China 360buy’s Fund-Raising Drive Highlights IPO Urgency

Chinese online shopping firm 360buy loses money, needs huge cash injections to feed its supply chain, and its profitable rival Alibaba Group has more than double its market share.

That leaves it with one option – float before Taobao does.

Analysts believe a frenetic fundraising drive which has pulled in more than $2 billion in 18 months shows it is getting ready to do exactly that.

Its latest round, which it announced on Monday, raised $700 million counts Saudi Arabia’s Prince Al-Waleed bin Talal, Ontario Teachers’ Pension Fund and the Tiger Fund amongst investors.

“360buy has to IPO within the next 6 to 12 months. It is a momentum issue and that’s to say they have to try to get out before Taobao IPOs and sucks all the oxygen out of the room,” said Michael Clendenin, managing director of RedTech Advisors.

360buy declined to comment on IPO plans and valuation.

The Ontario fund said the latest round of fundraising valued 360buy at around $8 billion.

Alibaba Group, which owns Taobao Marketplace and Taobao Mall, also declined to comment on its IPO plans. However, in a stock buyback deal with Yahoo Inc signed last year, Yahoo offered Alibaba incentives if it lists by the end of 2015.

If 360buy is the first mover, it may attract investors who want exposure to e-commerce in China. Being first is crucial because the market much prefers Taobao’s business model, and would snap up its shares were they to go on sale, analysts say.
“I’ll buy Alibaba Group rather than 360buy. It’s safer bet compared to 360buy,” said Elinor Leung, head of Asia telecommunications and Internet research at brokerage CLSA.

“In terms of market share, Alibaba is the largest and their strategy … is not investing directly into expensive logistics networks but operating as just a platform,” she said.


Taobao Mall held 51 percent of China’s business-to-consumer market while 360buy had 16 percent in the fourth quarter of 2012, according to data from Analysys International.

Taobao Mall has many thousands of virtual stores including Nike Inc and Gap Inc on its platform that take care of delivery themselves, and it makes its money from adverts and subscriptions.

By contrast, 360buy is an Amazon-style direct seller that competes with shops like GOME and Suning, meaning it must sink cash into warehouses, stock and delivery.

Last August, Chief Executive Richard Liu said he did not intend to make a profit on household electronics, a major portion of its sales, for three years. But in January, Liu said 360buy would be profitable in the fourth quarter, widely seen as a sign the firm is rapidly gearing up to launch a share sale.

Alibaba Group, which owns Taobao Mall, Taobao Marketplace and, is already profitable. In the April-June quarter last year, it more than doubled its net profit to $273 million on sales that grew 71 percent.

While Taobao is making money, 360buy is spending it. The cash it has brought in will be used to fund investments and current operations, the company has said.
Most of those investments are in its logistics network and warehouses. The company has a courier team of more than 10,000 to deliver in 360 Chinese cities, part of a plan to control the last delivery point before goods reach buyers: a gigantic undertaking is a country as vast as China.

“360buy shouldn’t be spending a huge amount of money in building out logistics. Is that the right way to go? That’s like Amazon trying to start UPS,” said RedTech’s Clendenin.