Late last night , a China-based private technology company focused on streaming content and esports, announced that it priced its IPO at $11.50 per share. The company sold just under 45 million shares at that price in the transaction, while existing shareholders sold around 22.5 million.

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According to DouYu, the IPO sold a total of $775.0 million in shares, a figure that could rise to $891.2 million if its underwriters purchase allotted optional shares. Reporting indicates that the company’s IPO is the largest China-based offering on U.S. markets, besting Luckin Coffee’s earlier debut.

It’s a big darn offering, making DouYu’s final pricing interesting.

The company had targeted a range of $11.50 to $14.00 per share, meaning that DouYu went public at the bottom-end of its expectations. No company wants to price at the low-end of its range. Companies want to post a range, raise it after seeing strong demand, and then price above the higher interval.

As a private company, DouYu raised from backers like and .

DouYu will go public, and it will put even more cash onto its balance sheet (the firm had over $600 million in cash on hand at the end of its most recent reporting period). But it won’t start life at the price that it hoped. The company’s shares will begin trading this morning.

Valuation

If I’m doing the math correctly, DouYu’s 32.46 million ordinary shares (the firm’s American Depositary Shares are worth 1/10th an ordinary share in the company) value the firm at $3.73 billion. If we count the underwriters’ option, the tally rises to $3.81 billion.

At the top end of its range, those numbers could have risen to $4.54 billion and $4.63 billion, respectively; that valuation gap shows how important a firm’s IPO pricing is, in practice, when a company debuts.

DouYu is one of three IPOs expected this week. For more, head here for information on the impending and debuts.

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As a year, 2019 is coalescing into a slingshot of sorts for a host of tech, and tech-related companies. Years of disappointing IPO cohorts are now fading as, finally, a seemingly-reasonable number of venture-backed companies are going public.

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After some big names went out earlier in 2019 (, , , , etc), it would be more than fair to pause paying as close attention to the next set of companies going public. But that would be a mistake. While this week’s IPO pickings don’t have the same sort of star power as Uber et al, they are still important public debuts.

And if we are going to understand the state of late-stage venture, we’ll need to know how exits themselves are performing. So, these IPOs matter. That in hand, let’s get to it.

Three IPOs

We’ll consider the deals in order of when they are expected to trade. There are three to dig through. First up:

• Name:
• Expected trade date: July 17, 2019
• IPO price range: $11.50 to $14
• Crunchbase News coverage

The China-based DouYu follows into the U.S. public markets as a company focused on the worlds of game streaming and esports. The company, as we previously reported, has a history of gross-margin negative revenue.

However, DouYu’s finances have improved. Indeed, in its most recent quarter, DouYu’s revenue more than doubled to $221.9 million. The company earned just $30.3 million in gross profit off its top line, leading to a $7.2 million operating loss. Luckily, the firm’s huge cash position ($641.9 million) and some foreign exchange gains pushed the firm into profitability.

The company’s IPO is, therefore, a bet that its revenue growth will soon allow the firm enough gross profit to cover its operating costs. The company’s impending IPO raise will further pad its already wealthy accounts, giving the firm an unusually long runway to reach breakeven while still growing rapidly.

• Name:
• Expected trade date: July 18, 2019
• IPO price range: $15 to $17
• Crunchbase News coverage

Born in 2005, Phreesia’s march to the public markets is long even by today’s standards. And the company’s small-ish revenue base and moderate growth make it an odd duck amidst other venture-backed offerings. All the same, Phreesia did raise money from venture capitalists, including , , and others.

You can read the company’s filing or our notes on the document here.

• Name:
• Expected trade date: $16 to $18
• IPO price range: July 19, 2019
• Crunchbase News coverage

This customer-experienced focused SaaS shop is pretty much our speed in terms of what it does, and how it does it. Selling software on a recurring basis with some consulting revenue mixed in is our standard fare.

So, : Medallia’s revenue grew from $70.7 million to $93.6 million in the most recent quarter, including revenue growth from $55.6 million to $71.7 million for its subscription business. That works out to an aggregate revenue gain of 32.4 percent, and a subscription revenue gain of 29.0 percent.

Happily, Medallia’s operating and net losses are trending down, leaving the firm near break-even on both counts in its most recent quarter. The results represent a dramatic improvement over its year-ago results for the quarter ending April 30. In that period the firm was smaller but lost around ten times as much on a net basis.

And that’s that. Expect more from us as the week continues. !

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Continuing our 2019 IPO coverage, meet . Based in Wuhan, China, the company has since its birth in 2013. and helped finance DouYu’s growth.

DouYu was last valued at $2.4 billion , making the deal yet another unicorn IPO. And as the company is targeting the New York Stock Exchange for its debut, it’s an offering we need to understand.

We’ll approach the company from two perspectives. First, some notes on its business, then the resulting numbers.

How Big Is Streaming?

DouYu claims to be the “largest game-centric live streaming platform in China.” The numbers backing up the statement are notable.

According to , “[a]s of December 31, 2016, 2017 and 2018, we had 98.7 million, 182.1 million and 253.6 million registered users, respectively.” Registered users growth helped DouYu tally 153.5 million MAUs in the fourth quarter of 2018, up from 134.3 million in the year-ago Q4.

That’s a lot of people. And, notably, DouYu isn’t spending heavily to acquire them. According to the filing, its “user base is primarily acquired through organic growth, with over 92% of our new mobile users in the fourth quarter of 2018 [installing] our apps without third-party marketing.” Of course, mobile users are a fraction of its total user base, but the data point is useful all the same.

There are other stats provided, including that DouYu “active users” spent 24.2 million hours per day on the platform in the fourth quarter of 2018, up from 17.2 million in the year-ago period. And that it had 6.0 million “registered streamers” in the fourth quarter of 2018, up from 3.9 million in Q4 2017.

All that usage drives revenue. How? In one main way, it turns out. According to DouYu, live streaming “generated 77.7%, 80.7% and 86.1% of our total net revenue in 2016, 2017 and 2018, respectively,” which was “primarily derived from the sales of a wide array of virtual gifts.”

So, nearly 9 in every 10 dollars of DouYu revenue generated last year came from the purchase of “virtual gifts.” How high does that money stack? Let’s find out.

The Numbers

DouYu is an odd company. It grew its revenue to more than a half billion dollars in 2018 but generated gross profit losses in both 2016 and 2017. A company this large failing to have positive gross margins over a multi-year period is rare.

Given its history of gross margin losses, DouYu does not have a history of operating income, let alone net profit.

Off of $531.5 million in revenue in 2018, the company generated a slim $22 million in gross profit. $147 million in full-year operating costs led to a $125 million operating loss. DouYu’s full-year net loss came to $127.4 million.

While DouYu’s operating losses are steep, the company does have a history of quick revenue growth. In RMB, here’s how fast the streaming company grew over a three-year period:

• 2016: 786.9 million RMB
• 2017: 1,885.7 million RMB
• 2018: 3,654.4 million RMB

That’s a few doubles in a row. Investors love to see that sort of growth. And since DouYu has a history of improving gross margins, you can somewhat trace out a path to less unprofitability at the firm. However, sans gross margin improvements, DouYu will need far-lager revenues to generate enough gross profit to cover its operating costs.

DouYu doesn’t need to raise money. It has over $800 million in cash and equivalents in the bank and burned less than $90 million in cash during 2018 (operating and investing cash flow, combined). So, the company has enough money to grow for a long time.

That makes an IPO look like a liquidity event, instead of a fundraising effort. With over $1 billion raised, the company has a lot of pressure behind it to provide a return. And the IPO window is open. So, out goes DouYu long before it can draft a clear map to profitability.

Yes, it’s good that companies are going public before they are nearly done growing up. But the pendulum can swing the other direction as well.

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