Banking & Finance

Will it or won’t it?

Home service platform’s US IPO hangs in balance

Deng Chao-w

Actor Deng Chao promotes Daojia

According to China’s maternity custom of zuo yuezi, or literally “sitting the month”, new mothers must stay indoors to restore their energy. To that end, confinement nurses, known as yue sao, are hired to help prepare nutritious meals to hasten the mother’s recuperation while taking care of the newborns. More experienced ones even offer beauty treatments.

This yue sao maternity care business is so big that an internet platform matching expecting families with postpartum helpers is now planning to go public in the US. In early July, home services platform Swan Daojia submitted a prospectus to the US Securities and Exchange Commission for a listing in New York.

Formerly known as 58 Home, Swan Daojia is part of the classifieds portal group (see WiC537 for more about China’s Craigslist equivalent), which has itself just completed a $8.7 billion delisting from the NYSE. Daojia is now seeking a US listing that would value the platform at around $3 billion, Bloomberg reported.

Besides post-partum services, Daojia also connects consumers with housekeepers, as well as with removals companies for people moving home. The eight year-old firm claims a registered user base of over 4.2 million customers. On the other side of its platform’s matching service are over 1.5 million registered service providers. Alibaba, Ping An Ventures and KKR jointly invested $300 million in the start-up in October 2015.

The company makes money by taking commissions from those hired as service providers. For instance, the platform takes 30% of confinement nurses’ salary, which average around Rmb13,500 a month. It also takes a sizeable cut from the fees of hired nannies, maids and cleaners. Its prospectus shows that these “household services” account for about 90% of its total revenue.

Profitability so far has been elusive. Between 2018 and 2020, Daojia’s operating income went from Rmb400 million ($61.82 million) to Rmb711 million despite the pandemic. Net losses during the period, however, also went up from Rmb591 million to Rmb615 million. The company explains that the losses stem from the platform’s extensive sales and marketing expenses (A-list actor Deng Chao is its brand ambassador). In the prospectus Daojia also made plain future losses are to be expected as it expands its business.

Truth be told, the biggest concern about Daojia’s IPO is whether wary US investors will have the risk appetite for new Chinese listings after the Chinese government’s crackdown on Didi just days after the ride-hailing app’s trading debut in the US (see last week’s Talking Point).

In consequence US bankers are worried that the pipeline of Chinese internet and tech companies set to IPO in New York could dry up. One prominent Chinese tech executive told the Wall Street Journal that the process of listing in the US had been based on the good relationships previously enjoyed with Chinese regulators at home. “It takes decades to build up trust and one scandal to break it,” the executive told the newspaper.

On July 10, China’s regulators further announced that any companies holding the personal information of more than one million local users would have to seek a government cybersecurity review before listing abroad. Already, the fitness app Keep and the podcasting platform Ximalaya have cancelled plans to go to the US for their IPOs. Keep has more than 300 million users while Ximalaya has more than 600 million.

Daojia will likely come under scrutiny too, thanks to the new rules. “Swan Daojia, just like Didi, has gathered a large amount of personal information data. Daojia’s process requires that all service providers go through identity authentication, physical examination, assessment, grading and matching before they are eligible for on-site services. There needs to be more supervision and guidance to maximise social benefits,” observed Xiao Jin Jie, a financial blogger, of Daojia’s pre-IPO regulatory hurdles.

“As we continue to monitor the fate of Didi, we wish Swan Daojia good luck,” the blogger grimly concluded of its forthcoming IPO.

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