iDreamSky IPO Not As Hot As It Looks

iDreamSky claims to be China’s largest independent mobile game publishing platform. It priced its IPO of 7,700,000 ADSs at $15.00 per share. This was above the preliminary $12.00 to $14.00 price range, which generated roughly $115.5 million before considering the overallotment option. If you just look at the quote pages the gains look as though they have been large. The problem is that this IPO may not be as strong as it looks at first glance.

iDreamSky offers a large portfolio of games, which deliver a variety of genres to China’s user base of approximately 100 million active monthly users. iDreamSky partners with many of the top game developers including big names like Disney and Sega.

J.P. Morgan Securities, Credit Suisse Securities, and Stifel Nicolaus & Company were joint book-runners for the offering. The company granted the underwriters a 30-day overallotment option to purchase up to 1,155,000 additional ADSs at the same terms as the initial public offering.

According to MarketWatch, iDreamSky generally doesn’t have its own games but works with outside software developers to tweak and then bring those games to China. It is also said to have 3 of the 10 most popular casual games in the Chinese market during the first quarter. iDreamSky makes most of its money from sales of in-game virtual items such as avatars, skills, privileges and other in-game features.

As of 2:50 p.m. Eastern Time iDreamSky was trading up 8.9% at $16.33 with a total volume of 8.6 million shares traded so far. The range on the day is $16.10 to approximately $18.00. Yahoo! Finance lists the day range as high $19.00 but that cannot be confirmed as the graph does not reflect that price. After taking the IPO dip from the morning the stock has hovered consistently throughout the day around $16.50.

This is one of those IPOs that looks like a handy win if you just look at the quote screen. Unfortunately, investors and traders who bought this stock after the open are likely now sitting on losses rather than gains.