Mixi, the #1 Japanese SNS to IPO on September 14th August 14, 2006Posted by fukumimi in Internet, IPO, IT, Japan.
The Tokyo Stock Exchange announced today that Mixi will float on the TSE’s MOTHERS exchange on the 14th of September.
No word yet on the price, but it is expected that the shares will be heavily oversubscribed. Just 4,500
shares are being offered new shares are being issued, which would bring the total number of shares to 70,500. (that’s about 6.3% of issued shares I think) An additional 2,100 existing shares are also being offered as part of the IPO, comprising of shares held by CyberAgent (1,050 shares of a total holding of 6,000 shares, the balance of which will be subject to a 6 month lock-up), 350 shares owned by the founder and CEO, and a total of 750 shares controlled by Netage Capital Partners. (An additional 500 shares may be offered if the offering is oversubscribed)
Mixi’s latest financials (for the FY ending March 2006) show pre-tax profits of JPY912M (net earnings of JPY576M) on sales of approx JPY1.9B. Two-thirds of sales are related to the “FindJob!” job advertising service, which was started 4 years ago (Mixi was originally called e-Mercury, and its original service was an internet based press release service called @Press, which they sold off last year. To Netage Capital Partners, which also happens to be the 2nd largest shareholder in Mixi), the SNS appears to have brought in about JPY640M in sales, more than 80% of which is advertising related. That means just over $1M in non-advertising revenue for the SNS, the majority derived from premium service revenue (@JPY315/mth/user) and perhaps also for traffic referral to Goo, the NTT Resonant search engine which provides Mixi’s search engine functionality.
As I’ve said before, an easy way to get more money would be to get Google to pay to put their search engine and advertising services on Mixi. Google would probably jump at the chance to address 5million+ of Japan’s heavy internet users. Looking at the MySpace/Google deal, it is not hard to imagine Google offering tens of millions of dollars per year for the rights to advertise in what is Japan’s hottest web property and give their search engine more exposure, in what has been a difficult market for them to penetrate (relatively speaking, of course. They do lag significantly behind Yahoo! in Japan, and a deal with Mixi seems to be the easiest way to cut Yahoo!’s lead).
It sure seems like a better bet than developing their own search engine, at least in the short term.
Given that Fox paid $580M for MySpace (Intermix) a year ago when user numbers were maybe around 20million registered users and page views around 9billion/mth, one might think that a reasonable price for Mixi would reflect Mixi’s stats in these areas (approx 5million registered users and 6billion page views/mth – note the relatively high number of page views/registered user compared to MySpace), which would give valuations in the low hundreds of millions of dollars.
However, you only have to look at the Drecom IPO to witness crazy PERs, Drecom was valued at nearly $800M at one point, and is still valued at over JPY50B or nearly $500M, with a PER of 386 as of today. Taking a hypothetical PER of 400 would value the company at nearly $2Billion. I’m not sure if people will go that high, but a billion dollar valuation doesn’t seem unrealistic given current market conditions and the appetite for such a high profile stock (even if the valuation is totally crazy, which I think it is).
That is of course if there are no nasty surprises in the next month. The IPO filing does contain some issues which require some thought. The filing states Mixi has received a cease and desist notice from an unnamed domestic company, relating to functionality deployed in the SNS service citing patent infringement. There is also the issue of the fundamental SNS related patent granted to Friendster. Mixi, whilst being a “Japanese” SNS, has plenty of users resident in the US, which would make Mixi potentially vulnerable to having proceedings for infringement brought in the US, home of the big ticket settlement/award. If I were lawyers advising either the unnamed firm or Friendster, obviously I’d wait until Mixi has a dazzling IPO making it extremely valuable, before attempting to sue for a lot of money.
The other issue is of SNS sites in general being a potential breeding ground for illegal behaviour (prostitution, minors being targetted and groomed by paedophiles, etc). Mixi claims that it, in contrast to for example some major US SNS sites which allow minors to use the site, only allows users aged 18 or above to register and use the site. However, a quick search on Mixi will show plenty of user profiles returned when searching for something like “high school student” and “17” or “16”. So stricter policing definitely seems required. Again, given the accessability of this site from the US by US minors, the site may also fall foul of US laws in this area as well.
In other (related) IPO news, Netage Group, the holding company that owns Netage Capital Partners (which is the #2nd largest shareholder in Mixi), is having its own IPO at the end of this month. Bookbuilding closes on the 17th of August, and the IPO price will be announced on the 18th. I am guessing the Mixi IPO approval will result in a major increase in Netage IPO price, which was estimated to be in the JPY560k-600k region, which would value the company at somewhere a little above $200M. But given that Netage owns more than 16% of Mixi (although approx 9% is actually owned by a fund for which NCP is the GP (no idea as to how much LP money is actually in this fund), at least 7% seems to be owned by NCP as a principal investment), I am guessing the stock will be positively influenced by the imminent IPO of Mixi (if investors don’t get cold feet thinking about the various potential legal liabilities…)