China's Liulishuo posts modest gain following $72m US IPO

The company sold 5.75 million American Depositary Shares (ADS) at $12.50 apiece – the midpoint of the indicative range – to raise $71.9 million in its IPO, according to a statement. There is an overallotment option that could see add to these proceeds. The stock surged as much as 28% during trading before falling back to close at $12.56.

Two of Liulishuo’s private equity backers, GGV Capital and CMC Capital Partners, previously expressed an interest in purchasing $20 million worth of shares as part of the offering. Excluding this transaction, they were expected to hold stakes of 10.3% and 5.5%, respectively, in the company following the IPO. Meanwhile, IDG Capital and Trustbridge Partners would have 11.8% each.

While most Chinese platforms focus on K-12 education, Liulishuo targets adults. The company offers interactive courses using online games and social activities, enabling users to win points as they move through the levels and communicate with fellow students. It also operates Dong Ni Ying Yu, an app that uses voice recognition and AI technologies to compare sentences spoken by native speakers and Chinese learners. It evaluates an individual student’s capabilities and adapts accordingly.

The company operates on a freemium model, attracting students with free services and converting them into paying users. As of June 2018, Liulishuo had 7.2 million monthly active users and just over one million paying users. Enterprise learning services were launched in early 2017 and now there are more than 100 corporate customers.

Competitors in this space are relatively scarce, with Shanghai-based Hujiang, which has filed for a listing in Hong Kong, being the company’s main rival. However, neither Liulishuo nor Hujiang is profitable due to their sizeable increasing marketing and promotion expenses. Liulishuo’s revenue came to RMB165.6 million ($25.4 million) in 2017, up from RMB12.3 million a year earlier. Over the same period, its net loss widened from RMB89.2 million to RMB242.8 million.

GGV, IDG and Cherubic Ventures provided seed funding to the company in 2013. The same investors returned for a Series A in 2014 and were joined by Hearst Ventures. A year later, Liulishuo raised a $42 million Series B at a valuation of $200 million, led by TrustBridge. This was followed by a $100 million Series C, led by CMC and Beijing-based family office Wu Capital, in August 2017.

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• Topics
• Greater China
• IPO
• Technology
• China
• Education
• TMT
• GGV Capital
• IDG Capital Partners
• Cherubic Ventures
• China Media Capital
• Trustbridge