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Breakingviews: No spark for Chinese flirt app IPO

Wednesday, November 12, 2014 - 02:09

Chinese social networking app Momo hopes the dating game can lead to a solid IPO, but Breakingviews' John Foley says the company has questions that may leave investors wondering where the magic went.

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(SOUNDBITE) (ENGLISH) REUTERS REPORTER, TARA JOSEPH, SAYING: "At first flirtatious glance, John, Momo sounds like a winner; a dating app in an internet crazed society like China." (SOUNDBITE) (ENGLISH) CHINA EDITOR, REUTERS BREAKINGVIEWS, JOHN FOLEY, SAYING: "Yeah but investors in this latest hot tech China IPO should remember that first impressions, Tara, can be quite deceiving. Momo is super-hot at the moment. It's an app that lets you hook up with people nearby on the down-low and its revenues are growing really fast. It's just started monetizing. It's got now 60 million monthly active users, so in that sense it's good. "But, one of the things to worry about, and there are many, is that it's not yet making any money. It's faced widening losses, so this company hasn't yet proved that its business model is one that customers will really pay large amounts of money to use." (SOUNDBITE) (ENGLISH) REUTERS REPORTER, TARA JOSEPH, SAYING: "So business model aside, it may be riding on the coattails of Alibaba in the United States. And let's be frank, tech sites haven't always been making great money when they launch their stocks." (SOUNDBITE) (ENGLISH) CHINA EDITOR, REUTERS BREAKINGVIEWS, JOHN FOLEY, SAYING: "That's true, and Alibaba, of course China's biggest e-commerce company, has lent some of its bad habits to Momo, in particular governance. If you buy shares in Momo then you're -- it comes with basically a very controlling set of in-laws. The chief-executive and founder has super powered voting shares. And there's even a really weird clause that we haven't really seen before in a Chinese tech company that says if you don't vote your shares the company will do it for you. I'd be really surprised if that kind of strange quirk makes it to the final IPO document." (SOUNDBITE) (ENGLISH) REUTERS REPORTER, TARA JOSEPH, SAYING: "Is there any chance that someone else could ride to the rescue of Momo and sort of pick up the idea and make it into a company that people would really want to invest in?" (SOUNDBITE) (ENGLISH) CHINA EDITOR, REUTERS BREAKINGVIEWS, JOHN FOLEY, SAYING: "This is the big risk with something like Momo. There is a much bigger chat app called WeChat, which now has 400 million-plus users in China. And there's not really anything that Momo does that WeChat couldn't with a couple of tweaks to its business model. So the risk is that if WeChat decides to get into this online flirtation game then the investors in Momo's IPO will be left kind of wondering where the magic went." (SOUNDBITE) (ENGLISH) REUTERS REPORTER, TARA JOSEPH, SAYING: "For investors wanting to flirt with the IPO of Momo in the United States, Breakingviews says, 'Beware.'" ENDS