Global Mofy Metaverse Limited (GMM) has filed to raise $30 million in an IPO of its common stock, according to an F-1 filing.
Given the risks involved, I have doubts about an IPO, despite the fact that the company is growing at a high pace.
Headquartered in Beijing, China, Global Mofy Metaverse Limited was established to develop a range of 3D content creation and related services for online and digital businesses in China.
The management is led by Founder, Chairman and CEO Yang Haogang, who has been with the company since its inception in 2017 and was previously a co-founder of Hangzhou Shixingren Film Technology Co., Ltd. and Marketing Director of Shanghai Crystal Digital Technology Co. ., OOO director.
As of March 31, 2022, Global Mofy has received a $5.1 million fair market value investment from investors including James Yang Mofy Limited, Lianhe Universe Holding Group, New JOLENE&R LP and New Luychao Limited.
The firm works with large multinational clients as well as smaller companies through its own sales and marketing efforts.
Global Mofy positions itself in the market as a digital asset provider and intermediary in the Metaverse value chain.
Selling expenses as a percentage of total revenue decreased as revenue increased, as shown in the chart below:
The sales performance multiplier (defined as the number of dollars of additional new revenue generated by each dollar of sales spend) rose to 82.5x in the last reporting period, as shown in the table below:
Strictly speaking, the Metaverse is a digital universe based on blockchain technology and is home to decentralized applications.
It is a decentralized, persistent and secure online space where users can create avatars, buy virtual assets, and act digitally.
According to Grand View Research’s 2022 market research report, the global metaverse market size is estimated at $38.9 billion in 2021 and is expected to reach $772 billion by 2030.
The main drivers of this expected growth are the growing focus on using the Internet to integrate the digital and physical world, the rise of mixed reality hardware and software, and the outbreak of a global pandemic.
As the COVID-19 pandemic disrupts traditional ways of doing business, working and communicating, there is a growing demand for digital platforms that can provide realistic and immersive experiences.
The pandemic has also created a need for social distancing, which has led to the popularity of online gaming and virtual reality (VR) as alternatives to real life social interaction.
All of this contributes to the fact that the Metaverse has become one of the hottest trends in technology and business lately.
Global Mofy intends to raise $30 million in gross proceeds through an IPO of its common stock, offering 6 million shares at a suggested average price of $5 each.
In the event of a successful IPO, the company’s IPO value would be approximately $123 million, excluding the effect of the underwriters’ option on the additional offering.
The ratio of shares outstanding to shares outstanding (excluding re-allocation of underwriters) will be approximately 20.0%. Figures below 10% are generally considered low turnover stocks that can be subject to significant price fluctuations.
With regard to pending litigation, management stated that the company is not currently involved in any litigation or administrative proceedings that could have a material adverse effect on its financial position or operations.
GMM is seeking investment in the US government capital market for its various general corporate purposes and possible acquisitions.
The company’s financial data shows an increase in revenue, an increase in gross margin but a decrease in gross margin, fluctuations in operating profit and uneven operating cash flow.
Selling expenses as a percentage of total revenue declined as revenue increased and the sales efficiency ratio rose to 82.5x in the last reporting period.
The company currently plans to pay no dividends to public shareholders and to hold onto any future earnings to reinvest in the company’s growth plans.
The market opportunities for Metaverse related products and services are very large and are expected to grow at a high rate in the next few years, so the company has a strong growth momentum in the industry.
Like other companies doing business in China looking to enter the US market, the company operates under a WFOE or wholly foreign enterprise structure. US investors will only be interested in offshore companies that have stakes in operating subsidiaries, some of which may be located in China. In addition, there may be restrictions on the transfer of funds between subsidiaries in China.
The recent crackdown by the Chinese government on IPO candidate companies, coupled with tightening reporting and disclosure requirements in the United States, has severely hampered Chinese or related IPOs, resulting in generally poor post-IPO results.
In addition, a potentially significant risk to the company’s outlook is the uncertainty about the future status of Chinese companies’ shares under the US HFCA Act, which requires delisting unless the company’s auditors submit their PCAOB working papers for audit purposes.
Potential investors would do well to consider the potential impact of specific laws regarding income repatriation, as well as changing or unpredictable Chinese regulations that could affect such companies and US stock prices.
In addition, post-IPO post-IPO post-IPO post-IPO management messages from management of small Chinese companies listed were vague and sloppy, demonstrating a lack of interest in communicating with shareholders, providing only the bare minimum required by the SEC, and a generally inadequate approach. Keep shareholders informed about priorities.
Maxim Group, the lead underwriter, has completed an IPO with a negative average return (67%) since the IPO in the last 12 months. It was the lowest result among all large underwriters during this period.
Risks to the Company’s prospects as a public company include its access to the Chinese market, which is impacted by unpredictable regulatory actions, government “COVID zero” policies, and an uncertain financial regulatory environment in China and the United States.
In terms of valuation, management is asking investors to pay an EV/revenue multiple of approximately 5.7x.
Given the risks involved, I have doubts about an IPO, despite the fact that the company is growing at a high pace.
I am the founder of IPO Edge on Seeking Alpha, a research service for investors interested in IPOs in the US market. Subscribers get access to my own research, estimates, data, reviews, opinions and chat about the US IPO. Join the insider’s edge today in the new pre- and post-IPO challenge of going public. Get started with a 14-day free trial.
Disclosure: I/we do not have stock, options or similar derivatives positions in any of the above companies and we do not plan to take such positions within the next 72 hours. This article was written by me and expresses my own opinion. I have not received any compensation (other than Seeking Alpha). I have no business relationship with any of the companies listed in this article.
Additional Disclosures: This report is for educational purposes only and is not intended to provide financial, legal, or investment advice. The information mentioned or contained herein may change, be incorrect, become outdated and out of date, or be removed at any time without prior notice. Before making any decisions, you should do your own research on your particular financial situation. Investing in an IPO can be subject to significant volatility and risk of loss.
Post time: Dec-07-2022