TLDR: Sungy Mobile (GOMO) provides a software platform for mobile devices that enhances and extends the capabilities of the Android OS. Users have strong desires to customize their device UI and add functions. The company is growing fast (~80%) and is very profitable with 30% operating margins. Proposed valuation of $350M at the mid-point is ~7x sales.
One of the first things to notice about the deal is that Qihoo 360 (QIHU) is purchasing $15M in the IPO as is another players (Kingsoft Internet Software Holdings Limited.)
The $75M deal is being led by Credit Suisse and JP Morgan. At the $10.50 mid-point would give the company a market cap of $350M on 2013 expected sales of just over $50M or ~7x sales. Revenues have been growing fast at about 80% YoY.
Gross margins have been rising and are now over 70%. Operating expenses have been declining as a % of sales and the company is now highly profitable with operating margins in excess of 30%.
The GO mobile product line has 87M active users and has been growing by 6-8M users each quarter. Company notes that 70% of this user base is outside China.
Sungy has a mix of businesses but the main driver is their Android product line which includes some popular products for SMS, “Locker” and weather. These and other applications are integrated into a “launcher” that makes using the applications easier.
Revenue streams are divided between paid downloads, advertising and distribution. Advertising is running at about 1/4 of revenues with downloads and distribution about evenly splitting the other 3/4 of revenue.
So far this company has executed well in a challenging but big market. It is too early to know how long they can sustain this level of growth and high product quality but so far so good.
Given the volatility and turmoil over similar company NQ Mobile (NQ) investors may have some doubts regarding reported figures.
Valuation at the mid-point is not low but the high profitability and growth is likely to support it and even offer some upside for the nimble.
Here is a link to the IPO roadshow slides.
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