Big Deal: YY seeks to thaw icy US IPO conditions

So far, 2012 hasn’t been exactly the Year of the IPO for Chinese businesses looking to go public in the US. When China-based online fashion retailer VIPshop went public in March this year, its stock fell sharply, which was the last time a Chinese company attempted to go public in the US.

China-based gaming portal and downloads site YY.com is seeking a US initial public offering [IPO] after filing its F-1 with the SEC on Monday, and is looking to raise $100m in the offering. Backed by Disney corporate venturing affiliate Steamboat Ventures, which has a 12.2% stake in the company following a $5m series B round in 2008, the firm has a commanding presence in Chinese social networking.

Steamboat’s investment in YY appears consistent with Steamboat’s focus on scalable platforms anchored by big ideas in the application and service layer for digital media and consumer technologies.

The results of the flotation are worthwhile tea leaves to look at to reveal Steamboat’s future, as it refocused much of its activities towards Asia at the beginning of this year.  The firm has invested in China-linked companies including online advertiser Yoyi Media, internet TV company UUSee, online gaming firm Troodon, video streaming website 56.com, e-commerce firm Shangpin, games and apps developer Chukong Technologies, and others.

Signs are positive. YY has expanded from its original roots in online gaming to evolve into a gaming-driven social network which has been able to expand into other media verticals such as music and video streaming.

The diversity has enabled YY to significantly expand its user base.  Standing at more than 300 million users, YY now has accounts for more than half of China’s total internet user base or roughly one in 10 of every internet user in the world.

This growth is reflected in the company’s financials,  with its revenues in the first half of 2012, actually topping its full year in 2011, hitting $51m, up from $50.8m in the full year 2011. The company also posted a $3.2m profit during the first half, compared to a $13.2m loss in full year 2011.

Despite this, given the recent problems of many China-based listed companies in the US and another hotly feted social network, Facebook, getting smashed on the Nasdaq, YY’s IPO and other Steamboat investments still could be regarded as risky business.

Since the beginning of 2011, only two out of 13 Chinese companies to list in the US are trading above original offering price, and the average return is currently sitting around the -37% mark, according to investment bank Renaissance Capital. Fortunately for VIPshop, a strong rise in stock price has seen its value shoot up to around +34% above its offer price; its early blip turning out to be just that.

Yet still YY certainly will need a little Disney magic to clear away the resoundingly bearish view on Chinese companies looking to file F-1s in the States. But should YY pull off a successful IPO, it will clear the way for other hungry online startups in China looking to break into the Nasdaq, and put a new positive spin on Steamboat’s bursting Chinese portfolio.