Lashou Makes Me Queasy

It is not just technology companies in the U.S. that have been toying with the idea of going public this year. Several international technology companies are also evaluating the possibility of listing themselves on the U.S. stock exchanges. The Bloomberg IPO Index may have reported a decline of 26% this year, compared with a 5% decline in the Standard & Poor’s 500 Index, but the recent index by Renaissance Capital shows that the performances of international stocks are improving. The FTSE Renaissance Global IPO Index reported growth of 15.2% during October.

Lashou Group’s Financials
Recently, China-based Lashou Group was another international player conducting its roadshow to list on the Nasdaq. Founded in 2009, Lashou is China’s equivalent of Groupon and Foursquare. The location-based social commerce solution provider was ranked by iResearch as the leading independent online social commerce companies in China.

The site claims to report more than 1,000 daily listings of local offerings in more than 500 markets in China. As of October 2011, they had a cumulative merchant base of 46,000. For the third quarter of this year, they had 29.7 million average monthly unique visitors compared with 295,000 during the second quarter of the previous year. As of September 2011, registered users grew from 53,000 in March 2010 to 16.8 million, and active paying users grew from 25,000 to 3.3 million during the same period.

Unlike Groupon, though, Lashou earns the majority of their revenues through sale of goods. During the recently ended quarter, Lashou reported 13.1 million transactions of products compared with 6.5 million purchases of services.

Last year, Lashou reported revenues of $1.62 million and a loss of $10 million. For the first half of the current year, Lashou had revenues of $8.9 million while reporting a significantly higher loss of $60.5 million. Lashou has raised $165 million in funding through investments from GSR Ventures Management, Taishan Invest AG, Tenaya Capital, Norwest Venture Partners, Rebate Networks, Milestone Partners, and Reinet Fund. Their latest round of funding was completed in April 2011, where they raised $110 million at a valuation of $1.1 billion. In fact, late last year, Groupon was looking to purchase stake in Lashou in a deal that had Lashou valued at $500 million.

Fueled by the IPO rush, Lashou too filed their S-1 to raise $80 million by selling 5.4 million American depository receipts in the U.S. at $13-$15 each. However, “accounting issues” have resulted in the postponement of the issue.

Lashou’s Opportunity
Lashou planned to use part of their IPO funds to build a call center for customer support. Market rumors also suggest that Lashou may be planning to venture into a traditional B2C market space instead to help improve their margins. They are said to be restructuring their operations to move to a lifestyle-focused e-commerce platform to compete with Chinese players such as Taobao.com and to be entering into long-term agreements with sellers and moving to a semiannual subscriber-based model for retail partners.

iResearch estimates that number of unique Internet users buying services or products online in China will grow from 80 million in 2010 to 183 million by 2015, reflecting a penetration rate of 34% in 2015 compared with a 19% penetration rate in 2010. Euromonitor also predicts that China’s retail and service sectors will grow at a CAGR of 11.1% from 2010 to 2015, which means it could grow from $1.2 trillion to $2 trillion. Lashou is hoping to ride this Internet e-commerce wave in China to expand further.

This company reminds me to MercadoLibre, Latin America’s e-commerce leader, which had to wait several years for the market to become ready for them. But once it did, they were well positioned to capitalize on the opportunity. Nonetheless, the tremendous amount of financing, the huge burn rate, and the lack of revenue comprise a cocktail that makes me queasy!