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Hit or Miss? – Qudian’s US IPO

Qudian

Qudian, a pure online lender based in China dealing in micro-consumer loans to consumers, recently listed itself on the New York Stock Exchange. The IPO is touted to be the largest New York offering by a Chinese fintech company after Alibaba Group Holding Ltd made a record-breaking offering of US$25 billion in 2014. The company raised almost $900 million in its initial public offering. Qudian priced its IPO at $24 per share and the current price is around $33, implying a return of almost 40%. Let’s walk through a brief history of the company to understand its background.

Brief Overview and Insight

Founded in 2014, Qudian is a financial firm that started its life as a micro lender under the name Qufenqi. The founders Shuang Liu and Min Luo started Qufenqi as an online micro lending platform, issuing small amounts of credit to help college-going students to buy things like computers and smartphones. In order to reflect a broader focus on retail products and services, the company changed its name from Qufenqi to Qudian and started providing consumer loans of small amounts.

The company facilitates all its transactions through mobile devices. Borrowers can apply for loans from their mobile sets and receive approval within seconds. The funds are disbursed to borrowers through Alipay, the giant e-payment platform originally built by Alibaba Group and now operated by Ant Financial.

Qudian’s Investor Overview

Since its inception, Qudian has aggressively raised funds from multiple high-profile investors including Ant Financial, RMB Angel Investments, BlueRun Ventures, and Beijing Kunlun Tech Co Ltd, a Chinese online gaming firm. In 2016, Hangzhou Liaison Interactive Information Technology and Beijing Phoenix Wealth Holding Group made a pre-IPO investment of more than US$450 million. The company has raised almost $873 million in six rounds of private funding. Qudian’s principal shareholders include API controlling 12.8% shares and Qufenqi Holding controlling 21.6% shares. Other principal shareholders include Kunlun Group Ltd and Source Code Accelerate L.P. controlling 19.7% and 16.1% shares, respectively.

Numbers Revolving around Qudian

The company has facilitated approximately US$5.6 billion in transactions to 7 million active borrowers in the six months ended June30, 2017. In the first half of 2017, Qudian earned total revenue of US$270.4 million, an increase of 393.3% in comparison to the same period last year when the company earned total revenue of US$56.3 million. The company’s net income also grew to US$143.6 million from US$18.5 million, up by 695.2%. The cash credit products of the company had an average loan size of approximately US$136 and weighted average term of two months while the merchandise credit products had an average loan size of US$184 and weighted average term of approximately eight months in the six months ending June 30, 2017.

The charts below depict the growth of the business since the inception of the company in 2014.

Qudian

Qudian’s US IPO

Qudian, which has been listed among the top 50 fintech companies of China, will trade under the ticker “QD.” The company was able to surprise analysts by pricing its shares at $24 as compared to the $19-$22 range earlier expected. It’s lead underwriters include marquee names like Morgan Stanley, Credit Suisse, Citigroup, China International Capital Corp., and UBS Investment Bank.

Qudian will utilize the proceeds from its IPO for strategic acquisitions, for marketing, and borrower engagement. The aim is to become the number one fintech lender by generating greater consumer awareness and by buying value-added assets. The question here arises as to why Qudian’s IPO has been welcomed given it is just a three-year-old company and is operating in an industry which was recently in the Chinese regulator’s cross hairs. The raison d’être is that the IPO gives access to one of the hottest investment plays in the world market — the rising Chinese consumer.

Qudian has been on a tearing growth spree and has been able to cultivate investors and strategic partnerships with players like Ant Financial. Qudian’s market leadership, partnership with Ant Financial, its profitability, ability to attract and retain potential borrowers, and revenue growth, are some of the reasons that made it one of the hottest IPOs of the year.

But the flip side of the story is the relative infancy of Qudian. Founded in 2014, Qudian’s limited operating history elevates the risk element associated with the Chinese micro lender.

Conclusion

Qudian has had blockbuster financial results. The IPO was the fourth biggest in the US this year and has emboldened other Chinese players to seek the prestigious US listing. Peer-to-peer lender Ppdai has already announced that it will look to raise almost $350 million in a US listing, and a FT article speculates that there are more than a dozen Chinese players firming up their plans for an American listing.

There are obvious reasons for this allure of a NYSE/NASDAQ IPO. Not only are these the largest pools of capital in the world, they represent the gold standard of corporate governance. Chinese companies looking to shed the overhang of the regulatory discount back in China and aiming to fill their war chest for the largest marketplace lending market in the world are looking to the US for that stamp of legitimacy. Qudian shows that American investors are ready to vote with their pockets for well-run profitable Chinese players.

Author:

Written by Heena Dhir.

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