Gridsum Holding Inc. (Pending:GSUM) expects to raise $75 million in its upcoming IPO. Based in Beijing, China, Gridsum provides data analysis software for domestic and multinational enterprises, as well as government agencies in China and abroad.

Gridsum Holding will offer 6,521,740 shares at an expected price range of $10.50 to $12.50. If the underwriters price the IPO at the midpoint of that range, GSUM will have a fully diluted market cap of $356 million.

GSUM filed for the IPO on August 26, 2016.

Lead Underwriters: Citigroup Global Markets and Goldman Sachs (Asia)

Underwriters: Stifel Nicolaus and Company

Business Summary: Provider of Data Analysis Software

According to company filings, Gridsum Holding provides data analysis software for domestic and international enterprises, as well as government agencies in China and abroad. Their product portfolio includes Web Dissector, an analytics tool that tracks online user interaction; Video Dissector, an analytics tool for analyzing video content; Streaming Dissector, a tool to analyze real-time viewership of digital online video; Contribution Dissector, a tool to measure long-term user behavior; Mobile Dissector, a tool to analyze mobile applications; SEM Dissector, an analytics tool for search engine marketing; and TV Dissector, an analytics tools to measure IP, cable, satellite, and digital TV. In addition, the company has analytics software for legal research, website analysis, mass media, social media, user-generated content, TV viewing, marketing automation, e-government, information discovery, and visualization.

Gridsum Holding markets its products to the travel and hotels, financial, Internet and e-commerce, new media operators, consumer products, automotive, and electronics and appliances industries.

Use of IPO Proceeds and Details of Company Growth

In its SEC F-1 filing, Gridsum Holding noted that they believe they are the only China-based company to offer analytics solutions to enterprise-level clients for web, video and mobile applications. Their solutions are used to analyze approximately 61 million Internet and mobile sessions daily across more than 233 million desktop and mobile device users. In addition, Gridsum Holding offers additional software solutions for media analytics and information discovery. Their client base includes Fortune 500 and China 500 enterprises for a total of over 300 customers, including more than 30 Chinese government agencies.

The company has grown rapidly with net revenues of RMB62.5 million in 2013, RMB124.5 million in 2014, and RMB234.8 in 2015, representing year-over-year results of positive growth at 99% and 89%, respectively.

Gridsum Holding intends to use the net proceeds from the IPO for working capital, general corporate purposes, investment in technology and infrastructure, product development, and expansion of sales and marketing. They may also use portions of the proceeds to acquire complementary business, technologies, products or services.

Gridsum Holding provided the following figures from their financial documents for the years ended December 31 in RMB:

As of June 30, 2016:

Leadership Overview

Guosheng Qi co-founded Gridsum Holding and serves as CEO and Chairman of the Board of Directors. He founded Gridsum in 2005 while he studied at Tsinghua University. Mr. Qi holds a bachelor's degree in computer software from Tsinghua University.

Guofa Yu co-founded Gridsum Holding and serves as COO. He is also a member of the Board of Directors. He previously held positions at Dyne Junhui and Neusoft Group. Mr. Yu holds a bachelor's degree in management information systems from Central South University.

Potential Competition: Google, IBM, Microsoft and Others

Gridsum faces competition from other companies offering analytics, including Oracle (NASDAQ:ORCL), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), IBM (NYSE:IBM), Microsoft (NASDAQ:MSFT), MediaV, adSage, and Adobe Media Optimizer. The below figures are taken from quotes via www.morningstar.com; for Gridsum, we rely on the company pricing at the midpoint of their proposed range and sales from 2015.

Conclusion: Consider A Modest Allocation At Most

GSUM is growing rapidly and has a strong team of underwriters.

However, negative operating cash flows keep us hesitant. GSUM is not yet profitable. In addition, a significant percent of their revenue comes from a small number of customers. In 2015, GSUM's top 20 customers accounted for 56% of their business. GSUM operates in an intensely competitive market with low barriers to entry.

We recommend caution and that investors consider only a modest allocation at most in the GSUM IPO.