Chinese mobile gaming company Chukong has decided to postpone its US IPO, as Chen Haozhi, CEO and co-founder of the company, disclosed in an internal email yesterday.

The major reason, according to Chen, is the management are not satisfied with the valuation, which is around $540 million. The low valuation is due to the fact that the company is perceived as a mere game developer and distributor who makes profits lower than average game developers/distributors.

Gaming companies are generally trading at comparatively low valuations, for gaming has been regarded by many investors as a hit-driven business.

That must be why Chukong would position itself as a mobile content and development platform when filing for the IPO, touting that the gaming engines developed by the company are world’s largest and worth a lot. Chen disclosed in the mail that Amazon offered to buy their mobile gaming engines for $600 million one year ago.

Also, Chukong thinks their game development and distribution business alone is worth much more. It made more profits in Q1 2014 than China Mobile Games Entertainment Group (NASDAQ: CMGE) which is trading at $670 million a market cap.

But total profits generated by Chukong is lower than investors expect for a gaming company. That’s because, according to the company, Chukong has been investing heavily into its game engine development and building the platform.

So Chukong concludes it should be traded at least at some $1.3 billion a valuation, more than twice of the current one.

But it looks the whole idea isn’t well received by investors. Some don’t believe the Chukong mobile content platform and gaming engines will be so scalable as it sounds.

Mr. Chen said Chukong would wait for several quarters to make some tweaks on businesses and profits. The company will be divided into two, one for game publishing and one for the mobile content platform. He hopes the platform will break even in the fourth quarter this year, and by 2015 it will contribute 20% of the total revenues through advertising, Cloud services, commissions from payment processing, and paying users, and 44% of the total profits considering the margins from the platform will be higher than game publishing.

Tracey Xiang is Beijing, China-based tech writer. Reach her at

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