## Newborn Town: Tinder of the Middle East Thrives, But Can It Woo Investors?
China’s economic slowdown has sparked a global expansion race for many companies, but navigating the international landscape can be tricky. While the US and Europe are becoming increasingly hostile to Chinese businesses, the Middle East presents a more welcoming environment for those with the right offerings. Enter Newborn Town Inc. (9911.HK), aptly nicknamed the ‘Tinder of the Middle East,’ which is capitalizing on this opportunity with impressive results.
Newborn Town’s latest financial report showcases its scorching growth, with revenue soaring between 60.7% and 62.7% year-on-year to an estimated 3.24 billion to 3.28 billion yuan in the first nine months of 2024. This remarkable performance is fueled by the company’s social networking apps, including the popular MICO livestreaming platform, YoHo audio-based social media platform, TopTop gaming network, and SUGO companionship platform. The company’s cumulative app downloads have surpassed 740 million, and its monthly active user base stands at 28.98 million, reflecting a growing user base in the MENA region.
Newborn Town’s success is rooted in its founder, Liu Chunhe’s, unwavering commitment to its original vision. Inspired by the Confucian adage ‘The best people are those who retain the heart they were born with,’ Liu established the company with a focus on staying true to its core values and consistently striving for improvement. This dedication has led to the development of platforms that resonate with users in the MENA region, making Newborn Town a leading social networking force in the market. The company was the first to obtain a social networking business license in Egypt and has now secured a regional headquarters license in Saudi Arabia, solidifying its position as the first global social entertainment company based in the kingdom.
While Newborn Town’s performance has been strong since its 2019 Hong Kong IPO, its stock price has been volatile, failing to keep pace with its impressive growth. Although the company achieved a 390 million yuan loss in 2021, this was primarily due to share-based compensation expenses. Excluding this, its core business remained profitable, quadrupling its profit to 510 million yuan the following year. This upward trend continued in 2024, albeit at a slower rate, with a 21.3% increase in profit to 225 million yuan in the first half of the year.
Despite its strong performance, Newborn Town’s stock price has fluctuated, failing to sustain its initial momentum. Investors have been somewhat fickle, initially embracing the company with a 1,441 times oversubscribed IPO in 2019. The stock doubled on its first trading day and climbed to over HK$11 in 2021 before experiencing a sharp decline to just HK$1 in 2022. Although the stock recovered briefly last year, its latest levels, while more than double its IPO price, remain far from its all-time highs.
The company’s elevated spending may be contributing to investor reservations. While revenue has surged, costs have grown even faster, with a 69.4% increase in cost of revenue in the first half of 2024, exceeding the 65% revenue growth. This high cost structure, combined with a lack of big-bank analyst coverage and a relatively low market value, has made it difficult for Newborn Town to attract a wider investor base. The company’s inability to maintain a market cap above HK$5 billion has also made it ineligible for trading in the Hong Kong Stock Connect program, which would have provided access to Mainland China-based investors.
While Newborn Town’s trailing price-to-earnings (P/E) ratio of 6.7 times is in line with its peers, such as Yalla (YALA), it falls short of the 17 for Match Group (MTCH), the parent company of Tinder. Some investors may be hesitant due to potential concerns not reflected in the company’s financial statements, while others may need more time to assess its continued rapid growth. Newborn Town’s success in the MENA region is undeniable, but its ability to capture the hearts of investors remains a challenge. Liu Chunhe’s unwavering commitment to his original vision is admirable, but it may require a few tweaks to win over investors and generate excitement around the company’s stock.
