Global Market Group's Optimistic IPO

Guangzhou-based, Global Market (GMC) has postponed its IPO which was supposed to be priced on 16th March. It is unclear when it will go ahead - if at all. We finally took sometime to go through the company's prospectus. The top-line conclusion: GMC's management was overly-optimistic and it is no surprise that the IPO was postponed.

The company was looking to raise US$132 million by selling 11 million ADSs on the NYSE. The company expected to price the shares between US$11 and US$13. The mid-point would give GMC a market cap of US$608 million on revenues of US$26.7 million and net income of US$7.0 million. That results in a P/E of 87! Yes, 87!

This is not even close to being in the range of its competitors. Global Sources had a recent P/E of 19 and Hong Kong-listed, Alibaba.com was trading at 39 times earnings.





GMC's revenues are a 1/7th that of Global Sources and a tiny fraction of Alibaba.com's US$843 million in revenues. Given GMC's position as at best, an also-ran, this line from in the prospectus was amusing:

"According to the iResearch Report, we [GMC] are the only e-commerce provider in China's B2B e-commerce industry that focuses on providing export marketing services to high-quality manufacturers in China."

Right... GMC faces no competition at all. Alone in their field. Lucky for them. It should be noted that GMC commissioned iResearch to write that report.

Then there is the issue of GMC's paying users. GMC has one tenth our estimate for Global Sources and again, a very small fraction of Alibaba.com's 132,000 paid users.

Alibaba.com does not segment its buyers and suppliers and Global Sources does not release figures on its registered suppliers. But Global Sources has over 1 million registered buyers compared to GMC's 761,000 buyers. There is one crucial difference: Global Sources' buyer numbers are verified by an independent third party, Ernst & Young. GMC's are not. Even a cursory glance at these numbers reveals that GMC is not in the same league as either Global Sources or Alibaba.com.






But all of the above is not even the most confounding issue. GMC has somehow found suppliers in China who are willing to pay three and even four times what its competitors charge. Global Sources charges its paying suppliers somewhere around RMB 40,000 and Alibaba.com is RMB 24,500 on average. See our previous post on this pricing issue.

GMC claims in their prospectus that they charge between RMB 60,000 and RMB 150,000 (or US$9,200 to US$23,000)! It is hard to understand how they found suppliers willing to pay so much more than they would pay on Global Sources or Alibaba - both of which are far better established and more robust sourcing platforms.

And then there is the issue of GMC's miraculous net income turn-around. In 2008 and 2009 GMC's net income was US$100,000 and US$54,000 before it sky-rocketed to US$7 million - just in time for the IPO.





Given all of this, it is not surprising to read that the offering was having trouble attracting investors. You can find GMC's full prospectus on Edgar Online.