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For many internet companies, escaping the allure of going public is nearly impossible. It's akin to ancient travelers gazing toward the imperial city, hoping for recognition and success. Among these unicorns, several are still plotting their moves, such as Didi, whose U.S. listing has drawn significant attention, along with the U.S.-based group comments and Toutiao. Sogou, which has already caught a glimpse of its potential, is now ready to reap the rewards.
On July 31st, Sohu released its Q2 financial report, signaling the beginning of Sogou’s U.S. IPO journey. This was quickly confirmed in an internal letter from Sogou CEO Wang Xiaochuan, stating that Sogou would proceed with its U.S. listing plans based on market conditions. After seven years of independence, Sogou is leveraging its IPO as a way to connect with investors, partners, and the media.
The buzz around domestic internet unicorns preparing for an IPO has always been high, yet concrete developments remain scarce. Companies rumored to be going public include the U.S. group comments, Xiaomi, Toutiao, Didi, and Ant Financial. Most of these firms were established or spun off between 2010 and 2012. After five to six years of development, they’ve managed to stabilize their businesses and clarify profit models, making an IPO a logical next step. Early predictions suggested that 2017 might be the ideal time for these companies to go public.
Beyond their own business structures and revenue data, the timing of 2017 is favorable due to external pressures. Two key factors driving this urgency are:
1. The impending exit timeline for investment institutions.
For example, when the U.S. group comments raised funds in late 2015, some reports suggested they had agreed to list within two years. While this hasn’t been officially confirmed, 2017 remains a critical point.
2. The impact of domestic policies on company valuations.
Last month, Bloomberg and Reuters reported that Didi planned to list in the U.S. Although Didi Chairman Cheng Wei later denied this, listing sooner could secure a higher valuation given the lack of supportive domestic policies.
Interestingly, Sogou became the first unicorn to take steps toward listing, setting the stage for its debut on the U.S. market. Compared to other unicorns, Sogou appears to have the perfect timing for an IPO in 2017. Why?
In general, the capital markets see 2017 as a golden period for listings.
2014 was a stellar year for Chinese companies in the U.S., with 15 IPOs raising $25.4 billion. However, 2015 and 2016 saw a sharp decline in listings, with fewer and smaller-scale offerings.
In 2016, the lowest level of IPO financing since 2010 led to overvalued valuations deterring investors. But 2017 presents a different scenario: Trump’s promise of tax cuts, increased spending, and relaxed regulations have stabilized the market. Overseas capital, particularly in the U.S., has renewed interest in Chinese internet firms, exemplified by Alibaba’s impressive stock performance.
With this momentum building, a catalyst is needed to restore long-term investor confidence in Chinese stocks.
Wang Xiaochuan’s internal letter highlighted Sogou’s key achievements:
1. Q2 search revenue of RMB 1.45 billion, up 26% year-over-year.
2. Mobile search revenue contributing 76% to total search revenue, up from 49% last year.
3. Voice input frequency on Sogou’s mobile keyboard reaching 260 million times, a 80% increase from a year ago.
4. Winning the Chinese-English translation championship at the WMT international academic competition.
These figures show consistent high-speed growth in Sogou’s revenue and operations.
Comparing Sogou’s Q2 revenue of 1.45 billion yuan with Baidu’s, despite having over 2,000 employees versus Baidu’s 50,000, Sogou’s per capita productivity is impressive. The surge in mobile search revenue is a testament to Sogou’s rapid growth beyond industry norms, driven by its differentiated competitive edge.
Under steady revenue, Sogou’s AI narrative aligns perfectly with Wall Street’s appetite.
To a degree, AI development feels like nurturing a child, yet is the story compelling? Google led with AI but remains rooted in advertising revenue. Baidu’s “All in AI†slogan has been muddled. Sogou, however, tells its AI story well and is nearing its IPO.
The internal letter’s third and fourth points highlight Sogou’s focus on language comprehension in AI. Detailed examples include providing machine translation services for major conferences like the World Internet Conference and the RISE Conference in Hong Kong.
Wang Xiaochuan explicitly outlined Sogou’s AI future: “Search is upgraded to a question-answering system, the input method becomes a dialogue system, and Chinese is translated globally.â€
Domestic policy also supports Sogou. The State Council recently issued the “New Generation Artificial Intelligence Development Plan,†aiming for China’s AI competitiveness to match global standards by 2030, with core industries exceeding 1 trillion yuan and related industries surpassing 10 trillion yuan. Sogou’s language comprehension focus is included in the plan.
For Sogou, going public is a natural progression. Its business and revenue are robust, the U.S. market is favorable, and Wang Xiaochuan has crafted a compelling AI story. As the AI wave unfolds, Sogou’s IPO could ignite investor interest, paving the way for others like Ant Financial, Didi, and Xiaomi.
From the PC era to mobile, and now in the AI era, Sogou’s rise is inevitable. The remaining question is whether competitors can keep pace.