Mobvista (MBV HK) is an ad tech company which helps app developers to launch ad campaigns to acquire users and sell their ad inventory by connecting them to advertisers. Mobvista is seeking listing approval this week for an Hong Kong IPO to raise $300-400 million, according to press reports.

Mobvista’s financial performance is mixed as revenue growth has rapidly declined but profitability and cash conversion remain robust. Overall, we struggle to recommend Mobvista due to uninspiring fundamentals:

Mobvista’s key region is Greater China which accounted for 45% of mobile advertising revenue in 2017. Mobvista’s market share of ad spend by mobile app advertisers in Greater China has steadily declined from 1.2% in 2015 to 0.7% in 2017. In the Americas, Mobvista’s second largest region, its market share has remained stable at 0.2% in 2016 and 2017. Mobvista’s small market share in its key regions suggest that it lacks a sustainable competitive advantage to maintain pricing power and gain a dominant share.
Mobile advertising’s key app category is games, which increased from 27% of mobile advertising revenue in 2016 to 36% in 2017. It remains unclear if the decision by Chinese regulators to stop approving commercial licenses for online games in late March will have a detrimental impact on Mobvista’s advertising revenue from games in 2018.
Mobile advertising gross margin gains have likely peaked. Mobvista cautions that gross margin decreased from 2017 to the first four months of 2018 due to an increase in traffic acquisition costs and server costs. Traffic acquisition costs increased due to a larger revenue share paid to publishers to incentivise them to provide ad inventories. The increase in revenue share is a worrying development as it likely suggests that Mobvista's bargaining power with important publishers is waning.
At first glance, Mobvista’s business model exhibits operational leverage as the 10% revenue growth in 2017 resulted in adjusted EBITDA margin rising from 10.5% in 2016 to 11.3% in 2017. However, Mobvista capitalises R&D expenses. Adjusting for the capitalised R&D, Mobvista’s adjusted EBITDA margin marginally declined from 10.5% in 2016 to 10.4% in 2017.

Mobvista is the third Chinese ad tech company seeking to IPO since Aurora Mobile Ltd (JG US) and iClick Interactive Asia Group (ICLK US), both of which are trading below their IPO price. Mobvista is unlikely to buck the trend as its financials are not reflective of a company with a sustainable competitive advantage.

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