Alibaba-Backed Chinese Chat App Momo Surges in U.S. Debut

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Momo Inc., a Chinese social media application backed by Alibaba Group Holding Ltd., surged 26 percent on its first day of trading in New York after raising $216 million.

The shares jumped to $17.02 on Dec. 11 in New York after they were sold for $13.50, the middle of the price range. Concurrently to the initial public offering, Momo plans a private placement to shareholder Alibaba of $50 million and $10 million to classified advertising website 58.com Inc., its prospectus shows. The Bloomberg index of the most-traded Chinese stocks in the U.S. gained 0.5 percent, ending three days of declines.

The company, which generates most of its sales through membership subscription fees, had 60.2 million monthly active users at the end of September and is seeking to attract more of China’s half-billion mobile Internet users. Momo’s advance compares with an average 12 percent first-day gain for Chinese IPOs in the U.S. this year, data compiled by Bloomberg show.

“It has been very well received,” Ella Ji, a New York-based analyst at Oppenheimer & Co., said in a telephone interview. “Alibaba as a pre-IPO investor and concurrent investor shows Alibaba’s confidence in mobile-based, social products.”

Alibaba took a 20 percent stake in Momo in November 2012 at an implied valuation of $100 million, according to a report by Brean Capital LLC in October. The company is planning an advertising partnership with the e-commerce company, according to its IPO filing.

Messaging Applications

Other investors in Momo include Matrix Partners China, Yunfeng Capital and Sequoia Capital.

Internet-based messaging platforms are displacing traditional text services offered by wireless carriers. Facebook Inc. bought messaging startup WhatsApp Inc. in a $22 billion deal announced in February, days after Japan’s Rakuten Inc. agreed to pay $900 million for rival Viber. Tencent Holdings Ltd.’s WeChat, one of China’s most popular mobile-messaging applications, has 468 million monthly users worldwide, according to the company.

Alibaba may see an opportunity to expand Momo’s scale, Ji said. “With the right target and strategy, there is more for Momo to do,” she said. “It has this potential to develop to be a really location based, social app, not only for dating.”

Momo’s surge is the second-best debut among 14 Chinese companies that went public in the U.S. this year. Alibaba climbed 38 percent on its first day of trading Sept. 19. Momo posted $26.2 million in net revenue in the nine months through September. The social media company is unprofitable, its IPO filing shows.

‘Malicious’ Allegations

The IPO comes as Momo’s co-founder Tang Yan is being accused of violating terms of his employment agreement by NetEase Inc., a Chinese Web-game operator where Tang worked for nearly eight years until September 2011.

In a statement issued on its Weibo account, NetEase said that Tang set up Momo without its authorization in July 2011, while he was still an employee. NetEase also said Tang directed funds to an advertising company founded by his wife.

“Tang has informed us that he believes the allegations are malicious and intends to vigorously defend himself against them,” Momo said in a regulatory filing.

The shares are listed on the Nasdaq Stock Market under the symbol MOMO. Morgan Stanley, Credit Suisse Group AG, JPMorgan Chase & Co. and China Renaissance Securities managed the IPO.

China Eastern Airlines Corp., the nation’s second-largest carrier, jumped 10 percent to $26.30, the highest in almost four years. Jumei International Holding Ltd., an online retailer of beauty products, sank 8.8 percent to $13.51, the lowest since its May IPO.

The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, the largest U.S. exchange-traded fund that tracks mainland Chinese stocks, climbed 2.3 percent to $34.06 in New York, extending its 2014 advance to 38 percent. The iShares China Large-Cap ETF, which tracks Hong Kong-listed companies, added 0.4 percent to $40.06.

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