Chinese IPOs on NYSE
| December 9, 2010 | Posted by Dax under Articles |
It would seem like the dot.com bubble is descending on us again after a decade. The 2 Chinese IPOs that went for listing on NYSE today skyrocketed on opening, with one ending more than 100% above their initial price. The two companies are youku.com and dangdang.com.
How well do investors in the US know these 2 companies, especially when they are from China, where regulatory and accounting standards are different and numbers cannot be verified? For one, Youku has not even been profitable in the 3 years prior. Once again we are going back to the era where eye-balls and page impressions were worth as much, maybe even more, than actual profit dollars.
What I found most amusing was how the hosts on CNBC glorified these companies. Or maybe it was not their intention to do, but the publicity stunts of those companies who gave them these sound-bytes. Youku.com was called the “Youtube of China” and Dang Dang termed the “Amazon of China”. These two phrases gave these companies more clout and familiarity with US investors. And who would not be excited by a Youtube or Amazon, especially if they are tapping on the Chinese market, the world’s most populous market?
While I am not familiar with Dang Dang, I have been on Youku.com to watch Chinese TV-dramas and movies. They have excellent connection speeds and a very broad range of content, which is excellent service for the many students and individuals who were looking for free entertainment online. However, I have often wondered if these were legally posted. In those early days (about 4 years ago), it probably did not matter that these videos were posted without permission of the owners. After all, it might be difficult for enforcement. We do not see entire movies on Youtube precisely because these were copyrighted and there is strict regulation in the US on distribution of these works. When I checked the site for this article, I found that they now have American movies! So are we to next see a Chinese company that duplicates DVDs (piracy?) seek funds from American investors?
The business model of Youku is similar to Youtube – they rely on advertisements on the clips for revenue, but it makes one wonder whether this is really sustainable, given that they are still in the red. One thing going for Youku is that Youtube is still banned in China, so it has a greater chance to monopolize that niche. I once read that Google acknowledges that Youtube was not worth its 1.65 billion acquisition. I wonder if investors will feel the same way about Youku in the coming months.
Youku ended 161.25% above it’s offer price to end at $33.44 on 8 Dec 2010
Dang Dang ended 86.94% above to end at $29.91
To read more about these IPOs, follow on to CNBC here
