Key points: – Ximalaya’s ditching of its New York listing plan in favor of Hong Kong could mark the start of a new trend for Chinese tech firms that previously favored the U.S. – Company could be valued at a relatively high level due to its dominant position with more than two-thirds of the Chinese podcast market By Doug Young What will happen to the roughly half-dozen Chinese IPOs that got yanked from New York earlier this year amid growing pressure from both Washington and Beijing? It’s quite likely many could end up floating up closer to home in Hong Kong or even on the Chinese mainland itself. That’s what’s happening at leading podcast platform Ximalaya Inc., which filed this week to list shares in Hong Kong after informing the U.S. securities regulator it was officially abandoning its original New York listing plan first announced in March. Ximalaya was reportedly pressured to forgo a New York IPO by officials from China, who want more such leading tech names to list closer to home. At the same time, the U.S. was discouraging New York listings by Chinese firms, saying most used a complex and controversial corporate structure whose risks weren’t sufficiently understood by American investors. The bottom line was that Ximalaya was one of about a half dozen Chinese firms to file for U.S. listings this year, only to see those plans stall. Others that followed a similar path include shared bike operator Hello Inc., medical data firm LinkDoc Technology and online dating platform Soulgate, the last two of which each provided some high drama with 11th-hour scrappings of their trading debuts. Hong Kong does seem like a good compromise for many of these companies, since its financial markets are quite international and are also increasingly open to mainland Chinese investors. Beijing would also like to see many of these tech companies list on two Nasdaq-style boards on the mainland, one in Shanghai and the other in Shenzhen. But those could hold less attraction for tech companies, since many of their early backers are from outside China and would prefer to recoup their investments in foreign currencies rather than the less-convertible Chinese yuan. All that said, let’s delve into Ximalaya’s new IPO prospectus filed this week in Hong Kong. In this case we’ll try to compare the latest document with the original New York prospectus filed earlier this year to see how things have been trending for the company. At the broadest level the latest prospectus shows Ximalaya’s growth is slowing, which isn’t that surprising since it controls more than two-thirds of China’s podcast market. Before we get to the financials, we’ll note one non-financial point of interest in the latest filing that differs from the original New York prospectus. That point is the disappearance of BofA Securities from the list of underwriters in the latest prospectus. That could be related to the apparent recent departure of former CFO Li Dong, who was a former BofA Securities vice president and also previously served as CFO at U.S.-listed Chinese education company OneSmart (ONE.US). Li was replaced in the latest prospectus by Steve Lin, who was previously the director of corporate finance at smartphone maker Xiaomi (1810.HK). Xiaomi is one of Ximalaya’s backers, and is also listed in Hong Kong. Thus the change could reflect a future preference for CFOs with experience in Hong Kong listings, rather than U.S. listings that were Li’s focus. Slowing Growth Having noted the change in CFO and broader picture for overseas Chinese listings, we’ll spend the rest of this space looking at Ximalaya’s position in China’s podcast market, its finances, and how it’s likely to be valued if it finally succeeds in listing its shares. As we’ve noted above, the company says it’s the biggest podcast platform in China with 262 million mobile monthly active users (MAUs) in the first six months of the year. That’s up from the 250 million figure cited for the first three months of the year in the company’s U.S. IPO prospectus, showing the company continues to add users at a steady clip. But the company’s share of China’s podcast market, based on total listening time, was down to 71% in the first half of the year, marking a relatively big decline from 75% in 2020 cited in the U.S. prospectus. The ratio of paying listeners also slipped to 12.8% in the first half of this year, according to the Hong Kong prospectus, down from the 13.3% figure cited for this year’s first quarter in the U.S. prospectus. Those slipping trends are also reflected in slowing growth for the company’s top-line revenue. Ximalaya’s revenue rose 55.5% in the first half of the year to 2.5 billion yuan ($388 million), which was down a bit from the 65.2% revenue growth cited in the U.S. prospectus in the first quarter. Like many young tech companies, Ximalaya is still losing money, though its losses appear manageable. That includes a hefty 6.9 billion yuan loss in the first half of this year, versus a 1.4 billion yuan loss in the year-ago period. But much of the latest loss came from one-time changes to its stock value. Discounting that, the loss was a more-manageable 323.6 million yuan in the first half of this year, versus a 308.4 million yuan loss in the year-ago period. The company also mentions several regulatory-related risks in its latest prospectus. They were relatively boilerplate items for Chinese firms listing overseas in the past but will likely get more scrutiny in the future due to the current tightening regulatory climate. In that regard, the company is probably most vulnerable due its huge volume of user-generated content, since China requires strict monitoring of such content for sensitive material. Finally there’s the question of valuation. One of the best comparisons might be Swedish audio services provider Spotify (SPOT.US), which trades at a relatively high price-to-sales (P/S) ratio of 5.4. Chinese video site iQiyi (IQ.US) could also be a fair comparison with a more modest P/S of 1.5. A Spotify-level comparison would give Ximalaya a market value of about $4 billion, while an iQiyi-level one would still give it “unicorn” status with a more modest $1.2 billion market cap. The final figure will probably come closer to the Spotify level due to Ximalaya’s dominant position in China’s podcast market, perhaps valuing it at around $3 billion.
