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China tech

E-commerce upstart Yunji shines in downsized Nasdaq IPO

Member-based platform sees Alibaba and JD.com, not Pinduoduo, as the competition

A digital billboard in Times Square shows an ad celebrating Yunji's debut on the Nasdaq Stock market on May 3. (Photo by Alex Fang)

NEW YORK -- Chinese social commerce company Yunji surged Friday on Nasdaq after a $121 million initial public offering as it seeks growth in the country's increasingly saturated e-commerce market.

The stock closed at $14.15 on the first day of trading, 29% higher than the IPO price, after opening at $13.42.

Yunji has increased buyers on its platform to 23.2 million last year from 2.5 million in 2016, the year after its founding. The company, which doubled revenue to nearly $1.9 billion and nearly halved its net loss to $8.2 million in 2018, originally filed for a $200 million listing but lowered its target.

"Investors are really hoping to see Chinese e-commerce companies differentiate themselves from the traditional ones," Chief Financial Officer Chen Chen told the Nikkei Asian Review. And with the presence of giants like Alibaba Group Holding and JD.com, investors worry about growth plateaus for Yunji and whether opportunities still exist for new players, he said.

"They have seen our rapid growth historically and are interested in our future potential but need more time to watch our long-term performance," Chen said.

Reuters reported last September that Yunji planned to raise $1 billion in its IPO on a valuation between $7 billion and $10 billion. Chen disputed this, saying that "our valuation was indeed higher at the end of last year but not by much and certainly nowhere near $7 billion."

China's e-commerce sector, long dominated by Alibaba and JD.com, has sent a number of new faces to Nasdaq. These include Pinduoduo, with a market capitalization around $27 billion, and key opinion leader facilitator Ruhnn Holding, which listed in April.

Yunji's model lacks a direct equivalent in the U.S. but has been likened to a cross between Costco and Amway. In contrast to Alibaba's Taobao marketplace or Pinduoduo, which serves as a platform for store owners, Yunji sells from its own inventory, working with both established names like L'Oreal and Samsung Electronics and emerging local brands. Members are consumers who are encouraged to share products and related content and get points or coupons when others use their referral links.

"Ten years ago, people got their information mainly through search and web browsing," Chen said. "But in the last couple of years, it has been mostly through content -- on Toutiao or WeChat. People don't always know what they need, and sometimes they need some guidance."

"We set out to build a sales model that could awaken dormant demand," he said.

Yunji's aggressive expansion in its earlier years drew the attention of Chinese authorities, who slapped the company with the equivalent of a $1.4 million fine in 2017 for violating pyramid scheme laws. The company has since adjusted its business to comply with regulations, according to its prospectus.

The company is based in Hangzhou, which has become an e-commerce hub thanks to Alibaba's headquarters and the city's proximity to consumer goods suppliers, many of which have factories in the region.

Though Yunji's model is more akin to Pinduoduo's, Chen said there is almost no customer overlap, as Yunji's products are more carefully selected and curated for its largely middle-class client base. Pinduoduo is known to serve a more rural demographic.

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