Youku.com Inc. had the largest gain for a U.S. initial public offering in five years and E-Commerce China Dangdang Inc. almost doubled in its debut after investors flocked to buy into China’s Internet boom.
Youku.com, China’s largest online video company, soared 161 percent to $33.44 yesterday, after completing a $203 million IPO. The first-day advance was the biggest since Beijing-based Baidu Inc., owner of China’s most-used Internet search engine, more than quadrupled after its offering in August 2005. China Dangdang, the country’s biggest book retailer, gained 87 percent after its $272 million initial sale.
The offerings were the first of five mainland Chinese IPOs scheduled in the U.S. this week. The four previous Internet companies from China that completed sales this year surged an average of 57 percent in their trading debuts, Bloomberg data show. China, home to more than 400 million Internet users, may expand four times as fast as the U.S. next year, according to the International Monetary Fund.
Youku.com and China Dangdang are “two companies that excite investors’ imagination,” said Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, which oversees $55 billion. The IPOs represent an “intersection of China and the Internet, and so everyone’s jumping on board for that theme,” he said.
‘Excellent and Cool’
Goldman Sachs Group Inc. of New York managed Youku.com’s sale, while Credit Suisse Group AG in Zurich and New York-based Morgan Stanley of New York led the offering for China Dangdang. Both companies are based in Beijing.
Prior to Youku.com’s debut, ChinaCache International Holdings Ltd., a Beijing-based provider of content for business websites, had the biggest first-day rally on U.S. exchanges in three years, jumping 95 percent on Oct. 1.
The midpoint valued Youku.com at 15 times projected annual sales, compared with the median of 3 times estimated 2011 revenue for 12 U.S.-traded Internet-content providers, data compiled by IPOdesktop.com and Bloomberg show. It hasn’t posted a profit in the last three years.
China’s online-video market more than doubled to 621 million yuan ($93 million) last quarter, according to Beijing- based research company Analysys International. Google Inc.’s YouTube, the world’s most popular video-sharing site, is inaccessible in China.
“The market opportunity, especially on the consumer side, is becoming increasingly clear and continues to be robust,” Victor Koo, founder and chief executive officer of Youku.com, said in a telephone interview from the NYSE. “That’s something that’s interesting and exciting for a lot of U.S. investors.”
China Dangdang sold 17 million American depositary receipts at $16 each this week after originally offering them for $11 to $13 apiece, according to a filing with the Securities and Exchange Commission and data compiled by Bloomberg.
The company had increased the price range for its offering to $13 to $15 apiece this week from $11 to $13.
The original midpoint valued the company at 48 times annual earnings, based on third-quarter results, data compiled by Marina del Rey, California-based IPOdesktop.com show. That’s 64 percent higher than the median of 29.2 times estimated profit for 11 U.S.-traded Internet retailers, Bloomberg data show.
Amazon.com Inc. of Seattle, the biggest online merchant, trades at 39 times profit, the data show.
China Dangdang, which operates the dangdang.com website, increased sales by 56 percent in the first nine months of 2010 from the same period a year ago, its prospectus said. The company plans to use proceeds to broaden its product categories and expand its order fulfillment capabilities.
China had an estimated 420 million Internet users at the end of June, according to data from the government-sponsored China Internet Network Information Center.
The U.S. population in 2010 ranged from 305.7 million to 312.7 million, Census Bureau data show. China’s economy will grow 9.6 percent next year, versus 2.3 percent for the U.S., according to estimates from Washington-based IMF.
“Investors want to participate in the growth of consumerism in China on the Internet,” said Peggy Yu Yu, executive chairwoman and co-founder of China Dangdang, in a telephone interview from the NYSE. “That’s behind their interest in the stock.”
While four of the ten best performing U.S. IPOs of 2010 have come from China, shares of the last four mainland companies that completed sales had retreated after the government raised interest rates and bank reserve requirements and said it may impose price controls.
SinoTech Energy Ltd. which provides equipment to boost oil field production, posted the steepest drop among Chinese IPOs since the People’s Bank of China raised lending and deposit rates in October for the first time since 2007. The Beijing- based company slid 19 percent Nov. 3, the largest first-day fall for a U.S. offering this year, data compiled by Bloomberg show.
The PBOC increased banks’ reserve requirements five times in 2010, while the government said on Nov. 17 it may impose price controls to combat the fastest inflation in two years.
Three more Chinese IPOs are scheduled for this week, data compiled by Bloomberg show. Bona Film Group Ltd., the nation’s largest privately owned film distributor, plans to sell 11.7 million ADRs for $7 to $9 each, its SEC filing and data compiled by Bloomberg show.
Lentuo International Inc. and Sky-mobi Ltd. will also attempt to sell shares, the data show. Bona Film and Lentuo are based in Beijing, while Sky-mobi is located in Hangzhou city in China’s Zhejiang province.
The sales this week would bring the number of Chinese IPOs in New York to 39 this year, surpassing the 37 in 2007, according to data compiled by Bloomberg.
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