China.com IPO likely to see good fortune
By John E. Fitzgibbon Jr.
Redherring.com
July 8, 1999
China.com (proposed Nasdaq symbol: CHINA), as the name implies, hopes to become China's answer to America Online (NYSE: AOL).
Next week, Lehman Brothers, (NYSE: LEH) with comanagers Bear Stearns (NYSE: BSC) and ETrade (Nasdaq: EGRP), plan to price 4.2 million shares of China.com between $14 and $16 a share. The $63 million that the offering is expected to raise will be used for capital expenditures, expanding sales and marketing, working capital, and general corporate purposes, including possible acquisitions. Although the company is headquartered in Hong Kong, it was
incorporated in the Cayman Islands in June 1997.
"There's a lot of buzz on China.com. StarMedia Networks [Nasdaq: STRM] was the Latin play, and people see China.com as the Asian play," says Tom Taulli, analyst with Edgar Online (Nasdaq: EDGR).
China.com is an Internet company delivering content, community, and commerce to Chinese-language audiences in the Greater China region, which includes the People's Republic of China, Hong Kong, and Taiwan. The company operates four Web sites, each acting as a one-stop gateway to the Internet. Since 1997, the company has been developing a bilingual portal network.
Each of the networks offers content searches, directories, email, and message boards. The company expects that e-commerce and online shopping functions will be operational by the end of third quarter 1999.
Recently, China.com also formed an advertising network. It reached an agreement with 24/7 Media (Nasdaq: TFSM) to use 24/7 Media's brand name and proprietary Internet advertising delivery technology.
FAMILIAR PICTURE
China.com has the same growth story as any other Internet media company: quickly growing revenues and losses. Linda Killian, principal of Renaissance Capital, once said, "For Internet stocks, earnings don't count." This seems to be the case for China.com. The company reported total revenues for year ending December 31, 1998, of $3.45 million, up 578 percent from $509,000 in 1997. The pro forma net loss for 1998 of $11 million, or $1.92 a share, was
up 165.5 percent from a year earlier net loss of $3.1 million, or $0.35 a share.
Since the company started operations in 1997, it has accumulative losses of $15.7 million, as of December 31, 1998. Wary investors may also note that the company's major audience is in China, which comes with certain political uncertainties about the growth of the Internet.
Nevertheless, the outlook for the Internet growth within the People's Republic of China, Hong Kong, and Taiwan is explosive. According to International Data Corporation, the number of Internet users in the region is expected to soar to 22.7 million by 2003, up from 4.1 million in 1998. That amounts to a compounded annual growth rate of 35.5 percent.
BLUE-CHIP BACKING
The company also has a solid platform from which to launch its IPO: China.com's shareholders include America Online and 24/7 Media.
In June 1999, America Online acquired a ten-percent equity stake in China.com -- about 1.7 million shares -- and has an option to buy another 15 percent in the future. 24/7 Media recently picked up about 1.6 million shares for a nine-percent ownership.
China.com's lead manager, Lehman Brothers, has had a great record in bringing IPO public in 1999. Year-to-date, Lehman has had the books on ten IPOs, with an average first-day gain of 82.7 percent each. Who can forget another Internet deal from Asia that Lehman underwrote, Pacific Internet (Nasdaq: PCNTF)? The IPO was priced at $17 and opened at $88 on February 5, but closed that day at $48, still up 182.35 percent. |
