IPO Launch: BlueCity Holdings Prepares For $85 Million U.S. IPO


BlueCity Holdings (BLCT) intends to raise $85 million in an IPO of ADSs representing underlying Class A stock, according to an amended registration statement.

The company has developed a website network for LGBTQ communities in China and other Asian countries.


To listen to an audio version of this report, click on the graphic below:


BLCT has achieved a strong revenue growth trajectory, increasing gross margin and has made a turn toward operating breakeven (which may change in the future), so the IPO appears to be reasonably valued.

Beijing, China-based BlueCity was founded to provide LGBTQ persons with an online destination for community, connection and related information.

Management is led by founder, Chairman and CEO Mr. Baoli Ma, who was previously deputy director of information research at Qinhuangdao Public Security Bureau.

Below is a brief overview video of BlueCity:

Source: Bloomberg

The firm says it has more than 49 million registered users and its average MAUs (Monthly Active Users) was 6.0 million users for the three months ended March 31, 2020.

The company’s primary offerings include:

  • Community
  • Health & Wellness Services
  • Live Streaming
  • Assisted Reproduction Services

The firm generates most of its revenues from its live streaming service.

BlueCity has received at least $251 million from investors including Shunwei Ventures, CDH entities, Liberty Hero, Crystal Stream and NewQuest Asia Investments.

The firm acquires users through word of mouth and online social media and paid marketing efforts.

Selling & Marketing expenses as a percentage of total revenue have been stable as revenues have increased.

The Selling & Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling & Marketing spend, dropped to 1.5x in the most recent reporting period.

According to a 2016 market research report by OutNow Global, the market for LGBTQ travel and related services was valued at $211 billion in 2016.

This represents an historical average annual growth rate of 2.0% per year.

Management says its intention is to further deepen its offerings as well as broaden them to include new services. Additionally, the firm intends to expand into new geographies it believes are underserved.

BlueCity’s recent financial results can be summarized as follows:

  • Growing topline revenue
  • High gross profit and growing gross margin
  • Lowered negative operating margin
  • Uneven cash used in operations

Below are relevant financial results derived from the firm’s registration statement:


Source: Company registration statement

As of March 31, 2020, BlueCity had $39.4 million in cash and $17.6 million in total liabilities.

Free cash flow during the twelve months ended March 31, 2020, was negative ($3.4 million).

BLCT intends to sell 5.3 million ADSs representing underlying Class A shares at a midpoint price of $16.00 per ADS for gross proceeds of approximately $85.0 million, not including the sale of customary underwriter options.

Each 2 ADSs represent one Class A ordinary share.

The company’s founder has indicated an interest to purchase shares of up to $5.0 million in the IPO as a show of ‘support’ for the IPO.

Class A stockholders will be entitled to one vote per share and the company founder, as the holder of the Class B shares, will be entitled to five votes per share.

The S&P 500 Index no longer admits firms with multiple classes of stock into its index.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $782.1 million.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 14.87%.

Per the firm’s most recent regulatory filing, the firm plans to use the net proceeds ‘ for [i] geographic expansion, [ii] investment in technology and development, artificial intelligent technology and big data capacity in particular, and [iii] general corporate purposes.’

Management’s presentation of the company roadshow is not available.

Listed underwriters of the IPO are AMTD Global Markets, Loop Capital Markets, Tiger Brokers, Prime Number Capital and R.F. Lafferty & Co. A number of these underwriters are active in Chinese company listings on U.S. markets.


BLCT is seeking U.S. public capital for its expansion plans within Asia.

The company’s financials show strong revenue growth and a turn toward operating and net breakeven. Cash used in operations has fluctuated but is at a manageable level given the proposed IPO amount and the firm’s solid balance sheet with ample cash and little in the way of liabilities.

Selling and marketing expenses as a percentage of total revenue have been uneven and the firm’s selling & marketing efficiency multiple has dropped as revenues have increased.

The market opportunity for providing an online destination for the LGBTQ communities in Asia is potentially significant as these groups have purchasing power that can be aggregated efficiently and monetized.

On the legal side, like many Chinese firms seeking to tap U.S. markets, the firm operates within a VIE structure or Variable Interest Entity. U.S. investors would only have an interest in an offshore firm with contractual rights to the firm’s operational results but would not own the underlying assets.

This is a legal gray area that brings the risk of management changing the terms of the contractual agreement or the Chinese government altering the legality of such arrangements. Prospective investors in the IPO would need to factor in this important structural uncertainty.

AMTD is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (32.0%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.

As a comparable-based valuation compared to a basket of Information Services firms in the NYU Stern School’s index of publicly held stocks in January 2020, the index indicated an EV / Sales multiple of 9.17x versus BLCT’s proposed multiple of 6.79x.

While the comparison is inexact, given BLCT’s strong revenue growth trajectory, increasing gross margin and turn toward operating breakeven, the IPO appears to be reasonably valued.

My opinion on the IPO is a BUY at up to $16.00 per ADS.

Expected IPO Pricing Date: July 7, 2020.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)


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