Youdao Down 17% Upon Debut at a Shaky Time for China IPOs

Youdao rang the bell on the NYSE Friday, raising $95.2 million in its IPO at a challenging time for Chinese companies.

Anthony Russo
    Oct 25, 2019 10:00 AM  PT
Youdao Down 17% Upon Debut at a Shaky Time for China IPOs
author: Anthony Russo   

Youdao Inc. (NYSE: DAO) rang the opening bell on the New York Stock Exchange on Friday morning, celebrating its $95.2 million initial public offering.

The Chinese e-learning platform, backed by NetEase Inc. (Nasdaq: NTES), sold 5.6 million American depositary shares at $17 each, within the expected range of $15 to $18 per share. 

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Wall Street investors were left unimpressed, however, amid the ongoing uncertainty in the Sino-U.S. trade concerns and the overall volatility of the markets. The stock in Youdao opened at $13.50 per share and rose to $14.06 by early afternoon, down more than 17% from issue price.

Securing the deal were Credit Suisse Securities (USA) LLC, Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC, joined by China International Capital Corp., Hong Kong Securities Ltd., Tiger Brokers (NZ) Ltd. and HSBC Securities (USA) Inc. Underwriters were given the option to purchase an additional aggregate of 840,000 ADSs to cover allotments.

Upon the IPO, Youdao will raise an additional $125 million through a private placement of 7.35 million shares, according to the company's statement today. The total proceeds from the public and private offerings will be $220.2 million, the report said. Orbis Investment Management Ltd. will manage the private deal, according to the report.

Founded in 2006 and operating as a subsidiary of NetEase, Youdao provides online knowledge tools, smart devices, online courses and interactive learning apps. Its platform averaged more than 100 million monthly active users in the first half of 2019, according to its filings.

The revenue of Youdao increased by 61% from 455.7 million yuan in 2017 to 732 million in 2018. However, its net loss widened 27% from 165 million yuan in 2017 to 209 million yuan in 2018. Moreover, the gap has further widened this year. For the first six months of 2019, Youdao reported losses of $27.6 million on revenue of $79.9 million. 

By 2023, the online learning market in China is expected to reach 719.8 billion yuan, at a compound annual growth rate (CAGR) of 47.4% from 2018, Youdao said in its prospectus.