* Youku closes at $33.44 - 161 pct above IPO price
* Dangdang closes at $29.91 - 87 pct above IPO price
(Updates with details on Baidu's IPO)
By Clare Baldwin
NEW YORK, Dec 8 The shares of two companies
considered to be China's YouTube and Amazon.com (AMZN.O) soared
in their U.S. debuts on Wednesday, as investors bet they could
become dominant in a still-nascent market.
Online video company Youku.com Inc's YOKU.N stock rose to
$33.44, or 161 percent, above its IPO price in its first day of
trading. The shares of online retailer E-Commerce China
Dangdang Inc DANG.N rose to $29.91, or 87 percent, above
their IPO price -- the latest sign that investors are hungry
for growth and eager to gain a foothold in China.
"Investors like to get in early in companies that could end
up dominating their markets," said Paul Bard, an analyst at
Connecticut-based IPO research and investment house Renaissance
"You have two potential leaders in two potentially massive
markets in China. I think that's being reflected in their
Youku's triple-digit first day pop is the biggest since
2005, when Baidu.com rose 354 percent, according to data from
the New York Stock Exchange.
Bankers typically target a first day pop of 10 percent to
20 percent. Those levels of gains insure that most of the money
raised in the IPO goes to the company and selling shareholders,
but investors are still rewarded for taking a risk on a new
"They left some money on the table but the benefit in this
case might exceed the cost," said Josef Schuster, founder of
Chicago-based IPO research house IPOX Schuster LLC and
principal portfolio manager of the Direxion Global Long/Short
"They are on the radar screen of every investor now,"
Schuster said, adding that the extra pop got the companies
significantly more media coverage and could bode well for
future share sales.
Investors are looking for "high quality, high growth"
companies in China that can scale their businesses as more
Chinese consumers come online, Dangdang Chief Financial Officer
Conor Chia-hung Yang told Reuters.
"They look at the success of Amazon and they look for that
in China," said Yang, citing a market of 100 million online
shoppers. "We are in the early stages of the growth."
Youku founder and Chief Executive Victor Koo said Youku
also focuses on growth. He said that the online video service
-- akin to Hulu, YouTube and Netflix Inc (NFLX.O) -- intends to
use proceeds from the IPO to expand its share in the Chinese
market, and that the prestige of a U.S. listing would help.
"The primary reason is that we feel listing on the (New
York Stock Exchange) helps elevate the local brand and solidify
our leadership position in the video market," said Koo.
So far this year, Chinese companies making their debuts in
the United States are posting returns of about 30 percent,
according to Thomson Reuters data.
That contrasts with an average return of 23 percent for all
U.S. IPOs this year, including companies based in China,
according to data from Renaissance Capital.
There have been some Chinese flops, however. The shares of
Chinese online retailer Mecox Lane Ltd MCOX.O, which launched
in late October, are currently trading more than 38 percent
below their $11 IPO price, for example.
Soon after its IPO, Mecox reported a year-on-year drop in
gross margin, causing its shares to swoon and triggering
several class action lawsuits. [ID:nN06203560]
Youku and Dangdang's greatest challenges may lie in making
money. Both are in competitive businesses and both are fighting
for profitability. [ID:nN03149897]
Youku's revenue increased by an average of 1,000 percent a
year over the past two years and was up 135 percent in the
first nine months of 2010 compared with the year-earlier period
-- but it has yet to turn a profit.
Its net loss widened by 22.5 percent to 167 million yuan
($25 million) in the same period.
Youku relies mostly on advertising revenue but is
attempting to diversify its model by testing a subscription
plan for people who want to watch movies and other
entertainment programming in a high-definition format.
Youku's Koo declined to say when the company is expected to
turn a profit.
Dangdang has fared slightly better. It swung to a roughly
16 million yuan profit in the first nine months of 2010 from a
5.2 million yuan loss in the year-earlier period. Revenue grew
55.6 percent to 1.6 billion yuan in the same period.
The company holds 50 percent market share for books and
media and is currently expanding to general merchandise
categories such as beauty, home and lifestyle, and baby goods.
"We want to leverage our client base and execution in the
media sector and then go into general merchandise," Yang said,
adding that in the first nine months of 2010, some 6.8 million
"active" customers had placed orders. That is up from 1.9
million in 2007 and 6 million in 2009.
Dangdang currently generates half of its business from
customers in first-tier cities in China, but the company can
deliver goods to 750 cities around the country and collect cash
-- the payment method of choice -- on the spot.
Youku sold 15.8 million American depositary shares for
$12.80 each on Tuesday, raising about $203 million. It had
planned to sell 15.4 million shares at $9 to $11.
Dangdang's IPO priced at 14.3 percent above the expected
range on Tuesday, raising $272 million by selling 17 million
American depositary shares for $16 each.
The company had previously raised the expected price range
for its IPO.
Credit Suisse Group AG CSGN.VX and Morgan Stanley (MS.N)
led the underwriters for the Dangdang IPO, while Goldman Sachs
Group Inc (GS.N) led Youku's underwriters.
(Reporting by Clare Baldwin; additional reporting by Jennifer
Saba, Alexandria Sage, Leah Schnurr and Chuck Mikolajczak;
Editing by Gerald E. McCormick, Andre Grenon and Steve