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Should you buy iBuy?

Asian e-commerce business iBuy (ASX: IBY) bucked the trend of recent IPOs by rising as much as 11% during its first day of trading on the ASX. iBuy was incorporated as a company just four months ago by entrepreneurs Patrick Grove and Lucas Elliott’s Catcha Group and raised $37 million from the IPO to fund purchases of ‘flash sales’ websites in Asia.

Catcha group is best known for the float of its two ASX-listed companies iCar Asia (ASX: ICQ) and iProperty Group (ASX: IPP). iCar and iProperty operate in South-East Asia and have seen great support from investors looking for exposure to growing internet penetration in Asia. iCar shares are up 325% this year, while iProperty is up 115%. The businesses are quite self-explanatory; iCar operates the largest network of online automotive sites in the ASEAN region, while iProperty runs a series of real-estate websites through Asia, including the dominant websites in Hong Kong, Malaysia, and Indonesia.

iBuy will be hoping to achieve similar success in the ‘flash sale’ website domain. $31.5 million of the $37 million raised from the IPO will be used to purchase four websites in Hong Kong, Singapore and Malaysia: BeeCrazy.hk, Deal.com.sg, Mydeal.com.my and Dealmates.com. These websites are similar to Scoopon, Catch of the Day, and Groupon in Australia, which offer discounted goods for short periods of time. Critically, iBuy has developed relationships with 7000 product suppliers to sell excess, remnant, obsolete or out-of-season stock through its new websites, which it will attempt to make a margin on-selling.

The group’s founders see huge opportunity in South-East Asia and are focusing their attention on getting into the market early. Unlike Australia’s ‘mature and small’ market for online shopping, South-East Asia is the world’s fastest growing e-commerce region, but still less than 2% of retail transactions are undertaken online. The four websites grew sales from $48 million in 2011 to $73 million 2012, while the losses narrowed from $3.9 million to $1.4 million in what can only be described as a positive trend.

Foolish takeaway

Patrick Grove and Lucas Elliott have a good track record in Asia. So far they have built the largest network of online automotive sites in the ASEAN region and Asia’s No. 1 property classifieds website group. Their experience in the region is invaluable for iBuy and will likely see the share price perform well as investors realise the importance of quality management in Asian-exposed companies. Grove and Elliott’s strategy of finding online businesses that work in the West and taking them to the East has worked incredibly well so far, and will only improve as internet penetration increases.

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Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned.

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