Tudou, China’s version of YouTube, started taking orders for a $180m Nasdaq IPO last Thursday, surprising ECM bankers who argued it was a bad time to launch a new deal. This was, of course, before Standard & Poor’s downgraded the US, pushing global equity into a tailspin from which they seem unable to recover.
But the two bookrunners, Credit Suisse and Deutsche Bank, have already managed cover the order book — and they are still getting more orders.
This is surprising. After all, Tudou has never made a profit, and posted an adjusted net loss of Rmb59m ($9m) last quarter, an increase of Rmb13.7m from the same period in 2010. The company’s primary source of revenue is advertising, although it started making some money through subscriptions from China Mobile users in January 2010.
Tudou’s reliance on online advertising may be understandable, given the sector in which it operates. But it makes the company’s attempt to launch an IPO at 55 times projected 2012 earnings seem aggressive, to say the least.
The company already had some anchor orders lined up, and that clearly helped the bookrunners cover the deal. But it was a mark of their ability to pitch a deal in even the toughest of environments that CS and Deutsche were able to keep adding orders to the book.
US-listed Chinese technology stocks fell heavily in May, and some planned issues got canned. This was in part a reaction going too far. (Social networking site Renren’s $743m IPO, which priced at 73 times earnings in April, illustrated the frothiness of the market before the fall.)
But investors seem to have put that flicker of doubt behind them — and, it appears, they’re again hungry for exposure to Chinese internet companies with little or no profit.
There are plenty of reasons why investors would be attracted: internet use in China is still growing at a rapid pace, and this deal may seem like a nice refuge for investors battered by their holdings in Western companies. But there is something bizarre — even surreal — about seeing a dot-com company get demand for an aggressive listing as the world falls apart around it.