Rip-Roaring China IPOs
By Eric Jackson Dangdang ended its first day of trading up 87%. Youku ended up 161% for the day. It feels like 1999 all over again. However, any time you see moves like that, you will get the chorus of worriers. "These price-to-sales ratios are crazy!" is one comment I heard during yesterday's market action. "This is going to end in tears!" One more: "I'm going to short the hell out of these two stocks." I wrote about Youku being the monster China IPO two weeks ago, though I'm not some Pollyanna cheerleader. Still, even I was surprised by the giant move the stock made yesterday. The critics of Youku point out that the company has raised more than $100 million from venture capitalists to date, and that it has yet to turn a profit. In fact, Youku's losses have only grown along with the company itself. It has faced increasing costs of acquiring proprietary content (think Hulu), keeping up with intense competition, paying for more servers to stream video and large pirating risks. Even if the company can supplement its advertising-based revenue with subscription revenue, critics wonder how will it will convince the Chinese to pay for content when bootleg DVDs can be bought for pennies on the street. Yet, what Youku has going for it -- as I've said before -- is that it's the leader in the online video space at the moment. China's No. 2 online-video company, Tudou, filed to go public first, but Youku is actually the first one out. If it didn't have name recognition in the U.S. before yesterday, it does now. That will be important for Youku's continued access to the capital markets in order to fund its growth -- assuming its price holds up.
RealMoney Contributor
12/9/2010 11:30 AM EST
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Wednesday's price action in the new Chinese initial public offerings in Youku (YOKU -commentary - Trade Now) and Dangdang (DANG- commentary - Trade Now) was eye-popping. Americans love easy comparisons to for understanding foreign businesses, so we've heard endlessly heard that Youku and Dangdang are China's YouTube and Amazon (AMZN -commentary - Trade Now), respectively.
