When Chinese internet companies seek initial public offerings, they tend to look to the United States, where rules for profitability are less strict. SMZDM, an online shopping guide that few people outside China have heard of, has joined a small rank of internet startups that are trading on public markets in mainland China.
SMZDM, short for Shen Me Zhi De Mai or “what’s worth buying” in Chinese, saw its shares soar nearly 44% on its first day of trading in Shenzhen. After pricing its IPO at 28.42 yuan ($4.13) and opening the day at 34.1 yuan, SMZDM closed at 40.92 yuan. This values the company at about 2.18 billion yuan ($320 million).
The company is raising 330 million yuan from the public offering and plans to spend the money on upgrading its big data capabilities so it can deliver to users more personalized content and services.
Before applying for an A-share listing on China’s main bourses, firms generally need a three-year track record of profitability, though the country has made progress to smooth the way for loss-making, high-potential tech firms. SMZDM clocked (in Chinese) net income of 19.35 million yuan ($2.81 million), 35.16 million yuan and 86.24 million yuan in 2015, 2016 and 2017, respectively. Its revenue climbed from 97.29 million in 2015 to 367 million yuan in 2017.
Since its founding nine years ago, SMZDM has only raised from one institutional investor, China Growth Capital. Why sell shares to the public when the company was already earning good money?
“For an internet startup to keep attracting talent, it needs to have a transparent corporate structure and an employee stock ownership plan,” Wu Haiyan, managing partner at China Growth Capital, told TechCrunch in an interview. “Of course, going public is another way to raise capital.”
SMZDM began life as founder Sui Guodong’s blog, where he reviewed a range of gadgets as a pastime. Over time, the WordPress site blossomed into a public platform where people share guides to purchasing products of all sorts — from baby milk formula to Nikon’s latest lens — and where to get the best deal. When a transaction happens on its partnering marketplaces, SMZDM gets a commission.
The model means shopping guides like SMZDM rely overwhelmingly on shopping portals for success and are susceptible to the changes at the e-commerce behemoths. Indeed, more than 85% of SMZDM’s commission and marketing revenues in 2018 came from Alibaba, JD.com, Amazon and its other major clients.
For now, at least, Alibaba and the like seem to show enough interest in third-party product review sites. As Wu argued, “the heart of e-commerce portals is to drive sales instead of building a community for giving and receiving unbiased feedback,” which is SMZDM’s value proposition. The key performance index of an online community, she added, is the level of user interaction and amount of content they generate.
That’s why both Alibaba and Tencent — which has backed e-commerce companies JD.com, Pinduoduo and Mogu — threw money at Xiaohongshu (“The Little Red Book” in Chinese), a part marketplace, part social media platform for learning lifestyle trends.
While shoppers on Xiaohongshu are predominantly female, as is the case with most Chinese e-commerce services, more than half of SMZDM’s users are male, a result largely attributable to its abundant content about hardware and home appliances.
That library of product reviews, Wu argues, is what sets SMZDM apart from its competitors.
“Building any community takes time, and capital alone can’t help it grow,” the investor observed. “People stay for high-quality content and interaction with like-minded users. When a community starts to have its own vibe, people will stick around.”