Not on the app yet but thought I would make a post since I’m quite bullish and decided to take a stake elsewhere.
Introduction
In short, BlueCity is the “world’s leading online LGBTQ community” headquarted in Beijing
but had 40% of MAUs in 2019 from outside China, with especially dominant positions in Vietnam, India, Korea and Thailand. It is listed on NASDAQ and incorporated in the Cayman Islands. In its fiscal quarter ended September 2020 it had MAUs on its flagship Blued app totalling 6.3 million. It has made two acquisitions since listing last summer; Finka - with MAUs circa 630,000 as of the same quarter, and LESDO - a lesbian focused platform that also produces its own entertainment content. It had 1.5 million registered users in 2017 and MAUs increasing by 20% between August and November alone.
Strengths
The company has a very broad product offering which includes health related services, family planning and non-dating oriented social networking. This helps reduce reliance on the matchmaking side and revenues reflect that - there is no over-exposure to advertising or subscriptions (which have always seemed contradictory to the objective in my opinion). A holistic “lifetime” approach where a user can book a HIV test, consult with a health professional, watch a popular series and engage with others like them all within a handful of apps provides a very strong moat which can help buffer against the fickle nature of users and platform cannibalisation that I will mention later, and membership can be more easily tailored and marketed to provide various value-add services.
As mentioned previously, Blued is also geographically diversified, and increasingly so. The proportion of overseas revenue almost doubled YoY in Q3 and many of its main markets have big LGBT presence so there is plenty more room to grow. This industry is relatively immune to macroeconomic conditions and even events like pandemics, as other peers such as Match have seen big jumps in activity as a result of lockdown restrictions.
The Founder Geng Le remains CEO which is greatly reassuring and the company has strong ESG credentials, recently donating 1 million yuan for AIDS prevention education and helping organisations conduct HIV research.
Weaknesses
Despite a differentiated service, like others in the industry BlueCity will be reliant on acquisitions to safeguard growth. It does have an advantage being one of only two listed Chinese dating companies with ample access to capital but its worth bearing in mind the risk of poor M&A activity and increasing debt, although its worth pointing out that the company currently has zero long term liabilities.
At present it is also very dependent on Live-streaming revenue, and while this is decreasing steadily it will take a number of years for other segments to catch up at current rates. I’d also like to see the company expand its offerings to other LGBT audiences and potentially enter other big LGBT markets such as South America and Australia/NZ.
Valuation & Peers
As of 31/12/2020, BlueCity had a market capitalisation of $360m, and an EV of $215m as of 30/09/2020. Management have guided for approximately 1bn RMB ($155m), giving a 2020 P/S of 2.3. At ~7m total MAUs, BlueCity is trading at an EV/MAU ratio of 30.7. While currently unprofitable, GAAP EPS of 0.28 is forecast for 2021, giving a forward P/E of 36. Organic MAUs are currently growing at 7-10%, with revenue growth far higher at 30-40%.
Among BlueCity’s main competitors is US-based but formerly Chinese-owned Grindr, which is private but was sold for $608m last year with over 5m MAUs, and a $31m profit in 2019 giving a PE of 19. Momo is another Chinese social dating platform listed on NASDAQ, which had organic MAUs of 113.6m as of September 2020. It also owns popular dating app Tantan. Despite growing 22% in 2019, Revenue has been hit hard in 2020, and more worryingly MAUs are starting to decline. It is also focused exclusively on the Chinese market. In the West the largest dating company is Match Group, which owns a host of different apps. It had 10.8m subscribers in Q3 compared to half a million for Blued, and Tinder alone likely has upwards of 50m MAUs.
| Peer | EV 1 | Price/Sales2 | Forward PE | EV/MAU | Rev. Growth |
|---|---|---|---|---|---|
| BlueCity Holdings | $215m | 2.3 | 36 | 31 | 30-40% |
| Momo Inc | $2,392m | 1.4 | 10 | 21 | -30% |
| Match Group | $32,557m | 13.6 | 70 | >100 | 15-20% |
| Grindr | $608m | ~5 | N/A | 120 | N/A |
1EV at Quarter Ended September 2020, except for Grindr.
2P/S and PE figures based on prices on 31 December 2020, except for Grindr.
Looking at the figures I think all three of the selected peers are useful for determining fair values. Momo provides a Chinese valuation, Match’s revenue growth is closer to BlueCity’s and Grindr targets the same segment. If BLCT execute well and continue to outperform domestic rivals like Momo I can see it trending towards a PE of over 40 and EV/MAU closer to 100. Let me know what you think!
