China Dangdang and Youku.com: Two IPOs With Potential to Be Amazon, Netflix / YouTube of China
December 06, 2010
about: DANG / YOKU
E-Commerce China Dangdang: The Amazon of China?
E-Commerce China Dangdang (DANG) $204mm IPO with a market cap of $936mm at the price range mid-point of $17. Scheduled for Wednesday December 8, 2010: Dec 6 wk: 9 IPOs scheduled for $1.3 billion
SUMMARY
Based on the September 2010 quarter DANG is priced in the same range as Amazon, but has far superior growth potential. Rated by IPOdesktop B- & 8, a relatively high ranking.
Wants to be the Amazon (AMZN) of China, and is the number one business-to-consumer ranked brand in China. Annualizing the September 2010 results DANG is priced at the price-to-sales ratio as Amazon, 2.6. For the September quarter DANG’s operating margin was 3%, AMZN’s operating margin was 4%
Appears to be at a P/E discount to Amazon but DANG’s results include a tax credit benefit based on prior losses.
DANG Valuation Metrics -- compare to Amazon: Annualize the most recent quarter and compare.
BUSINESS
DANG is a leading business-to-consumer, or B2C, e-commerce company in China. DANG's brand dangdang.com is the number-one ranked brand among China’s B2C e-commerce companies for awareness, trusted online shopping experience and price-competitiveness, according to a consumer survey conducted by iResearch in May 2010 at DANG's request.
CUSTOMER BASE & TRAFFIC
Has developed a large and loyal customer base through a continuing focus on creating a user-friendly online shopping experience for customers. Had six million active customers in 2009. Average daily unique visitors increased from approximately 910,000 in 2009 to 1,240,000 in the nine months ended September 30, 2010. Average daily unique visitors further increased to 1,610,000 in September 2010.
COMPETITION
Current or potential competitors include:
(1) other B2C e-commerce companies, such as Amazon.cn/Joyo and Taobao Mall;
(2) physical retailers, catalog retailers, publishers, distributors and manufacturers of products, many of which possess significant brand recognition, sales volume and customer bases, and some of which currently sell, or in the future may sell, products or services through the internet; and
(3) a number of indirect competitors, including internet portals and internet search engines that are involved in online commerce, either directly or in collaboration with other retailers. DANG may also in the future experience competition from the increasingly popular electronic books and digital content, which have already impacted the book market in the U.S. and other countries.
USE OF PROCEEDS, $144mm
from sale of 13.2mm ADRs, shareholder intend to sell 3.8mm ADRs
One ADR represents five common shares
•$25.0 million to $30.0 million to broaden product categories
•$25.0 million to $30.0 million to expand fulfillment capabilities
•$25.0 million to $30.0 million to further enhance the technology infrastructure
•Balance for general corporate purposes, including working capital and funding potential acquisitions of complementary businesses
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Netflix/YouTube of China?
Youku.com (YOKU) $154mm IPO with a market cap of $1billion at the price range mid-point of $10. Scheduled for Wednesday, December 8, 2010
SUMMARY
If YOKU can continue the revenue momentum then breakeven should be in sight, and then the stock will benefit. YOKU is rated by IPOdesktop as a B- & 8, a relatively high rating. At the price range mid-point of $10, YOKU is valued at 15 times annualized revenue for the September 2010 quarter
Revenue was up 70% for three months ended September 2010, compared to the June 2010 quarter. Gross profit reached +14% -- the first quarterly positive gross profit for YOKU. However, September quarter’s operating margin was –34%
YOKU Valuaton Metrics -- compare to Netflix -- annualize the most recent quarter
BUSINESS
YOKU says it is “the most recognized online video brand in China”. In 2009, had an implied market share of approximately 14% in terms of online video advertising spend in China, based on iResearch’s estimated total online video advertising spend in China
Had a 40% market share in terms of total user time spent viewing online videos in China during the second quarter of 2010, while the closest competitor accounted for a 23% market share during the same period, according to iResearch.
According to a 2010 survey conducted by an affiliate of the Chinese Academy of Sciences. According to iResearch, had 203 million monthly unique visitors from homes and offices in September 2010 and 61 million monthly unique visitors from Internet cafes in August 2010.
COMPETITION
Competes with other online video providers in China, such as Tudou.com, and large Chinese Internet portals that provide online video product, such as SINA and Sohu. Also competes with traditional advertising media, such as television, radio, newspapers and magazines, and major out-of-home media, such as billboards, for advertisers’ advertising budgets.
Large enterprises currently spend a relatively small percentage of their advertising budgets on online advertising as compared to the percentage they spend on traditional advertising media, but YOKU expects the percentage spent on online advertising to increase in the future.
USE OF PROCEEDS, $139mm
One ADR represents 18 common shares
. $30 million for investments in technology, infrastructure and product development efforts
. $25 million for video content acquisition
. $20 million for the expansion of sales and marketing efforts; and
. Balance for other general corporate purposes, including working capital needs and potential acquisitions
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