Facebook's Painful IPO Felt Even in China, Says AdChina Boss
The CEO of China's leading online advertising platform says Facebook's disappointing IPO played a major role in its late decision not to go public.
After taking $64.1 million in three rounds of funding, AdChina filed with the SEC in February with the hope of raising $100 million in an IPO on NASDAQ. At that point, it had already been profitable for several quarters and had $55 million sitting in the bank, founder and CEO Alan Yan told me yesterday. Last year, the company brought in $51 million in revenue, a sales increase of 86 percent from the previous year.
Soon after filing, however, the company found market conditions in the first quarter were "challenging" and so decided to hold back. But then it heard Facebook was about to begin its IPO, which could have influenced the market for the better. It didn't.
"We expected Facebook's IPO was going to be a successful event," said Yan, who met me over tea at the Four Seasons hotel, near AdChina's downtown Shanghai offices. "Unfortunately, it turned out it was something very opposite. So we decided to wait."
There's no direct correlation between Facebook and AdChina, Yan said, but the social network's lackluster IPO marked the tipping point in a series of setbacks that ultimately thwarted the ad company's IPO plans. For a start, the US capital market had become wary of Chinese stocks following several recent accounting scandals, including Sino-Forest, which the Ontario Securities Commission has accused of fraud. On top of that, US-listed Chinese companies had registered underwhelming performances, especially in the Internet sector, where Mecox Lane, DangDang, and VIPShop, among others, have taken a hammering.
Facebook offered the last ray of IPO hope for AdChina. "We thought that the Facebook IPO was maybe going to change the view of the technology IPOs, which may create a more favorable atmosphere for Chinese Internet companies," said Yan.
Despite the setback, Yan remains positive about the company's future. AdChina is not desperate to IPO because it is profitable and has plenty of cash in the bank. Instead, it will wait out the next 12 months to see what happens in the capital markets.
"I view this as a good opportunity for us, because previously, when times were good, everybody could get money, [and there was] huge inflation on talent, salaries," Yan said. "Now I see there's opportunity to really look at the market and to see whether there's any consolidation opportunity for us."
The company is exploring acquisitions, and is in particular looking for small startups in the mobile space.
China's digital advertising market is in a "very interesting transition period," Yan said, with the once-dominant big-four portals – Sina, Sohu, NetEase, and Tencent – losing market share in display advertising. Emerging sectors such as online video, ad platforms (such as AdChina), and social media, which is just getting started in terms of revenue, are claiming an increasing share of the pie.
In light of the aborted IPO, that promise may seem like a consolation prize for AdChina, but it might also be enough to tide the company over while it waits out this particularly turbulent period in China's Internet industry.