Why 58.com Inc Shares Temporarily Jumped Today

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of 58.com Inc initially rose more than 10% in Friday's early trading, then settled to close up 3% after the Chinese online classified ad company priced its follow-on offering of American depositary shares.

So what: Though shares had risen nearly 70% since 58.com's IPO five months ago, the stock plunged more than 15% since 58.com first announced the dilutive offering on Monday. At the time, it proposed that both it and selling shareholders would each offer 4.0 million ADS, with each ADS representing two Class A ordinary shares. In addition, 58.com wanted to grant its underwriters a 30-day option to purchase another 1.2 million shares.

In today's release, however, 58.com stated it will only issue and sell 2.0 million new ADS, while selling shareholders will still offer 4.0 million. Shares were also priced at $38 apiece. In addition, 58.com granted its underwriters a 30-day option to purchase up to an additional 900,000 ADS. The company's gross proceeds -- which don't include those from selling shareholders -- will be roughly $76 million.

Now what: The lower net number of new shares was welcome news after Monday's announcement, which explains the early pop. What's more, it's hard to blame 58.com for wanting to take advantage of its impressive post-IPO run to raise new capital.

Even so, while 58.com has grown quickly, shares do look pricey trading around 10 and 40 times next year's estimated sales and earnings, respectively. As it stands, and given its big run so far, I don't mind letting the dust settle to look for a more attractive entry point during the next few quarters.

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The article Why 58.com Inc Shares Temporarily Jumped Today originally appeared on Fool.com.

Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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