IPO Preview: Quhuo Seeks $35 Million U.S. IPO Investment


Quhuo Limited (QH) intends to raise $35 million in an IPO of its ADSs representing underlying Class A shares, according to an F-1 registration statement.

The firm operates as a workforce staffing solutions company to Ecommerce and on-demand companies in China.

QH has grown strongly and is approaching operating breakeven, although the financial information is stale.

I hope to see updated financials along with the firm’s proposed pricing and valuation assumptions.

Beijing, China-based Quhuo was founded to provide staffing services to fast-growing companies in on-demand sectors within China.

Management is led by founder, Chairman and CEO Mr. Leslie Yu, who has been with the firm since and was previously general manager of SHanghai Origin Myway International Logistics and a senior business manager at DHL Supply Chain (China) Co.

Below is a brief overview video of China's delivery industry by a video funded by the Chinese government:

Source: CGTN

Quhuo’s partners or major customers include:

  • Meituan
  • Ele.me
  • KFC

The company’s primary offerings include:

  • Food delivery
  • Ride hailing
  • Housekeeping
  • Bike sharing

Quhuo has received at least $148.1 million from investors including Quhuo Holdings, Baidu Online (BIDU), SBCVC, and ClearVue YummyExpress.

The firm obtains customers via a direct sales force that seeks relationships with large and medium sized firms.

QH has a nationwide footprint in 73 cities among 26 provinces including top tier provinces and lower-tier cities.

For the three months ended December 31, 2019, the company had more than 40,800 on-demand, active workers.

G&A expenses as a percentage of total revenue have been dropping as revenues have increased.

According to a 2020 market research report, the global market for employment services is expected to reach over $659 billion by the year 2025.

China is expected to grow at '5% over the next couple of years and add approximately US$47.4 billion in terms of addressable opportunity.'

The main drivers for this expected growth are a steady shift towards a 'gig economy,' continued demand increase by consumers in an increasingly urban environment as populations shift from rural to urban centers, and increased digitization.

Management says the industry remains highly fragmented within each industry vertical and existing service suppliers have limited operational experience or smaller geographical coverage.

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

  • Sharply growing topline revenue
  • Increased gross profit but lower gross margin
  • Operating losses but operating margin approaching breakeven
  • Uneven but positive cash flow from operations

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


Source: Company registration statement

As of December 31, 2019, Quhuo had $26.3 million in cash and $70.3 million in total liabilities.

Free cash flow during the twelve months ended December 31, 2019, was negative ($17,000)

Quhuo intends to raise $35 million in gross proceeds from an IPO of its ADSs representing underlying Class A shares, although the final amount may differ.

ADSs representing underlying Class A shares will be entitled to one vote per share versus 15 votes per share for Class B shareholders.

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

Management says it will use the net proceeds from the IPO for expanding its business in multiple industry settings, including ride-hailing, housekeeping and other services, for upgrading its technology infrastructure, for marketing and brand promotions, for funding potential strategic acquisitions, investments and alliances and the remaining balance for general corporate purposes.

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

Listed bookrunners of the IPO are Roth Capital Partners, Valuable Capital, and Tiger Brokers.


Quhuo is seeking a smallish IPO for its expansion plans within China and within its existing vertical focus areas.

The firm’s financials indicate strong revenue and gross profit growth while approaching operating breakeven.

QH is generating operational cash flow and is nearly at breakeven for free cash flow.

G&A expenses as a percentage of total revenue have dropped as revenues have increased.

However, the company’s financials are now more than five months out-of-date. It is typical to have the most recent quarter included in the financials, so the absence of that element is unusual.

The market opportunity for delivery service staffing within China is large and expected to grow at a significant rate.

The industry has received a further boost as a result of the Covid19 pandemic which increased delivery demand as well as got some additional consumers in the habit of ordering food or products to be delivered.

Roth Capital Partners is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (46.2%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.

I’m hopeful we get updated financials from the firm as well as learning management’s proposed pricing and valuation assumptions.

Expected IPO Pricing Date: To be announced.

(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. 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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