Google-Backed Mobvoi Drops 22% in HK IPO, Raises $41M

Key Takeaway

• Mobvoi Inc., backed by Google, saw its stock fall 22% on its Hong Kong IPO debut, raising only $41 million against a target of $200-$300 million.
• The disappointing IPO adds to Hong Kong's equity market woes, marking the lowest IPO proceeds in over two decades amid concerns over China's economic growth.
• Despite high initial expectations and Google’s backing since 2015, Mobvoi’s financial outlook appears challenging with projected declines in revenue and profit for 2024.

IPO Performance Dips

Mobvoi Inc., a Chinese artificial intelligence company with backing from Alphabet Inc.’s Google, experienced a significant drop in its stock value, declining as much as 22% on its first trading day in Hong Kong. This downturn occurred despite the shares being sold near the lower end of the anticipated price range during its initial public offering (IPO). The company, along with its shareholders, managed to raise HK$321 million ($41 million), a figure substantially lower than the $200 million to $300 million target set the previous year. This decline in Mobvoi’s stock value stands in stark contrast to the overall gains observed in Hong Kong and Asian stock markets on the same day.

Market Context

The disappointing debut of Mobvoi adds to the challenges facing Hong Kong’s equity capital market, which has seen a decline in IPO proceeds to the lowest level in more than two decades. This downturn is attributed to growing concerns over China’s economic growth. Mobvoi’s performance follows on the heels of other recent IPO flops in Hong Kong, including the bubble-tea maker Sichuan Baicha Baidao Industrial Co., which saw a 27% drop in its first trading session, marking the largest IPO in the city since November.

Company Background and Expectations

Founded in 2012 by former Google employees, Mobvoi is known for its Ticwatch smartwatches and Chumenwenwen voice-activated search services. The company attracted Alphabet’s investment in 2015, marking Google’s first direct investment in China since it withdrew its search engine from the country in 2010. Despite the initial high expectations, Mobvoi’s stock slightly recovered to trade at HK$3.11 by the midday break on Wednesday in Hong Kong, marking an 18% decrease from its IPO price. The shares were initially sold at HK$3.80 each, within the marketed range of HK$3.70–$4.10. Analyst Andrei Zakharov noted that bankers aimed to price the IPO above Mobvoi’s last private round valuation of about $757 million.

Financial Outlook and Analyst Perspectives

Analyst Andrei Zakharov has projected a decrease in revenue, gross profit, and gross profit margin for Mobvoi’s AI enterprise solutions business segment in 2024. In a recent note on Smartkarma, Zakharov set a price target of HK$2.70 per share for Mobvoi, indicating a cautious outlook on the company’s financial performance. This projection reflects the broader challenges Mobvoi faces in maintaining its growth trajectory amidst a fluctuating market environment.

Street Views

• Andrei Zakharov (Bearish on Mobvoi):

  "Management expects to record a decrease in revenue, gross profit and gross profit margin for AI enterprise solutions’ business segment in 2024."