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/26978" target="_blank" data-smartkarma-citation="entities:26978:1">Inke Inc (1368478D HK)</a> is a Chinese live streaming platform which operates the Inke app. According to <a href="http://www.thestandard.com.hk/section-news.php?id=193596&amp;sid=2" target="_blank">press reports</a>, Inke is seeking to raise up to $300 million through a Hong Kong IPO. IPO proceeds will be used for business expansion, marketing and potential acquisitions. In December 2017, Inke failed to complete a backdoor A-share listing in China.In our view, the justification of an IPO to raise a rumoured $300 million is on shaky ground due to Inke’s healthy net cash position and positive free cash flow. Overall, we are bearish on Inke’s fundamentals because:<ol><li>Inke is the only listed live streaming platform which reported a revenue decline in 2017. Inke’s average monthly paying users (MPUs) declined from 2.62 million in 2Q16 to 0.65 million in 4Q17. Inke places the blame squarely on factors such as an industry-wide slowdown and increasing market fragmentation. However, competitors YY and Momo’s average MPUs increased from 2Q16 to 4Q17.</li><li>Strikingly, Inke’s monthly average revenue per paying user (ARPPU) of RMB673 was materially ahead of <a href="https://www.smartkarma.com/entities/285" target="_blank" data-smartkarma-citation="entities:285:1">YY Inc ADR (YY US)</a> (RMB175) and <a href="https://www.smartkarma.com/entities/26075" target="_blank" data-smartkarma-citation="entities:26075:1">Momo Inc (MOMO US)</a> (RMB187). However, Inke’s high monthly ARPPU is primarily due to the sharp fall in its MPUs rather than an underlying increase in user spend. On the assumption that Inke’s MPUs in 4Q17 was equivalent to the 4Q16 level of 2.5 million, Inke’s monthly ARPPU in 4Q17 is RMB177, in line with its listed peers.</li><li>Inke claims its high monthly ARPPU in 4Q17 was primarily due to the PK feature which accounted for half of the total gross billings in 4Q17. The PK feature enables one streamer/host to compete against another. However, both YY Live and Momo launched similar functionality which puts in doubt the sustainability of Inke’s ARPPU.</li><li>Inke has the lowest profitability among listed live streaming peers which reflects its lower scale and higher streamer payouts. With Inke’s S&amp;M expense anticipated to increase materially in 2018 (vs declining in 2017), Inke’s profitability gap with its peers will likely widen.</li></ol>We will provide a view of valuation once the IPO price range is announced.

Inke Inc (1368478D HK) is a Chinese live streaming platform which operates the Inke app. According to press reports, Inke is seeking to raise up to $300 million through a Hong Kong IPO. IPO proceeds will be used for business expansion, marketing and potential acquisitions. In December 2017, Inke failed to complete a backdoor A-share listing in China.In our view, the justification of an IPO to raise a rumoured $300 million is on shaky ground due to Inke’s healthy net cash position and positive free cash flow. Overall, we are bearish on Inke’s fundamentals because:Inke is the only listed live streaming platform which reported a revenue decline in 2017. Inke’s average monthly paying users (MPUs) declined from 2.62 million in 2Q16 to 0.65 million in 4Q17. Inke places the blame squarely on factors such as an industry-wide slowdown and increasing market fragmentation. However, competitors YY and Momo’s average MPUs increased from 2Q16 to 4Q17.Strikingly, Inke’s monthly average revenue per paying user (ARPPU) of RMB673 was materially ahead of YY Inc ADR (YY US) (RMB175) and Momo Inc (MOMO US) (RMB187). However, Inke’s high monthly ARPPU is primarily due to the sharp fall in its MPUs rather than an underlying increase in user spend. On the assumption that Inke’s MPUs in 4Q17 was equivalent to the 4Q16 level of 2.5 million, Inke’s monthly ARPPU in 4Q17 is RMB177, in line with its listed peers.Inke claims its high monthly ARPPU in 4Q17 was primarily due to the PK feature which accounted for half of the total gross billings in 4Q17. The PK feature enables one streamer/host to compete against another. However, both YY Live and Momo launched similar functionality which puts in doubt the sustainability of Inke’s ARPPU.Inke has the lowest profitability among listed live streaming peers which reflects its lower scale and higher streamer payouts. With Inke’s S&amp;M expense anticipated to increase materially in 2018 (vs declining in 2017), Inke’s profitability gap with its peers will likely widen.We will provide a view of valuation once the IPO price range is announced.

China

Inke Limited designs and develops software solutions. The Company operates a mobile live streaming platform that enable users to communicate, interact, and share their knowledge and skills. Inke serves customers in China and Hong Kong.

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Inke Inc (3700 HK)

Inke IPO Preview: Not Quite Right

Inke Inc (1368478D HK) is a Chinese live streaming platform which operates the Inke app. According to press reports, Inke is seeking to raise up to...

Arun George

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