Chinese Gaming Portal YY Shoots For US IPO

This is YY's mascot for the Duowan site. (Image: newgame.duowan.com)

The Chinese gaming and downloads portal YY.com has taken its first step towards a US IPO – despite the frosty conditions for Chinese stocks this year. The company has posted a filing at the US SEC with a plan to offer up to $100 million American depositary shares (ADS) that would see it hit the NASDAQ with the “YY” ticker. No specific figure is given for how much it plans to raise.

YY is mainly focused on gaming, and encompasses its YY chat tool for gamers, and its Duowan gaming portal. When we heard the company’s founder and CEO, David Li, talk onstage at TC Disrupt last year, he described the YY service and appeal:

We have a lot of grassroots users. We have a strong gaming base, and the cooperation between gamers, with voice communication is crucial. It all goes together. And we’re the only service doing this for gamers [in China].

The SEC filing points out that the YY chat client has 400 million registered users and recently hit “10.0 million peak concurrent users.” But its gaming potential is where the money will come. The filing states:

For the six months ended June 30, 2012, our total net revenues grew to RMB324.5 million (US$51.1 million), representing a 173.2 percent increase from RMB118.8 million for the six months ended June 30, 2011 […] and in the six months ended June 30, 2012, we had a net income of RMB20.8 million (US$3.3 million).

Yes, there are significant losses each year as well. But the YY filing stresses that it has a highly-engaged user base and that its gaming and chat platforms are easily scalable. The funds raised in the planned IPO will partly go to obtaining “additional servers and bandwidth.”

As for revenue streams, YY and Duowan primarily rake it in from online games and virtual purchases, paid memberships, and the relatively new YY Music. An interesting tid-bit, as spotted by Sinocism’s Bill Bishop, is that local serial entrepreneur Lei Jun owns 23.8 percent of YY before the IPO.

Rumors swirled last October that YY would shoot for a US IPO – but this time the plan is for real. Last year I suggested that investors would be scared off by rampant piracy in the downloads section of Duowan, where pirated games are freely available. All that pirated material is still on the site today (fancy a “free” copy of Plants vs Zombies, anyone?), still threatening to torpedo its IPO plans.

As if all that’s not enough concern for investors, this year there’s also the added worry of markets being quite hostile to Chinese tech stocks. Only one such stock from China has fully listed in the US this year – and that’s the e-commerce site VIPShop (NYSE:VIPS), which is doing well at the moment, riding a couple of dollars above its debut price.

Check out the YY filing here and tell us in the comments if it looks right or risky.

[Source: Marketwatch; via Sinocism]