Thursday, December 16, 2010

E-Commerce China Dangdang (DANG) Makes the Round Trip to IPO Spike Price

Interested in "China's"?  Well lo and behold, you are now able to buy it for just about the same price it spiked post IPO 7 days ago.  Granted it is not the same price the "smart money" was able to get it for (and flip it to you for mad money for nothing more than being a good - read high volume - institutional client), but then again YOU dear sir/madam are not 'smart' money (neither am I).

With all the hype around (YOKU), E-Commerce China Dangdang (DANG) has sort of been lost in the conversation as they IPO'd together, but it probably has more interesting potential.  That said, the chance of there being any 1 Chinese Amazon is miniscule as competition is already intense, and the model now has a blueprint to copcat, unlike what Jeff Bezos was building 12-13 years ago.  Indeed there is a company called Taobao, which probably has a lot better chance of being the Chinese, but since DANG is starting with books (like Amazon did) it's the easier comparison.  (Amazon also has a company it bought in China called Joyo but somehow I see the Chinese government making sure a "pure Chinese" company wins this race).  Over 80% of DANG's business is still books. Frankly no one knows - extrapolating out a decade in any market is foolish (but makes for great hype during IPOs)
  • Online bookseller now branching out into other consumer categories. DANG is the largest bookseller in China. 590,000 titles with more than 570,000 Chinese language titles. DANG believes they have more Chinese language titles available than any other seller in the world.
  • New products being offered include beauty and personal care products, home and lifestyle products, and baby, children and maternity products. Much like, DANG now offers third party products on their website.

DANG's IPO price was $16 so even here at $25 it is a 56% premium to what 'smart money' was rewarded the stock at, and I'd argue it was pricey at $16 but compared to YOKU it's a relative bargain.

With approximately 78M ADRs the $16 IPO price gave a value of $1.25B to DANG; the current price of $25 still equates to $1.95B.  Revenues look like they will hit roughly $330Mish for the full year 2010 so we are talking 6x sales - which is generally a premium paid to technology buyout candidates but at least is within the realm of something tangible, unlike YOKU.   DANG has profits but much like AMZN in its early days has razor thing margins (AMZN still has razor thin margins but a huge revenue base).  Frankly you can forgive profitability in the 'hyper growth' stage - the company just needs to continue to push out 70-90-110% year over year growth for a while to justify its case.  I'd be interested in taking some shots here or there in building a position with the caveat that if the market ever corrects again this type of stock can lose 10-15% in a day very easily.  If DANG is treated in the investing community like say a (BIDU) it will never be 'cheap' in traditional terms - it will simply waver from very expensive to quite expensive.  (BIDU has a far more profitable business model)

p.s. Twitter received a round of private financing yesterday valuing it at $3.7B... for $50M in revenue.  That is 74x sales.  Internet bubble 2.0 has arrived.  Any coincidence both are happening when our central banker went wild? (Alan with Y2K and Ben to paper over all of America's problems with the 'wealth effect')

No position

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