Friday, November 12, 2010

Why You Should Watch This Chinese IPO

By Eric Jackson
RealMoney Contributor

11/12/2010 7:45 AM EST
Click here for more stories by Eric Jackson

Earlier this week, a company that could be behind the next great Chinese Internet stock filed its F-1 with the Securities and Exchange Commission for an initial public offering. Ladies and gentlemen, meet Tudou (its ticker post-IPO will be TUDO). You will want to watch it.

Tudou is one of the companies that are vying to be China's YouTube. Unlike here in the U.S., several companies in China are competing for that moniker. Tudou is currently No. 2 in China for market share in the video-sharing space, with 16% market share. It trails Youku, which has 20% of the market share in China.

Youku is still private. Tudou will be the first of these two giants to test the public markets. There are smaller video sites like or Ku6 Media (KUTV), which is owned by Shanda Interactive (SNDA - commentary - Trade Now), but Shanda is a much smaller player and has only a $150 million market capitalization.

In case you didn't know, neither YouTube nor Hulu is available in China because of the Great Firewall. Therefore, China's hometown video sites have a greenfield market to capture for themselves.

Tudou is seeking to raise $120 million in the IPO, with Credit Suisse (CS - commentary - Trade Now) and Deutsche Bank (DB - commentary - Trade Now) acting as lead underwriters on the deal. Some of the early Tudou investors who will get some of their money back -- after pouring in $135 million -- include IDG China, GGV Capital and Temasek Holdings, the state investment company for Singapore.

Growth in All Directions

What Tudou has going for it in spades is growth. It has over 70 million registered users in a country where 400 million of the population actively uses the Internet today. Tudou only had 16 million users in 2007.

As its users have grown, so have its revenues. Tudou has generated $33.8 million in revenue in the first nine months of this year, a 230% increase over the same period a year ago.


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