iHuman Seeks $100 Million In U.S. IPO

iHuman (IH) intends to raise $100 million in an IPO of its ADSs representing underlying Class A ordinary shares, according to an F-1 registration statement.

Beijing, China-based iHuman was founded to create a subscription and advertising supported online service that provides the ability for young children to learn languages, math science and culture in a fun environment.

Management says it is the number 1 provider of online childhood edutainment in China, according to a Frost & Sullivan report that it commissioned and paid for.

Management is headed by founder, and Chairman Michael Yufeng Chi, who was previously founder of Beijing Jinhongen Co. and Perfect World Group, a ‘global entertainment company focusing on original content creation and technology.’

Below is a brief overview video of iHuman:

Source: iHuman Chinese

The company’s primary content offerings include:

  • Languages – Chinese, Pinyin, English
  • Math
  • Culture
  • STEM courses

iHuman has received at least $53 million from investors including Academy Management (Michael Yufeng Chi), HPF Fusion, Lei Hong DP and Tianjin Share Xinghan Enterprise Management Consulting.

The company markets its offering through online apps included in major mobile app stores such the Apple App Store and Google Play Store.

Management plans to market its system via social media, Internet video and live streaming promotional campaigns.

The firm will cross-sell its products to encourage parents and users to try its other applications to drive engagement and spending.

Sales and Marketing expenses as a percentage of total revenue have been uneven as revenues have increased.

The Sales and Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, rose to 3.2x in the most recent reporting period.

According to a 2020 market research report by Mordor Intelligence, the global market for edutainment is expected to grow at a CAGR of 17% from 2016 to 2025, as the chart shows below:


The largest market by region is expected to remain North America, but the Asia Pacific region is forecast to grow at the fastest rate during the period.

The main drivers for this expected growth are game design simplicity, continued increase in the number of smartphone and tablet users, belief in enhancement of children’s social skills and a strong platform use case for subjects including language and history.

However, there continues some skepticism about the educational value of ‘edutainment’ as well as a lack of serious recognition by traditional education systems for the genre.

The online childhood edutainment industry is fragmented as there are many definitions of how much or little education is included in entertainment offerings for children and the firm faces numerous competitive threats from major game and information platforms.

iHuman’s recent financial results can be summarized as follows:

  • Strong topline revenue growth, at an accelerating rate
  • Sharply increased gross profit and gross margin
  • A swing to operating profit and net income
  • Growing cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:


Source: Company registration statement

As of June 30, 2020, iHuman had $21.9 million in cash and $37.7 million in total liabilities.

Free cash flow during the twelve months ended June 30, 2020, was $15 million.

iHuman intends to raise $100 million in gross proceeds from an IPO of its ADSs representing underlying Class A ordinary shares, although the final amount may differ.

Class A ordinary shareholders will be entitled to one vote per share and the company founder will hold all Class B shares, which will entitle him to ten votes per share.

Management says it will use the net proceeds from the IPO as follows:

approximately 35% for expanding our product and service offerings, both domestically and overseas;

approximately 25% for our development of existing products and services;

approximately 20% for improving our technology infrastructure;

approximately 10% for marketing and brand promotions; and

the balance for general corporate purposes, which may include funding working capital needs and potential strategic investments and acquisitions, although we have not identified any specific investments or acquisition opportunities at this time.

Management’s presentation of the company roadshow is not available.

Listed bookrunners of the IPO are Credit Suisse, Citigroup, Tiger Brokers, CMBI and CLSA.


iHuman is seeking public investment to finance its expansion plans in a growing market for childhood edutainment in China.

The company’s financials show very strong revenue growth, in the most recent period likely due to the effects of the Covid-19 pandemic pushing more parents to sign up for accounts for their young children at home.

Sales and Marketing expenses as a percentage of revenue have fluctuated as total revenues have increased; its Sales and Marketing efficiency rate has increased markedly in the most recent reporting period.

The market opportunity for edutainment is expected to grow at a fairly rapid rate over the coming several years, so the firm has growing industry dynamics in its favor.

Like many Chinese firms seeking to tap U.S. markets, the firm operates within a VIE structure or Variable Interest Entity. U.S. investors would only have an interest in an offshore firm with contractual rights to the firm’s operational results but would not own the underlying assets.

This is a legal gray area that brings the risk of management changing the terms of the contractual agreement or the Chinese government altering the legality of such arrangements. Prospective investors in the IPO would need to factor in this important structural uncertainty.

Credit Suisse is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (11.3%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.

iHuman is a fast growing independent, but the question in my mind is whether it will continue to grow at its previous rates of growth without being part of a major platform.

When we learn more about the IPO, I’ll provide an update.

Expected IPO Pricing Date: To be announced.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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