ANALYSIS: Global Internet of People Readies $20 Million U.S. IPO Effort

Global Internet of People (GIP) has filed to raise $20 million in a U.S. IPO. While the firm has produced enviable growth, the market environment for Chinese company IPOs in the U.S. is still volatile and generally negative.

Donovan Jones
    Sep 29, 2019 5:10 AM  PT
ANALYSIS: Global Internet of People Readies $20 Million U.S. IPO Effort
author: Donovan Jones   

Short Take

The Global Internet of People (GIP) has filed to raise gross proceeds of up to $20 million from a U.S. IPO, according to an F-1 registration statement.

The firm operates an online knowledge sharing platform and provides enterprise services for individuals and enterprises in China.

GIP is growing quickly and generating earnings and cash flow, but in a difficult-to-quantify market. The recent negative track record for most Chinese firms floating shares on U.S. markets gives me pause.

Company & Technology

Beijing, China-based GlP was founded in 2014 with a focus on providing enterprise consulting services to small and medium-sized businesses in the country.

Management is headed by Founder, Chairman and CEO Haiping Hu, who was previously CEO and Vice-Chairman at Shanshan Holdings.

GIP has developed a platform that enables qualified professionals, both individuals and enterprises, to share their knowledge with others in exchange for rewards.

The firm's offerings can be accessed online through its mobile app ‘Shidonghui App' or offline through local offices directly operated by GIP in Beijing, Shanghai and Hangzhou, as well as 33 local centers operated by some of the company's customers in 25 cities and twelve provinces.

Additionally, the company is actively expanding its service to individuals and families that seek advice and services relating to health, beauty, travel, fashion, and housing among others.

GIP's app provides users with access to Questions and Answers [Q&A] sessions as well as streaming of audio and video courses and programs while the offline services include study tours and forums.

As of May 2019, the firm had 400 mentors, 700 experts, 1,200 customers, as well as 4.98 million users signed up for their knowledge sharing platform, an increase over 800,000 users in May 2017.

Customer Acquisition & Market

GIP's client acquisition channels primarily include online advertising, sales and marketing campaigns, such as sales calls and events conducted by the company's sales employees, as well as existing user referrals.

Sales and marketing expenses as a percentage of revenue have been dropping sharply as revenues grow, per the table below:

Selling

Expenses vs. Revenue

Period

Percentage

2018

9.5%

2017

33.8%

Source: Company registration statement

The sales & marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of sales & marketing spend, was a very high 8.8x in the most recent full calendar year.

GIP operates under the business education segment of the private education industry.

According to a 2018 market research report by L.E.K. Consulting, the private education market in China as valued at $260 billion in 2018 and is projected to grow at a CAGR of 9% through 2020 to reach $330 billion.

The main factors driving forecasted market growth are the growing demand for private education as citizens are seeking an advantage in hyper-competitive field, an increasing international outlook, as well as the presence of a vast amount of competition to access top universities in China and also abroad.

Financial Performance & IPO Details

GIP's recent financial results can be summarized as follows:

  • Sharp growth in topline revenue

  • Strong increase in gross profit and gross margin

  • Swing to positive operating profit and operating margin

  • Strong growth in cash flow from operations

As of December 31, 2018, the company had $11.7 million in cash and $3.6 million in total liabilities. (Unaudited, interim)

Free cash flow during the twelve months ended December 31, 2019, was $5.7 million.

GIP intends to raise $20.0 million in gross proceeds from an IPO of five million shares of its common stock at a midpoint price of $4.00 per share, not including customary underwriter options.

Normally, foreign firms offer their shares to U.S. investors in the form of American Depositary Shares to reduce investor administrative burden, so it is notable in this case that the firm has chosen not to do this.

Assuming a successful IPO, the company's enterprise value at IPO would approximate $120.7 million.

Per the firm's latest filing, it plans to use the net proceeds from the IPO as follows:

The sole listed underwriter of the IPO is ViewTrade Securities.

Commentary

GIP is attempting to access U.S. public capital for its ‘mini-IPO' to fund expanding its platform.

The company's financials show a firm that has grown sharply across all major financial metrics, is producing positive cash flow from operations, and earnings.

Selling expenses as a percentage of total revenue have dropped as the firm has scaled its operations. 

The market opportunity is hard to determine. The company is focused on providing business education and related consulting services to small businesses in China, which would seem to be a large market; however, I'm not convinced of its size versus the acquisition cost of providing those services.

As to valuation, it is difficult to determine a young company's future growth and earnings prospects with any certainty, so a DCF calculation is really only a reference point.

Chinese companies floating shares on U.S. markets in recent years have generally performed poorly, for a variety of reasons.

GIP is a five-year-old company operating in a hard-to-quantify market that may have low barriers to entry.

Interested U.S. investors in the IPO would be well advised to take a wait-and-see approach to the firm's offering and reception in volatile U.S. markets in the near-term.

(The opinions expressed by contributing analysts do not reflect the position of CapitalWatch or its journalists. The analyst has no positions in any stocks mentioned, no plans to initiate any positions within the next 72 hours, and no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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