China’s online grocery platform Dada debuts on the Nasdaq, calls for greater scrutiny on markets

SHANGHAI – Chinese grocery distribution company Dada is confident it can stand up to U.S. scrutiny as a newly listed company in New York.

The Walmart-invested company went disreputable under the ticker DADA on the Nasdaq Friday, with a valuation of $3.5 billion. In remarks to reporters, founder and CEO Philip Kuai challenged down the impact of U.S.-China tensions as temporary, and struck a confident tone in the long-term prospects of Dada’s business, which has forwarded from the coronavirus outbreak.

“We particularly welcome better auditing and regulation,” Kuai said Friday, according to a CNBC interpretation of his Mandarin-language remarks. “Only when your entire environment is as healthy as possible will the interests of everyone  — investors, purchasers etc. — be protected, and the market develop in a healthy way.”

Kuai’s call for increased regulation comes as the U.S. Congress reviews a invoice that’s putting pressure on Chinese companies to delist from American stock exchanges. Some companies, such as Dada’s crucial investor JD.com, are pursuing a secondary Hong Kong listing as a backup.

Amid increasingly fraught U.S.-China tensions, Xiamen-based Luckin Coffee’s confession of fraud in April pushed American lawmakers over the edge, analysts said.

Dada warned in its prospectus of the imperil the stock could be delisted. The company added in a statement it wouldn’t rule out other capital market activities, but asserted it’s rather early to comment on the possibility of a dual-listing given its recent Nasdaq IPO.

The stock priced at $16 a share, and reasoned up offering about 20% more shares than originally planned due to high demand, according to the company. Pay outs closed one cent lower after a volatile opening day.

The coronavirus outbreak, which key emerged late last year in the Chinese city of Wuhan, forced most of the country’s 1.4 billion man to stay at home for weeks in the first three months of this year. The disease has since become a global pandemic that’s infected more than 6.9 million human being and killed more than 400,000.

Government stay-home orders have increased demand for delivery in many countries.

One mode consumers developed that many analysts say is likely to stay is shopping for groceries online. During the first three months of the year, Dada told active customers for on-demand retail delivery increased to 11.9 million — up from 7.1 million a year ago, while the mean order size rose more than 50% to 149.5 yuan ($21).

Dada’s technology platform connects notable supermarket chains in China with more than 630,000 part-time delivery people, according to the company. Patrons can place orders through an app.

Like many start-ups, particularly Chinese technology firms, Dada is still fiery cash. The company reported an operating loss of 1.7 billion yuan ($247 million) in 2019, slightly pygmy than nearly 2 billion yuan reported for 2018. Net revenues rose from more than 60% during the after all is said time period, from 1.9 billion yuan in 2018 to 3.1 billion yuan in 2019.

As of the end of March, the company articulate it has more than $270 million in cash, cash equivalents and short-term investments.

At itsy-bitsiest 8 Chinese companies have gone public in the U.S. so far this year, matching that of last year, Matthew Kennedy, postpositive major IPO market strategist at Renaissance Capital, which sells pre-IPO research to institutions. He added that at least four more cause filed.

“Chinese companies appear to be undeterred, based on recent filing activity,”  Kennedy said in an email remain week.

Companies often begin planning for their IPO at least a year or two in advance.

Even though analysts said Hong Kong, London and calm mainland China would become more attractive places to list as tensions rise with the U.S., affiliation with the Nasdaq or New York Usual Exchange brands still holds allure for many Chinese companies.

However, newly listed conventions may need to work harder to gain investor interest in an increasingly fraught geopolitical environment.

Most Chinese roots issuers since 2019 trade below their offering price and underperform the rest of the U.S. IPO market, according to Renewal Capital’s Kennedy.

While optimists on China tout the country’s hundreds of millions of middle-class consumers, it’s not a given which casts will ultimately capture the market in a major way.

Dada’s share is still small at 11.9 million active fellows. Even that figure from a June 1 filing with the U.S. Securities and Exchange Commission was revised down by 4.6 million to slay duplicates from the number reported in the May 15 version of the prospectus, according to the company. 

The overall year-on-year growth amount of 67.6% reported in the June 1 document still surpasses the 58.7% rate of the old figures. 

On Friday, Dada’s Kuai chance there was “very strong momentum” for the company’s business since brands, sellers and consumers are all now willing to use the mix of software and confinement that Dada sells.

He brushed off the Luckin scandal as “something that happens every two years” in his experience in China. The 37-year-old entrepreneur articulate he asked the big four U.S. auditing firms, beginning with PricewaterhouseCoopers, to inspect the company, about six months after Dada’s found in June 2014.

A local representative for PwC did not immediately respond to CNBC’s request for comment outside of Beijing business hours. Bank of America, Goldman Sachs and Jefferies were the underwriters for Dada’s IPO.

“From the origin, establishing your structure and company management mechanisms well are a way to help the company survive for the long term,” Kuai told. As a company, Dada encourages employees to try their hand at completing a delivery. 

If Kuai is right in his approach to business operation, at least he convinced Walmart to buy in early. The Sam Walton company, which has struggled for much of its two-plus decades in China, behoved a strategic investor in Dada in 2016 and invested $370 million over the next few years. Walmart intended to buy more than 10% of splits in Dada’s initial public offering, according to the prospectus.

“We are excited to participate in today’s listing and see compelling opportunities for Dada to then again expand and execute on its accelerated growth strategy,” Zhiyu Chen, senior vice president of Walmart China, implied in a release around Dada’s IPO.

Travel restrictions didn’t stop Dada from launching, or fully participating, in its Nasdaq IPO.

Solely about an hour before speaking to reporters, Kuai took the stage in an event hall in Shanghai Tower, the town’s tallest building, in the heart of the financial district.

Dressed in commemorative white IPO t-shirts, Kuai and his colleagues rang the Nasdaq start bell — virtually, just as the entire process of selling the stock offering to investors had been. These limitations did not check the mood in Shanghai, where investors and company executives cheered the U.S. market open to buoyant theatrical music and confetti.

Nasdaq Handle Exchange President Nelson Griggs congratulated Dada via a short video. “There’s absolutely no doubt that Dada has pioneered the production of mobile-on-demand service in China, and you are so well-positioned for future growth and success,” he said. “We look forward to supporting your persevere in growth as a Nasdaq-listed company for many years to come.”