“Insanity: doing the same thing over and over again and expecting different results.”
The next hot Initial Public Offering (or IPO) from China seems to be the maker of a “dating app” that has a reputation as a hotbed of prostitution. The company is Momo – and Credit Suisse, Morgan Stanley, JP Morgan, and China Renaissance have teamed up to take it public.
Interestingly, Momo hopes to raise $300 million through its IPO, even though it doesn’t say what it plans to do with the money. Nor is it exactly clear how Momo makes its money: Tech Crunch reported that Momo could have a valuation of as much as $2 billion.
Momo is free to use, but it also sells digital content, such as apps and advertising. It also offers users a premium subscription service and accounts for business customers. Momo claims to have 180.3 million users, 25.5 million of whom supposedly use it every day. Momo also claims it made $13.9 million in revenue in the first half of 2013, most of which came from 2.3 million membership subscriptions.
Momo is controversial because of an algorithm that allows users to locate a person in the general vicinity, such as an individual who is drinking in the same bar. Critics have alleged that made it easier for clients to hook up with prostitutes, but Momo is now claiming that it is a “family-friendly” service.
Momo had tried to launch an English language service, but it shut down earlier this year. Instead, it is now concentrating on its Chinese language sites.
The company has not said how it will use its IPO money. TechCrunch reported that the company might plan to make acquisitions and boost its games platform, its marketing efforts, and sales. That means it might be trying to branch out from its questionable roots.
Social Network, or Hotbed of Prostitution?
That might be a good idea because Chinese authorities have attacked the app for encouraging prostitution and drug dealing. The Chinese new agency, Xinhua, slammed Momo as “hormone-filled” and labeled it a hotbed of prostitution. Its reporters discovered that many of the women the app linked them too were actually prostitutes.
The Xinhua report was part of a crackdown on prostitution and pornography by the Chinese government. The crackdown has included efforts to take pornography off social media.
It is not just prostitutes that use Momo. Tech in Asia reported that some of the women on the app are using it to operate an old con called the badger game. In the badger game, women pretending to be prostitutes lure men and steal from or blackmail them. One popular variation uses attractive women to lure men into bars and talk them into ordering pricy drinks and food, then leave them high and dry. The bar owner is usually in on the scam, according to Tech in Asia.
One person who apparently believes in Momo is Alibaba (NYSE:BABA) guru, Jack Ma. The ecommerce giant reportedly owns around 20% of Momo. It isn’t clear why Alibaba is so interested in Momo, but Ma may want to get his hands on some of its proprietary technology.
It looks like the season for questionable technology IPOs is here. Any similarity to the great .com bubble of the 1990s is not a coincidence. Once again, the same old madness appears in new forms.