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Not All China Tech IPOs Are Created Equal

Three China tech IPOs are set to hit the United States market. Though investors dismiss the trio as a whole, they’d be wise to give them another look, individually. Breakingviews’ John Foley tells Reuters‘ Jon Gordon that it would be a terrible mistake for investors to lump the IPOs all in the same throwaway pile.

Stock No. 1: The Safest Way to Go

Jon Gordon says: “Well the market’s fairy-tale romance with all things tech is now looking a little more like a cautionary tale, John, as money flows out of firms like Tencent, Baidu and others. We’ve got three big Chinese internet stocks looking to list in the U.S. Let’s walk through their prospects one by one, starting with Alibaba.”

John Foley says: “Yeah, I mean the month-long fall in stocks has left IPO candidates looking a bit green around the gills. Alibaba is probably the safest because it’s huge. It’s the dominant e-commerce provider in China. It’s making about $4 billion of earnings a year. Even when the market’s volatile, Alibaba can probably ride that out. And what’s more, it doesn’t really need the money. It’s only listing to partly get rid of its biggest shareholder Yahoo.”

Stock No. 2: Always Have a Plan B

Jon Gordon says: “Alright, well that’s one way to do it. How about JD.com, John, which staying true to dot com mania is loss making right now?”

John Foley says: “Yeah, JD.com is a bit more exposed to falling prices because it needs the money. It’s in growth mode, which is why at the moment it is not profitable. It is growing its workforce by about a quarter, opening new warehouses. It really needs to list within the next 12 months. Now, the good thing about JD, though, is it’s got rich backers – Tencent, the Chinese group is one, Saudi princes are among the others. So if the IPO really doesn’t come off, it at least has a ‘Plan B’, which is to tap up those rich friends.”

Stock No. 3: Gone With the Wind

Jon Gordon says: “Alright, it’s good to have friends. Finally, Weibo here – China’s answer to Twitter. How is that one looking?”

John Foley says: “Yeah, this for me is the weakest. I mean, Weibo is already effectively listed –  its parent, Sina Group, you can already buy shares in the U.S. Sina is down by about a quarter in a month. Weibo, no one knows why it’s listing. It hasn’t got plans for what it wants to do with the money. Its business model really isn’t proven. It’s barely started making revenues, let alone earnings. So for me, this is the one that if the market swings is most likely to swing completely out of favor.”

Jon Gordon says: “Alright you heard it here first. Many thanks to John Foley there in Beijing.”

So before investors turn their noses up at the three soon-to-be-released IPOs, consider their individual attributes, first. While some may be losers, others may be winners…