China’s Online Grocery Platform Dada Debuts on the Nasdaq

Chinese grocery delivery company Dada is confident it can stand up to U.S. scrutiny as a newly listed company in New York.

The Walmart-invested company went public under the ticker DADA on the Nasdaq Friday, with a valuation of…

$3.5 billion. In remarks to reporters, founder and CEO Philip Kuai played down the impact of U.S.-China tensions as temporary, and struck a confident tone in the long-term prospects of Dada’s business, which has benefited from the coronavirus outbreak.

“We particularly welcome better auditing and regulation,” Kuai said Friday, according to a CNBC translation of his Mandarin-language remarks. “Only when your entire environment is as healthy as possible will the interests of everyone  — investors, users etc. — be protected, and the market develop in a healthy way.”

Kuai’s call for increased regulation comes as the U.S. Congress reviews a bill that’s putting pressure on Chinese companies to delist from American stock exchanges. Some companies, such as Dada’s strategic investor JD.com, are pursuing a secondary Hong Kong listing as a backup.

Amid increasingly fraught U.S.-China tensions, Xiamen-based Luckin Coffee’s revelation of fraud in April pushed American lawmakers over the edge, analysts said.

Chinese grocery delivery company Dada is confident it can stand up to U.S. scrutiny as a newly listed company in New York.

The Walmart-invested company went public under the ticker DADA on the Nasdaq Friday, with a valuation of $3.5 billion. In remarks to reporters, founder and CEO Philip Kuai played down the impact of U.S.-China tensions as temporary, and struck a confident tone in the long-term prospects of Dada’s business, which has benefited from the coronavirus outbreak.

“We particularly welcome better auditing and regulation,” Kuai said Friday, according to a CNBC translation of his Mandarin-language remarks. “Only when your entire environment is as healthy as possible will the interests of everyone  — investors, users etc. — be protected, and the market develop in a healthy way.”

Kuai’s call for increased regulation comes as the U.S. Congress reviews a bill that’s putting pressure on Chinese companies to delist from American stock exchanges. Some companies, such as Dada’s strategic investor JD.com, are pursuing a secondary Hong Kong listing as a backup.

Amid increasingly fraught U.S.-China tensions, Xiamen-based Luckin Coffee’s revelation of fraud in April pushed American lawmakers over the edge, analysts said.

Like many start-ups, particularly Chinese technology firms, Dada is still burning cash. The company reported an operating loss of 1.7 billion yuan ($247 million) in 2019, slightly less than nearly 2 billion yuan reported for 2018. Net revenues rose from more than 60% during the same time period, from 1.9 billion yuan in 2018 to 3.1 billion yuan in 2019.

As of the end of March, the company said it has more than $270 million in cash, cash equivalents and short-term investments.

Chinese IPOs undeterred

At least 8 Chinese companies have gone public in the U.S. so far this year, matching that of last year, Matthew Kennedy, senior IPO market strategist at Renaissance Capital, which sells pre-IPO research to institutions. He added that at least four more have filed.

“Chinese companies appear to be undeterred, based on recent filing activity,”  Kennedy said in an email last week.

Companies often begin planning for their IPO at least a year or two in advance.

Even though analysts said Hong Kong, London and even mainland China would become more attractive places to list as tensions rise with the U.S., affiliation with the Nasdaq or New York Stock Exchange brands still holds allure for many Chinese companies.

Question of investor demand

However, newly listed companies may need to work harder to gain investor interest in an increasingly fraught geopolitical environment.

Most Chinese stock issuers since 2019 trade below their offering price and underperform the rest of the U.S. IPO market, according to Renaissance Capital’s Kennedy.

While optimists on China tout the country’s hundreds of millions of middle-class consumers, it’s not a given which companies will ultimately capture the market in a major way.

Dada’s share is still small at 11.9 million active customers. Even that figure from a June 1 filing with the U.S. Securities and Exchange Commission was revised down by 4.6 million to remove duplicates from the number reported in the May 15 version of the prospectus, according to the company.

The overall year-on-year growth rate of 67.6% reported in the June 1 document still surpasses the 58.7% rate of the old figures.

On Friday, Dada’s Kuai said there was “very strong momentum” for the company’s business since brands, sellers and consumers are all now willing to use the mix of software and delivery that Dada sells.

He brushed off the Luckin scandal as “something that happens every two years” in his experience in China. The 37-year-old entrepreneur said he asked the big four U.S. auditing firms, beginning with PricewaterhouseCoopers, to inspect the company, about six months after Dada’s launch in June 2014.

A local representative for PwC did not immediately respond to CNBC’s request for comment outside of Beijing business hours. Bank of America, Goldman Sachs and Jefferies were the underwriters for Dada’s IPO.

“From the beginning, establishing your structure and company management mechanisms well are a way to help the company survive for the long term,” Kuai said. As a company, Dada encourages employees to try their hand at completing a delivery.

If Kuai is right in his approach to business management, at least he convinced Walmart to buy in early. The Sam Walton company, which has struggled for much of its two-plus decades in China, became a strategic investor in Dada in 2016 and invested $370 million over the next few years. Walmart intended to buy more than 10% of shares in Dada’s initial public offering, according to the prospectus.

“We are excited to participate in today’s listing and see compelling opportunities for Dada to further expand and execute on its accelerated growth strategy,” Zhiyu Chen, senior vice president of Walmart China, said in a release around Dada’s IPO.

A virtual IPO

Travel restrictions didn’t stop Dada from launching, or fully participating, in its Nasdaq IPO.

Just about an hour before speaking to reporters, Kuai took the stage in an event hall in Shanghai Tower, the city’s tallest building, in the heart of the financial district.

Dressed in commemorative white IPO t-shirts, Kuai and his colleagues…

Continue reading at CNBC.com

 

 

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