of MAU remains unclear, as the company has failed to disclose its historic MAU numbers.In this insight, we will analyze the company's offering and past financial performance while highlighting some key questions to ask management when the deal goes live.

Babytree Inc (BABYTRE HK) plans to raise up to US$300m in its Hong Kong IPO. Babytree has Alibaba Group Holding (BABA US), Fosun International (656 HK), Tal Education (TAL US) and Jumei International Adr (JMEI US) amongst its backers and was recently valued at over US$2bn at the time of Alibaba's stake purchase.The company offers a platform for expecting and young mothers to share their experience with other mothers. It primarily generates revenue via advertising and has recently started monetizing via e-commerce and content as well. The company has a lot of potential to further monetize its user base, however, its user base itself is limited by the number of new births in a year, which has been flattish for quite a few years. If one were to add up all the live births over the past six years and add another year for expecting mothers, the company's MAU already exceeds this total, implying that the company might have maximised its user base for now. Furthermore, the company has achieved profitability by cutting back on marketing expenses but whether that has come at the cost of MAU remains unclear, as the company has failed to disclose its historic MAU numbers.In this insight, we will analyze the company's offering and past financial performance while highlighting some key questions to ask management when the deal goes live.

Babytree Group Pre-IPO - Young Moms Need It but Almost All Seem to Have It, Might Be at Peak MAU

China

Babytree Group operates Chinese parenting website. The Company and its subsidiaries, engaged in the advertising, e-commerce, and content monetization businesses. Babytree Group provides services for worldwide customers.

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Babytree Group (1761 HK)

Babytree IPO Preview: In Desperate Need of Alibaba to Unleash Its Potential

Babytree Inc (BABYTRE HK) is a leading Chinese online parenting firm which can be described as a combination of a maternity focused online forum...

Arun George

Babytree Group Pre-IPO - Young Moms Need It but Almost All Seem to Have It, Might Be at Peak MAU

Babytree Inc (BABYTRE HK) plans to raise up to US$300m in its Hong Kong IPO. Babytree has Alibaba Group Holding (BABA US), Fosun International (656...

Sumeet Singh

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