Paktor’s parent company files for $115m US IPO. It faces a challenging future.

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M17 Entertainment, the parent company of Singapore-based dating app Paktor, hopes to raise up to US$115 million in a US initial public offering (IPO). However, with the dating app only forming a small part of its income, M17 is banking on live-streamed video as the future of entertainment in Asia.

The company’s a powerhouse in the format: its net revenue grew from US$7.68 million in 2016 to US$90.1 million in 2017. About 90 percent of its revenue last year came from live-streaming via its app, 17 Live. That said, there are ominous signs on the horizon that may curb its growth. We’ve pored through M17’s IPO prospectus and broken it down for you.

The company is growing quickly

In terms of revenue, M17 experienced its hockey-stick curve last year. Comparing 1Q18 and 1Q17, growth slowed, revenue significantly improved, but the cost of revenue and selling expenses expanded.

Much of M17’s costs come from contracting thousands of artists on its platform. M17 pays each artist a flat fee as well as a cut of the sales of virtual gifts, which is the company’s main money maker. Superfans can spend hundreds, sometimes thousands of dollars, to buy digital presents for their favorite artists as a show of appreciation.

This means that M17 isn’t exactly like YouTube, which initially exploded off the backs of pirated content and user-generated videos, keeping the marginal cost at the minimum. On the contrary, M17 plans to keep paying artists in order to keep them on its platform and away from competitors.

Its losses are mounting, but showing signs of reversing

The good news for M17 is that it is able to curb some of its expenses – crucial for eventual profitability. Here’s an important figure to watch: As a percentage of revenue, its cost of revenue has decreased.

M17 has pledged to move away from paying artists fixed fees and rely more on revenue sharing instead. This would better align the artists with M17’s bottom line. The more virtual gifts they solicit, the happier M17 is.

More good news: As a percentage of revenue, its selling expenses have decreased. Operating losses have gone down too.

User base has been growing much slower compared to revenue

Don’t expect the dating app to come to its rescue

A clear win for early investors

Obstacles to its growth