58.com Inc (ADR) NYSE: WUBA
WUBA Shares Soar 33% On Merger Talk
58.com Inc., an online marketplace for the Peoples Republic of China allowing consumers and merchants to connect, surged higher in Monday’s trading as talk arised that Ganji.com, a competitor, could merge. The Financial Times reported that 58.com and Ganji.com had executed specific documents which could lead to a deal being announced as soon as Wednesday.
The two companies are looking to reduce their marketing costs as the primary benefit behind the deal. 58.com, nearly twice the size of Ganji.com, spent over $70 million or approximately 30% of annual revenue on heavy marketing.
TheStreet Ratings analysis and comments:
“We rate 58.COM INC -ADR (WUBA) a HOLD. The primary factors that have impacted our rating are mixed – some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company’s strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, premium valuation and feeble growth in the company’s earnings per share.”
Although a deal could be imminent, it more than likely would occur in stages as antitrust regulations would be examined closely.
On a technical note, in 2015 WUBA had been bouncing around its 9 and 20 day moving averages until recently rocketing higher, adding nearly 20% to its share price and new 52 week highs today on 20 times relative volume.
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