China’s mobile live-streaming application Inke Ltd., will go public on the Hong Kong Stock Exchange (HKEX) on July 12. It is poised to be the first company in the live-streaming segment to go for initial public offering (IPO).
China International Capital Corporation, Citi Bank, and Deutsche Bank will support the listing.
According to reports, Inke plans to raise at least USD 200 million through the IPO. The company plans to use the funds to further develop in-app features, marketing promotions, and corporate strategic investments.
Earlier in 2017, Inke had an unsuccessful IPO attempt in Chinese A-Shares. Shenzhen Stock Exchange demanded the company to disclose several key corporate finance figures including its incomes in the first two quarters of 2017. Shenzhen Stock Exchange further asked Inke to disclose the company’s managerial staffs, corporate structures, and its suspicious arbitrage operational strategies.
Failed to be listed in mainland China, Inke shifted its target to HKEX as the company initiated its initial public offering in March.
The company now plans to offer 15% of its shares to the public in July. It is estimated that Inke’s business value is somewhere between USD 1.1 billion-1.5 billion.
Lack of revenue stream a big concern
The most concerning fact for Inke is its source of revenue. Reports indicate that in 2016 and 2017, more than 99% of Inke’s revenue came from “tips”, also known as user voluntary contribution.
The lack of an additional source of income is flagged as a huge risk to Inke. The live-streaming product is yet to develop a feasible plan to put in advertisements or other practical revenue sources into its applications.
Is this a crazy bet?
Inke is one of the live-streaming applications that survived the intensive competition in the industry in the previous three years.
The company’s revenues have jumped almost 280% in the last two years. With revenue of USD 4.3 million in 2015, Inke’s revenue jumped to USD 85 million in 2016 and about USD 110 million by 2017. The company claims to have about 200 million registered users and approximately 36.8 million live-streaming content producers on board by end of 2017.
During the company’s roadshow, Inke’s chief executive officer Feng Yousheng said the company has the ability to become profitable and that had sufficient cash flow to support its operations. However, Inke’s financials kind of undermines his optimism.
Despite its rapid growth in revenue and userbase, the company has registered losses for three consecutive years. According to reports, the company also witnessed a decline in its monthly active users.
Live-streaming applications were not as popular as they were. With Tik Tok and Kwai becoming the more popular products nowadays, Inke faces tougher conditions to attract investments and venture capitals.
Inke spent approximately USD 40 million on marketing and promotions in 2017, half of its expense in 2016. The reduction of promotions and user growth campaign may be an important factor that caused Inke’s growth stagnation.
“Other than two events we did last year, Inke didn’t plan anything big in 2017,” an Inke staff who did not wish to be quoted said. “And the costs of these two events were recovered by voluntary contributions made by users.”
Critics argue that Inke is yet to build up its own entry barrier, leaving the company vulnerable for future potential competitors and securing a stable growth.
IPO is one of the few options the company now has to raise more funds to support its growth plan.