DayDayCook (DDC), a Chinese food company that went public in the middle of November, can repurchase part of its shares in order to support its share price, two people familiar with the matter told Kursiv. As of Tuesday, the stock price was 33% lower than during the initial offering.
Details
Apart from repurchasing its shares, DDC is also weighing the opportunity to boost the demand for the stock in China, a source familiar with the issue told Kursiv. He also said that the company wants its underwriters to do something to limit short positions against its stock. If these measures are taken, it will have a positive impact on the share price dynamic very soon, the expert noted.
The context
DayDayCook was established in 2012 in Hong Kong. Even though the company was initially known as a platform of recipes and food content, it has produced ready-to-eat food and sets for cooking under recipes since 2019. As of June 30, the service had about 24.5 million paid customers. The core audience of DayDayCook is young people who represent Generation Z.
Feeding Gen Z: Producer of Food for Generation Z Goes Public
On November 17, DayDayCook went public on the New York Stock Exchange without much interest from investors. The stock was offered at $8.50 per share which is 10% lower than the price range announced in the prospectus. In addition, DDC reduced the number of shares it offered during the IPO from 4.25 million to 3.9 million.
At the closing of the trading session on November 21, DayDayCook shares were traded at $5.67, which is 33% lower than the offering pricing. However, on Tuesday the security price rose by 8.8%.
Excessive valuations
According to Dealogic, stocks of the vast majority of companies that have gone public since 2020 in the U.S. are currently traded lower than during their initial offering. The platform’s data shows that this is true for about 80% of companies that debuted on the stock market in 2020. For those that went public in 2021 and 2022, the statistics are even worse: 87% and 85%, respectively.
Analysts from PitchBook, a private market data company, say that recent IPOs in the U.S. raise questions about the overall condition of the market. The experts believe that prospects for IPOs have worsened due to the slowing stock market and high-interest rates. Finding a successful offering with good valuations is a much more difficult task these days. According to analysts from PitchBook, fast-growing companies have been suffering the most from market correction.
The stock price of the Chinese producer of food for Gen Z plunged right after the IPO
Since November 1, 2023, 12 companies have gone public in the U.S. (including DDC). More than half of them haven’t shown any growth. Even those stocks whose initial offerings the market was waiting for and welcomed are traded below initial pricing as well.
For instance, shares of Arm Holdings, a British producer of microchips whose IPO has been the biggest so far this year and helped the company to raise $4.87 billion, are still traded below the initial offering price. Instacart, an American food delivery company, reported the same situation with its shares that have declined almost 30% compared to pricing at closing on September 19. The share price of Klaviyo, an American marketing automation platform, also hasn’t exceeded the initial offering price. Birkenstock, a premium shoe company from Germany, is the only positive example among well-known companies. It went public on October 11 and since then its share price has risen by 7%. According to the consensus forecast based on stock market analytical data on investing.com, the company’s shares are recommended to buy within the next twelve months.
Investors’ expectations
In late November or early December, DayDayCook is expected to publish its Q3 report. If the company shows strong revenue growth, new acquisitions and further rebounding of the Chinese market after the lockdown, this can be a good start for its share price increase. In the prospectus DDC prepared for investors before the IPO, it said that over the first six months of this year, its revenue rose by 33.9% to $12.3 million, while its gross profit margin reached 26.2% compared to 20.2% last year.
The company’s financial results improving by and large might be explained by the economic growth in China itself. The company now plans to enter the global market. The market share of ready-to-eat food has grown very fast for the past two years in China. It has shown double-digit growth. Frost & Sullivan estimates that the volume of this market in China can reach $83.5 billion by 2026, although the company plans to gain at least half of its revenue outside of China by 2025, according to its prospectus.
Currently, the company is actively working on entering the U.S. market. It has already acquired Nona Lim in San Francisco. Moreover, DDC is negotiating with potential partners in different countries in Southeast Asia. The key element of the company’s strategy is the balanced combination of online and offline sales. This helps DayDayCook to expand its range of customers, optimize sales channels and downgrade risks associated with dependence on a single channel.
