Sogou’s IPO debuts in New York

China’s second largest mobile search engine, Sogou recently listed its ADR on the New York Stock Exchange under the ticker SOGO. The company offered 45 million shares raising $585 million from the IPO. The IPO priced at $13, at the top end of the price range of $11 to $13, valuing the company at $5 billion. J.P. Morgan, Credit Suisse, Goldman Sachs (Asia) and CICC acted as lead managers on the deal.

Chinese IPOs have been largely unsuccessful in garnering investor interest in international listings, but analysts expect Sogou to turn the tide.

Shares of the company had a relatively uneventful day of trade at debut (as on November 9) with the stock closing at $13.85 after a 4% increase in value mid-day. In the following days of trade (as on November 21) shares of Sogou have gained 5.4%. Subsequently, its market cap has increased to $5.4 billion.

Sogou, founded in 2005 by China’s leading internet firm currently runs China’s second largest mobile search engine, competing with Baidu and Alibaba owned UCWeb. Sogou’s search engine commands 6.6% market share in China, according to research firm Analysys. Worldwide leaders Facebook, Google and Twitter are banned in China.

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In 2016, Sogou reported revenues of $660 million and $591 million in 2015. In the first nine months of 2017, the company has earned revenues of $630 million. In 2016, the company earned $56 million in profit, down from $99.5 million in 2015. The company derives its revenues primarily from advertising.

The company in its IPO prospectus expects the Chinese search engine market to grow to $30.7 billion by 2010, from $11.5 billion in 2016.

Growing AI ambitions?

The IPO of Sogou has put it in a favorable position to pursue ambitions in growing its artificial intelligence business inorganically through acquisitions of startups. CEO Wang Xiaochuan said in an interview, “this IPO has opened a window for our globalization.” He continued, “Globally, we will look at M&A and partnerships with companies who have the technology to improve our AI.”

Sogou’s ambitions are driven by a policy push by the Chinese government to become the world leader in AI by 2030. Tencent holdings, Sogou’s largest shareholder have also been pursuing global ambitions to grow its AI capabilities. The company has invested $2 billion in Snap (SNAP) as part of this strategy.

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