Monday, December 20, 2010

Dangdang Gets Double-Teamed in Price War

By Eric Jackson
RealMoney Contributor

12/20/2010 5:00 PM EST
Click here for more stories by Eric Jackson

China-based bookseller Dangdang (DANG - commentary - Trade Now) will go down in history as having one of the most successful IPOs of 2010. The company raised just under $300 million, was priced at $16 per share, opened at $24 per share and hasn't looked back. The stock topped out as high as $34 per share a couple of days after the Dec. 7 IPO, but it has since fallen significantly from that level. Still, shares of Dangdang are trading above their initial post-IPO level, giving investors who partook in the IPO a nice return.

Although TD Ameritrade recently said that Dangdang is one of the three most traded stocks at the moment (the others are Youku (YOKY - commentary - Trade Now) and Baidu (BIDU - commentary - Trade Now)), it's amazing to me that there is not more information about the company readily available in the U.S.

For example, over the last week, Dangdang has been attacked by two companies that want to enter into a price war with it. It's not surprising. After all, Dangdang is in the middle of its first quarter as a public company. All newly public companies like to come out of the gate strong during their first earnings call. Their competitors know that this success can start to feed on itself with investors and consumers alike. Therefore, why not try to short-circuit that positive feedback loop with a negative one?

In other words, by entering in to a price war, competitors can make it appear that the new IPO is stumbling in its first earnings call, which can seed fear and doubt among investors and consumers. This, in turn, might position the competitors as "more successful."

At the moment, Dangdang is being attacked by private Chinese company 360buy and American juggernaut Amazon (AMZN - commentary - Trade Now). 360buy (also known as Jingdong Mall) recently announced that it would spend RMB 80 million (approximately $12 million) on discounting prices prior to the peak holiday shopping season. This came after 360buy said a week ago that it would drop prices on its books by 20% in order to win business.


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