Autohome (ATHM) drove 77% higher in its IPO debut Wednesday, the latest sign that U.S. investors' appetite has returned for Chinese Internet companies going public.
Autohome says its website is the leading online destination for auto shoppers in China. It follows the successful launch of other China-based tech companies, such as online travel site Qunar (QUNR), which rose 89% in its Nov. 1 debut and online marketplace 58.com (WUBA), which rose 42% in its Oct. 31 launch.
The recent China IPO boom is a big reversal from the negative sentiment generated by several China IPOs tarnished by scandals a few years ago. Many China stocks flopped in 2010 and early 2011, such as social media site Renren (RENN), now down 78% from its May 2011 debut. Some initial flops later recovered, such as SouFun Holdings (SFUN), up 165% since mid-July.
"China Internet stocks are gaining credibility among investors," said Jin Zhang, an analyst with Wedge Partners who follows China tech firms. "The stock price growth of a lot of China companies has been very strong this year and that has gained a lot of attention among investors.
Internet content provider YY (YY) has more than tripled this year. Search and security software firm Qihoo 360 Technology (QIHU) is up 160%. Baidu (BIDU) and Sina (SINA) have enjoyed strong gains. Baidu also is Qunar's majority owner.
Zhang said the excitement will grow with Alibaba Group, which is 24% owned by Yahoo (YHOO), expected to list in the U.S. in Q1. Alibaba might top Facebook (FB) as the largest-ever tech IPO. It's China's largest e-commerce company, with businesses similar to Amazon.com (AMZN), eBay (EBAY), PayPal and others.
"There is a lot of interest in the e-commerce segment in China, and travel," said Zhang.
Alibaba's offering could exceed $18 billion, with a market valuation near $110 billion, according to research firm PrivCo. Facebook raised $16 billion in its IPO, and had a market capitalization that day of $104 billion.
Alibaba accounts for more than 50% of China's online retail sales. Amazon accounts for 20% of U.S. online sales.
There are other reasons for the shift in China sentiment. Among them is an improvement in accounting standards and a perceived improvement in China's economy.
"People were concerned about China's economy in the past year but now it looks like it should be fine," said Zhang.
China's 4G Drive
Another is the ongoing acceleration in Internet traffic. China last week awarded its first 4G licenses to China Mobile (CHL), China Unicom (CHU) and China Telecom (CHA).
China has a target to increase average bandwidth five to 10 times that of 2012 by the end of 2015, Zhang said. He expects the number of websites will increase to 10 million, four times that of 2012. Internet traffic is expected to grow tenfold from 2012 levels.
All that helps explain the strong interest in the Autohome IPO.
"We are in the right place at the right time," James Zhi Qin, Autohome chief executive, told IBD.
Chinese consumers are increasingly Internet-savvy, fueled partly via the success of Web portals such as Sina and Sohu (SOHU), he said.
No. 1 Auto Market
Autohome raised $133 million by offering 7.8 million shares at $17, above the upwardly revised range.
For the nine months ended Sept. 30, Autohome revenue rose 62% vs. a year earlier to $135.7 million. It reported net income of $54.5 million, up 97%.
China is the world's largest market for new auto sales by units, according to LMC Automotive, as cited in the Autohome prospectus. In 2012, Chinese auto sales hit 20.3 million units vs. 14.8 million units in the U.S.
In other IPO news, Hilton Worldwide (HLT) sold an upsized 117.6 million shares at $20 apiece vs. the plan to offer 112.8 million shares at $18-$21.
The Blackstone (BX)-owned company raised $2.35 billion in its IPO, making it the second-largest new issue this year, passing Twitter (TWTR).
Aramark (ARMK), a global food and facilities-management firm, priced shares at $20, at the low end of its expected range.
Also, Valero (VLO) spinoff Valero Energy Partners (VLP) jumped 22% in its debut after the pipeline and logistics firm priced at an above-plan $23.