  gogox has been approved to list in hong kong despite operating in the red for years and seeing no potential profits for at least the next two years   company derives lion’s share of its revenue from mainland china but may be losing ground to a new rival operated by didi global gogox holdings ltd may be a massively moneylosing online logistics platform but that doesn’t mean it’s not going places despite losing 23 billion yuan 360 million over the past three years the alibababacked nyse baba operator of a trucking serviceforhire met market capitalization and revenue requirements for a listing in hong kong which normally frowns on ipos for moneylosing companies having reached those milestones gogox has received the official green light to move ahead with a listing on the city’s main board its ipo application was approved and uploaded on sunday to the hong kong stock exchange website gogox was established in 2013 and operates china’s second largest online intracity logistics platform it plans to raise up to 500 million through the listing according to financial news publication ifr the company’s prospectus shows that it posted losses attributable to shareholders of 107 billion yuan 184 million yuan and 658 million yuan in 2018 2019 and 2020 respectively it lost another 393 million yuan in the first three quarters of last year and doesn’t see itself breaking even in the next two years so how can such a sea of red ink convince investors to cough up big bucks for its ipo the company’s journey dates back to july 2013 when three young hong kongers lam hoi yuen kwan chun man and tang kuen wai returned from their overseas studies in the us and set up their venture with two friends experienced in computer programming and design they founded gogovan the predecessor of gogox becoming the first smartphone app in asia that could instantly locate truck drivers to provide delivery services its edgy business model breathed new life into the logistics industry and the company secured 370 million in its first three fundraising rounds in 2016 it broadened its footprint to the chinese mainland taiwan india singapore and south korea a year later gogovan merged with mainland logistics company 58 freight creating a company worth more than 1 billion making it one of hong kong’s earliest unicorn startups it changed its name to gogox the following year its chinese name “fast dog” conveys its aim to provide fast service with the same devotion as man’s best friend it now has operations in more than 340 cities with more than 49 million drivers in its network gogox has conducted five fundraising rounds to date giving it a preipo valuation of 2 billion its largest shareholder 58 daojia part of the online ad group often called the “craig’s list of china” holds 512 of its shares alibaba holds 1599 of its shares and the three founders hold 1758 gogox’s biggest market is mainland china which has supplied 50 to 70 of its revenue over the past three years its income comes mostly from commissions which it takes in the form of membership fees and a cut from its drivers’ earnings the company has faced a formidable new kid on the block since didi freight a similar platform operated by the uberlike didi global nyse didi entered the market in june 2020 and has expanded rapidly effects from the new competition are reflected all over its latest business performance the impact is most obvious in its plunging commission rates which fell from 66 in and 83 in 2019 and 2020 respectively to just 27 in the first three quarters of 2021 put differently the company now only earns 270 in commission for every 100 order or about a third of what it was getting in 2020 more red flags appear in declines for other indicators such as monthly active users mau its number of shipment orders and the total value of its transactions all of those have been falling since early 2020 hinting at weakening momentum for the company in its biggest market market research cited in gogox’s prospectus shows it was the second largest intracity logistics platform in china in 2020 with 55 of the market followed by didi freight at third with 31 but by september 2021 it had lost its no 2 position by falling to 34 of the market while didi freight’s share rose to 39 hardly a reassuring situation gogox has personal data from over 1 million users but has not been classified as “a critical information infrastructure operator” by chinese regulators which should lower its regulatory risk however its decision to go public in hong kong almost certainly reflects its realization that crossborder data flow is a touchy subject for beijing especially given the current political frictions between china and the us gogox might have also learned a lesson or two from the tale of didi’s nyse didi controversial ipo in the us last july didi became the target of china’s internet regulator shortly after the ipo due to its data security risk and the company announced it would leave the new york stock exchange just five months after the ipo in that context hong kong represents a safer place to list reducing potential policy risks gogox will face hong kong is also closer to chinese investors many of whom are more familiar with the company which could help its valuation while didi freight is part of the much larger didi global gogox’s other two big rivals lalamove and huitouche are not currently listed to estimate its valuation we can use an emerging player full truck alliance nyse ymm which entered the intracity trucking market in 2020 and is currently listed in the us as reference its current pricetosales ps ratio is 136 times gogox’s prospectus shows its revenue has been quite stable in recent years hovering around 453 million yuan to 548 million yuan from 2018 to 2020 its figure for the first three quarters of last year was 470 million yuan assuming that holds steady into the fourth quarter and using full truck alliance’s ps ratio as a reference gogox might expect a valuation of hk104 billion 133 billion – well below the 2 billion at the time of its last funding an ipo now makes sense while the company is still a market leader in china since it meets hong kong’s thresholds of a hk4 billion 513 million valuation and hk500 million in annual revenue despite still running at a deficit why not avail itself of this opportunity to raise money through an ipo that could help it expand into new markets given the sorry state for uslisted chinese stocks over the past year the decision to list in hong kong also looks wise and could help gogox to pump up its valuation but investors are still likely to expect a roadmap to profitability before they’ll be fully convinced of the company’s longerterm potential