Webull’s charge from IPO gate looks unsustainable as China risks hover

The online stockbroker’s shares surged following a backdoor listing, but its China ties and growing economic uncertainty could be major risks

Key Takeaways:

• Webull shares soared 375% on the second trading day after completion of its listing through a SPAC merger, valuing the company at $30 billion
• The company gets most of its revenue from the U.S. but harkens from China, where more than half of its employees are still based

By Warren Yang

Talk about charging out of the gate.

Newly listed shares of Webull Corp. (BULL.US) had an eye-popping initial surge in their trading debut following its backdoor New York listing last week using a special purpose acquisition company (SPAC). But the company’s China ties, which have attracted attention from multiple U.S. government bodies over the last year, not to mention its more fundamental struggles to boost revenue and defend its profitability, may yet come back to gore Webull.

The online stockbroker, whose mobile app caters to U.S. retail investors, similar to Robinhood Markets (HOOD.US), debuted on the New York Stock Exchange on April 11 through a merger with SK Growth Opportunities Corp. Its shares soared 375% the next trading day to value it at nearly $30 billion. But that charge was short-lived and the stock has given back most of those gains on falling trading volume. The shares are still more than double their debut level, though they’re likely to come under more pressure due to their lofty valuation multiples.

Its dramatic first few trading days aside, one technical detail about WeBull’s backdoor listing may leave those not familiar with its story scratching their heads. It sought approval for its SPAC listing from the China Securities Regulatory Commission (CSRC), which gave its nod on April 8, apparently paving the way for completion of the deal and the New York trading debut.

This mandatory regulatory step for all Chinese companies listing overseas looks unnecessary for Webull, since technically it isn’t a Chinese company. It’s based in Florida, and gets most of its revenue from the U.S. The public face of Webull is a non-Chinese executive — President and U.S. CEO Anthony Denier, whose LinkedIn profile shows his previous background was mostly at financial firms in Europe.

But the company does have Chinese ties as its origin traces back to Hunan Fumi Information Technology, a provider of free market information, founded by Alibaba alum Wang Anquan in China in 2016.

Webull set up its brokerage business the following year under an entity created in Delaware, marking the beginning of its current form as a U.S.-centered business. The company’s website lists offices in a wide range of countries and regions besides the U.S., including Britain, South Africa, as well as Asian locations like Hong Kong, Singapore, Japan and Indonesia, hinting at its future ambitions. China is not among those.  

Despite all this, Webull says it voluntarily sought CSRC approval, noting that the Chinese regulator’s rules are subject to interpretation, according to a prospectus filed by SK Growth last month. SK Growth and Webull signed their original merger deal in February last year, saying at that time they expected to wrap up the transaction in the second half of 2024.

Webull’s decision to seek the CSRC’s blessing may have contributed to the delay, which isn’t unusual for this type of regulatory process. But it does highlight the company’s Chinese roots. While the company can downplay that part of its history on paper, the reality is that more than 60% of its employees are still on the payroll of its China-based subsidiary.

China ties

Webull’s China ties have also raised eyebrows of U.S. authorities due to concerns about data security, a highly sensitive area for both Beijing and Washington. In April last year, Indiana’s attorney general opened a multi-state inquiry into Webull’s management of U.S. customer data. Two months later, Tennessee banned the company’s app on all government-issued devices. And last December, the U.S. House Select Committee on the Chinese Communist Party sent a letter to Denier raising concerns about his company’s “deep ties” to China.

Webull has said all of its U.S. customer information is stored locally. And Denier reiterated that in an interview with CNBC last Thursday, emphasizing that Webull has been regulated by U.S. authorities since day one as a stockbroker.

“I’m very confident that all these inquiries will eventually be mitigated,” he said. “I know that we run a very good business for our clients and our customers, and our clients’ information is safe.” 

Webull’s business took off during the pandemic as interest in stock trading surged among home-bound people with lots of idle time on their hands and stimulus checks to spend. Its app has been downloaded more than 50 million times to date, with more than 23 million users globally, according to the prospectus.

Like Robinhood, Webull doesn’t charge commissions for trading U.S. stocks. Instead, it generates revenue by routing its trades to specific market makers that pay for that service. It also earns fees from customers for more advanced functions like margin trading and short selling. 

Like most stockbrokers, Webull’s ability to expand its top-line revenue is directly tied to economic and market conditions, which can be a more immediate concern for the company than its China connection as U.S. President Donald Trump’s policies cast a large shadow over the global economy. The company’s revenue actually shrank in the first nine months of last year from the same period of 2023, while its operating expenses increased. As a result, it made a net loss in the first nine months of 2024, a setback from its net profit a year earlier.

All things considered, Webull looks like an unusual, and possibly risky, partner for SK Growth, which appears to be tied to South Korean conglomerate SK Group. The company doesn’t quite align with the SPAC’s original intention to target a business focused on environmental, social and governance (ESG) principles. SK Growth says it believes Webull’s services “democratize” financial investment, and thus it advances ESG values. But that sounds like a stretch. A more plausible explanation may be that the blank-check company, which went public in 2022, was running out of time to find a merger partner within the standard two-year window, and did the best it could as time was ticking down.

Webull shares trade at a price-to-sales (P/S) ratio of more than 30, which looks highly inflated compared to 12 for Robinhood, especially given the company’s China risks and underwhelming financials. Such a bullish valuation for Webull shares in their early days hints at more potential downside as they come under pressure to return to more realistic levels, probably sooner rather than later. 

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