An advertisement for 55tuan.com on a public bus in Zhengzhou, the capital city of Central China's Henan province. The number of Chinese group-buying websites are sprouting like bamboo shoots after a spring rain, but industry experts doubt all will survive. [Photo / for China Daily]
Firms chase cash ahead of expected consolidation in the crowded sector
BEIJING - While Groupon Inc, the biggest online coupon company, is busying heading for the stock market, Chinese clones, too, are busy chasing cash.
US-based Groupon said earlier this month it hopes to raise at least $750 million by selling shares to the public. It is believed to be the first initial public offering (IPO) by a group-buying website in the world and has encouraged Chinese counterparts to follow suit.
Lashou.com, one of the major coupon websites in China, is "preparing for a listing", a source with knowledge of the matter said. The person, who didn't want to be named, said Lashou hopes to go public by the end of this year. Wu Bo, chief executive officer of Lashou, declined to comment. However, he told media earlier that the company planned to launch an IPO by 2012.
Lashou, which has stashed away $166 million after three rounds of fundraising, is not the only business in the sector aiming for the stock market. 55tuan.com said in late May after it closed a fundraising round that netted it $200 million that it plans a public listing before March 2012.
Su Huiyan, an analyst with research company iResearch, said Groupon's IPO plan has accelerated the pace of Chinese clones going public. However, there are mixed views on the IPO prospects for Chinese group-buying websites amid concerns of dotcom bubbles and accounting irregularities surrounding overseas-listed Chinese companies.
"If Groupon successfully goes to the stock market, Chinese clones may be affected and not be that favored by investors, especially when there are so many questions about overseas Chinese stocks," said Chen Shousong, an analyst with Analysys International, another research company specializing in the IT industry.
Group-buying has been attracting venture capitalists who have put millions of dollars into the sector despite it having existed in China for less than two years. In 2010, there were 13 fundraising drives in the sector, related to nine websites, with total capital of about 700 million yuan ($108.3 million), said Analysys International.
The number of group-buying websites, which began to appear in the country around March 2010, had jumped to 4,500 by the end of May, said group-buying navigation website Tuan800.com.
Faced with intensifying competition, group-buying websites tend to "burn money", as they put it, to expand and improve services, and to invest in marketing to increase recognition. This has led to those without deep pockets falling behind.
As with Groupon, which has seen the cost of its marketing exceed revenues, Chinese group-buying websites are not yet profitable.
Nuomi.com, which is a subsidiary of the New York Stock Exchange-listed Renren Inc, for example, reported net revenues of $0.9 million in the first quarter, while its operating expenses were $4.6 million, according to Renren's financial report.
Joe Chen, chairman and chief executive officer of Renren, said the company will invest all of its social networking site Renren.com's net profits into Nuomi.com to further boost development.
"At present, companies are competing with the capital they have," said Feng Xiaohai, chief executive officer of Manzuo.com. The company said it is near to closing a second round of fundraising of about $50 million.
"But the 'burning money' phase should be passing, and we aim to be profitable next year," Fend said. Manzuo is not planning for an IPO, but will spend the newly raised money on marketing, acquisitions and enlarging its workforce, amid ever-increasing competition.
Wu Bo of Lashou agreed. He expects the group-buying market will eventually consolidate into five to 10 big companies from the existing thousands.
"Market consolidation may be seen in the third or fourth quarter this year," said Su of iResearch. She added that as companies begin to provide differentiated group-buying services, they may be able to generate more revenue from each group-buying deal and increase profitability.