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Is BlueCity Worth Buying After Its IPO?

Is China’s largest LGBT-focused dating app BlueCity Holdings (NASDAQ: BLTC) worth buying after its IPO? –

BlueCity Holdings (NASDAQ: BLCT) announced the pricing of its IPO on 8 July, with the Chinese LBGTQ online dating app having offered 5.3 million American depositary shares (ADS) at US$16 apiece.

As former police-officer-turned-CEO Ma Baoli struggled with his own identity back in the late 1990s, he created Blued, a social networking site for the community.

It became one of China’s most widely-used apps with monthly active users (MAUs) of 6 million as of March 2020.

With an estimated market of 49 million registered users in over 200 countries and regions, can this emerging technology app win the hearts of investors?

Global public welfare project

With revenues generated through various services provided for the LGBTQ community, including apps, public health for HIV prevention and other sexually transmitted diseases, men’s health, and family planning services.

Total revenue grew 51.4% year-on-year to RMB 758.9 million (US$108.4 million) in 2019 from RMB 501.3 million in 2018. Its net loss decreased by 63.4% to RMB 52.9 million in 2019 from RMB 144.6 million in 2018 due to rapid user growth.

However, Blued is not only eyeing financial success. Ma Baoli also wants to show investors there is a company in China servicing the LBGTQ community.

Therefore, its business model in China has been replicated in other Asia markets such as India, Korea, Thailand and Vietnam with users from countries and regions outside of China representing over 49% of total MAUs in March 2020.

Is the industry big enough?

Other than Blued’s seemingly steady financials, its revenue driver mainly comes from its live-streaming services, which accounts for 86% of total revenue as out March 2020.

As the source of income is quite unilateral, user expansion will be a key performance indicator for the community.

Given the above, the LGBTQ population is expected to grow to 591 million by 2023, with Asia and North America representing over 70% of the global LGBTQ population.

This growth is due to more social acceptance and willingness of the younger generation to step out of the closet.

According to a Frost & Sullivan Report in 2018, the age groups of 18 to 24 and 25 to 34 have the highest percentage of the LGBTQ – representing approximately 40 million and 36 million people respectively.

Thus, there is huge upside potential for Blued to expand its products offering when compared to its current MAU of 6 million.

LGBTQ laws catching up in Asian countries

Asia in general lags behind Europe, North America when it comes to LGBTQ marriage equality.

Although Taiwan legalised gay marriage in 2018 and governments in Japan, China, Australia and Thailand have begun looking into the process, same-sex activity still prompts negative connotations in the mindsets of the older generation.

With more legislation reformation coming into place in relation to human rights for the LGBTQ community, I’d expect more advocacy work from Blued in the near future in encouraging more people to come out of the closet.

Foolish takeaway

This technology app company is interestingly selling its vision of building a connected LGBTQ community.

Though it has a niche market aimed at global users, the revenue model of Blued remains unilateral.

Most importantly, the company’s reduced reporting requirements as an emerging growth company pursuant to the “Jumpstart Our Business Startups Act” in 2012 may worry some foreign investors after Luckin Coffee falsified its sales information leading to its removal from the Nasdaq.

More reading

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Edmund R doesn’t own shares in any companies mentioned.

The Motley Fool Hong Kong Limited(www.fool.hk) 2020

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