Just a few weeks ago, Chinese IPOs were no-brainers for investors, an easy way to snag quick profits.  But since the Renren (Nasdaq:RENN) offering last Wednesday, things have gotten cold. 

Just look at this week’s IPO of Jiayuan.com (Nasdaq:DATE), which is a top dating site in China.  On its first day of trading, the shares fell 4.4% to $10.52 (they were as low as $9.76). 

So is this an opportunity for investors?  Are shares of Jiayuan.com a good deal? Let’s take a look at the pros and cons:

Pros

Leader. Jiayuan.com has the largest dating platform in China, with about 44% of the total revenue for the market. There are roughly 40.2 million registered accounts, of which 4.7 million are active.  Jiayuan not only has a strong presence in the major cities like Beijing, Shanghai and Shenzhen, but also strong footprints in lots of second-tier cities. 

Unique business model.  Most dating sites use a subscription approach.  However, Jiayuan’s pricing is based on performance.  Anyone can search the site for free – but must pay a fee to make a contact.  The result has been fast growth and strong user engagement. 

Growth. The Chinese online dating market is still in the early stages.  In fact, according to iResearch, the total revenue is expected to grow at a 31.3% rate until 2015.  Keep in mind that the market is only growing 3.4% a year in the U.S.

Some of the drivers in the Chinese market include urbanization, continued gender imbalances, growth in Internet adoption and cultural changes.

Cons

Competition.  As should be no surprise, the Chinese online data sector is rife with competition.  There are also fairly low barriers to entry in the market. 

So far, there are more than 50 rivals, including Baihe.com and Zhenai.com.  There is also competition from Chinese portals like Sina

(Nasdaq:SINA), Sohu.com (Nasdaq:SOHU), 163.com, Renren.com and Kaixin001.com

Economy.  Recently, the Chinese economy has shown signs of weakness.  A key problem has been a rise in the inflation rate.  To deal with this, the Chinese government has ramped up interest rates, which has tempered growth.

Valuation.  Compared to recent Chinese IPOs, Jiayuan is a small operator, with a market cap of roughly $320 million.  Yet, the valuation is still high, with shares trading at 13 times last year’s revenue.

Verdict

It was back in 2003 that Haiyan Gong created Jiayuan.com from her college dorm.  She was also smart to get support from top entrepreneurs in China, such as the co-founder of New Oriental Education (NYSE:EDU), YongqiangQian.

And yes, the growth rate for Jiayuan is continuing at a rapid clip.  In the first quarter, the number of paid accounts spiked to 882,000 from 306,000.

Despite all this, it looks like investors are getting skittish about Chinese Internet deals.  There may be IPO fatigue. 

And as seen with the IPO of Renren, price drops can be substantial.  For investors, it looks like the cons outweigh the pros for Jiayuan.com.

Tom Taulli’s latest book is “All About Short Selling” and his Twitter account is @ttaulli.  He does not own a position in any of the stocks named here.