Full Truck Alliance Stock Looks Like a Good Buy in the IPO

Mohit Oberoi, CFA - Author

Jun. 21 2021, Published 9:08 a.m. ET

This week’s calendar for IPOs looks pretty impressive. Chinese startup company Full Truck Alliance is expected to go public and will offer ADS in the U.S. markets. Should you buy Full Truck Alliance stock and what’s the outlook for the company?

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Full Truck Alliance is also known as Manbang Group in China. The company is known as the “Uber of trucks” since it's in the business of connecting truck drivers with the people looking to ship items. The company is the world’s largest digital fleet platform. It was formed in 2017 with the merger of Huochebang and Yunmanman.

Full Truck Alliance investors

China’s tech giant Tencent and SoftBank’s Vision Fund are among the investors in Full Truck Alliance. A large number of Chinese tech startups are backed by domestic tech giants including Alibaba, Tencent, and Baidu. SoftBank has also been a major investor in Chinese companies. It also backed Alibaba, which was among the best investments for the Japanese private equity company.

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Full Truck Alliance IPO details

Full Truck Alliance plans to sell 82.5 million shares in the IPO and the initial pricing is between $17 and $19. The stock would trade under the ticker symbol “YMM” on the NYSE. The company could raise almost $1.57 billion in the IPO. China International Capital Corporation, Morgan Stanley, and Goldman Sachs are the underwriters for the offering and have an option to purchase another 12.38 million shares in the IPO.

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Along with the IPO, Full Truck Alliance is raising another $200 million through a private placement of shares. Ontario Teachers’ Pension Plan and the Abu Dhabi sovereign-wealth fund are each investing $100 million in the company. Companies generally do a private placement before the IPO to generate investor interest as investment from a well-known company helps brings more legitimacy to the company.

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Full Truck Alliance's operating metrics

In its S1 filing, Full Truck Alliance said that it's present in 300 Chinese cities and is covering over 100,000 routes. In 2020, 2.8 million truckers and 1.3 million shippers used its services. In 2020, it fulfilled 71.7 million orders with a gross total value of around $27 billion. Full Truck Alliance also said that “approximately 20% of all China’s heavy-duty and medium-duty truckers fulfilled shipping orders on our platform in 2020, according to the CIC (China Insights Consultancy) Report.”

Full Truck Alliance stock valuation

Looking at the IPO price range, Full Truck Alliance is seeking a valuation between $18.5 billion and $20.6 billion. The valuation is at the lower end of what the markets were previously expecting. The Wall Street Journal reported that the company will seek a valuation between $20 billion and $30 billion in the IPO.

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The company is growing fast and in the first quarter of 2021, its total orders increased 170 percent. However, the growth is coming from a lower base. In the first quarter of 2020, the Chinese economy was battered by the COVID-19 pandemic.

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Full Truck Alliance reported revenues of $395 million in 2020, while its operating loss was almost $554 million in the year. At the upper end, the company is valued at a 2020 price-to-sales multiple of over 50x. While it might look high in absolute terms, Full Truck Alliance is in the early stages of monetization and the revenues should increase sharply in the coming years.

Overall, the IPO looks like a buy given the company’s strong moat in the Chinese digital freight market. There's also strong interest from institutional investors, which will help propel the market sentiments.


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