IPO

Week's lone IPO, China's Tudou, tumbles in debut

AP News
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Posted: Aug 17, 2011 6:59 PM
Week's lone IPO, China's Tudou, tumbles in debut

Shares of Tudou, the lone company to go public this week after a string of failed deals last week, tumbled almost 12 percent in their Nasdaq debut on Wednesday.

Tudou Holdings Ltd. is the second Chinese online video website to go public as Internet access in that country grows. Its rival Youku.com, the largest online video site in China, posted the biggest first-day jump of 2010. Youku more than doubled in its NYSE debut.

Chinese tech stocks flooded the U.S. late last year. Tudou's name even speaks to the companies' hopes of eventually making money from the Chinese appetite for the Web. In Chinese, Tudou means "potato," a reference to the term "couch potato," said Tudou CEO Gary Wang. "It's our view that eventually a person can become a couch potato in front of a computer monitor as well as in front of a TV screen," Wang said.

Most Chinese companies trying to go public in the U.S. since Youku's entry have not fared as well. Investors have grown wary after the reported accounting problems of several U.S.-traded Chinese companies.

The 11 Chinese companies that have gone public on the Nasdaq and NYSE this year are down 13 percent, on average, from their IPO price this year, according to data provider Dealogic. That doesn't include Tudou.

All the other companies that listed in the U.S. in 2011 are nearly unchanged, on average.

Two potential Chinese IPOs were canceled during last week's market upheaval, when nine IPOs were pulled.

"We had a nervous market about Chinese stocks to begin with, and many of them really have gotten hammered," said David Menlow of IPO Financial, an IPO research firm. Tudou's weak entry would make investors even more wary of Chinese companies going public in the U.S., he said.

Youku stock has not performed well in the market. After shooting up more than 161 percent in its debut in early December and climbing early this year, it has come off its mid-April peak of $69.95. Shares have lost more than 60 percent of their value since then, closing at $27.01 on Tuesday. Youku's stock is worth less than it was at the end of its first day as a public company.

Some say Youku may hold more appeal for investors than Tudou. It's gained market share this year, claiming 23.4 percent of online video ad revenue dollars at the end of the second quarter, according to Chinese research firm Analysys International, while Tudou has dropped to 14 percent from 16.6 percent at the end of last year.

"There is a strong camp that (says) if you are going to play this sector, that Youku may be the better buy," IPO Boutique owner Scott Sweet said in a client note before Tudou began trading. He said Youku has more cash and higher name recognition than Tudou.

While Tudou dropped $3.44 to $25.56 Wednesday, Youku gained nearly 13 percent.

Tudou and its stockholders had raised $174 million by Tuesday night, pricing U.S.-traded shares at $29 apiece. That was in the middle of the expected pricing range.

Tudou's Chinese site lets users upload video, like Google Inc.'s YouTube. It also licenses content for its site, such as popular TV shows and movies, and makes its own video.

The company said in a regulatory filing that it had more than 90 million registered users at the end of June.

Tudou makes money by selling ads on its site.

While revenue has grown quickly, nearly tripling in the first three months of the year when measured in Chinese currency, the company is unprofitable. Its net losses have grown over the years as the company expanded. Moreover, Tudou expects its costs to increase for boosting bandwidth, buying and making its own content and marketing.

The company expects to use the funds from the IPO to increase its Internet bandwidth capacity, buy and generate more online content and perhaps for acquisitions.