In investing, themes matter – but painting those themes with too broad a brush can prove costly.
It has become conventional wisdom that the great digital shift has permeated all corners of the globe. It’s a truism that in China, generally speaking, the rise of the middle-class consumer will continue as the economy recovers from the pandemic. We assume that’s a lot of pent-up spending, borne out in at least one instance by data that show some positive growth in retail spending, though consumer activity has yet to reach pre-pandemic levels.
That’s fertile ground for online platforms and digital-first firms seeking to capture consumer dollars in a country where hundreds of millions of individuals have mobile devices and some level of disposable income. But on Wall Street, where investors gauge the growth prospects of companies’ top and bottom lines, the outlook is less sanguine, at least when it comes to one segment – in this case, grocery delivery.
CNBC reports that two companies jockeying for share in this industry – Dingdong and Missfresh – have had rough sledding in the wake of their initial public offerings (IPOs) this past week. Missfresh has had what investors would term a “busted” IPO – where recent trading is below the initial out-of-the-gate pricing, down by about a third, and where ADRs now trade at roughly $8.60. Separately, Dingdong’s trading is roughly flat.
In part, noted CNBC, these firms are competing with much larger companies like Alibaba, where scale matters, and where logistics buildouts have been a hallmark of corporate strategy. Cash is king on Wall Street, as they say – and generally speaking, investors like to see black ink on the bottom line, or at least a strategy/timeline to get there. Both Missfresh and Dindong have been posting losses.
And as we noted in this space earlier in the week, Chinese firms may be going public on U.S. exchanges, but the reverberations within the country itself can leave trading on U.S. exchanges a bit … unsettled. The regulatory landscape has been shifting in China, and government departments have been boosting their oversight of how data is collected and used. It’s not too far-fetched to think that the specter of government curtailment of these (or any other) activities would cause shudders here in the States.
Beyond the busted IPOs, there are other indications that the “going public” craze – whether by traditional listings or by SPAC deals – may be hitting some bumps. Not one but two firms in the “clickbait” category of internet offerings – the catchy headlines and graphics that lure users to click – are coming to market. As reported by The New York Times, Outbrain filed to raise $100 million in an IPO. In contrast to the Chinese delivery firms mentioned above, Outbrain is profitable, logging $4.4 million in net income on $767 million in sales. Apparently, clicking on ads has its rewards.
Separately, Taboola, which matches online users with content spanning articles and streaming media (and ads that tend to be classified as clickbait) is going public on Wednesday (June 30). The company is also profitable, with $303 million in sales and net income of $18.6 million.
The IPO market, of course, has been buoyant – and listing these firms is both a nod to the streaming media deluge and the fact that management is looking to strike while the iron is hot.
What comes next is anyone’s guess.
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