U.S. IPO Market: Two Chinese Internet Companies Take Spotlight

Includes: DANG, LEDS, YOKU
by: Renaissance Capital IPO Research

The US IPO market surged over the past with ten companies completing offerings, making it the busiest week for US IPOs since November 2007. Youku.com (NYSE:YOKU) and E-Commerce China Dangdang (NYSE:DANG), two Internet companies based in China, took the spotlight with both IPOs posting triple-digit returns by the end of the week.

Youku.com, which operates China's leading internet TV/online video portal and is known for being a cross between the US's YouTube and Hulu, posted the largest first-day pop since Baidu (NASDAQ:BIDU) went public in 2005 (+354%). Youku traded up 161% from its $12.80 offer price after listing on the NYSE on Wednesday, and also saw momentous trading volume with 17 million shares traded in its debut and an even higher 18 million shares changing hands the following day. E-commerce China Dangdang, which went public on the same day, was also well-received, soaring 87% by the market close. E-Commerce China Dangdang is the country's leading online book seller and has recently branched out into general merchandise products such as beauty products and home décor. The two fast-growing companies' exposure to China's emerging middle class and Internet adoption themes clearly generated a significant level of IPO investor interest and outweighed the fact that Youku.com is still unprofitable and Dangdang just broke even last year.

SemiLEDs Corporation (NASDAQ:LEDS), which manufactures LED chips and components used in general lighting applications, also fared well, returning a healthy 52% from its $17 listing price. The Taiwan-based company stands to benefit from the increasing adoption of LED products, which are more cost-effective and environmentally friendly than traditional lighting methods.

Another positive sign for the IPO market this week was the discipline exhibited by investors, with four other Chinese IPOs failing to generate strong investor interest with their arguably riskier fundamental stories. Film distributor Bona Film Group (NASDAQ:BONA), mobile application store Sky-mobi Limited (NASDAQ:MOBI) and paper company China Shengda Packaging (NASDAQ:CPGI) all broke their IPO price on the first day of trading, while auto retailer Lentuo International (NYSE:LAS) was forced to cut its deal size by 45% before listing on the NYSE on Friday. Bona Film Group, which is backed by well-known venture firms Sequoia, SIG China and Matrix Partners, posted the worst first-day performance seen in the last twelve months, dropping 22% in its debut.

The IPO market is expected remain vibrant next week with eight more deals lined up on the IPO calendar. If all eight companies manage to successfully go public, the IPO count for the month of December will hit 19 (compared with eight for December 2009) and 153 for the year (compared with 63 in 2009). Additionally, with an ever-expanding IPO pipeline that includes the likes of Kayak (KAY), GNC (NYSE:GNC), Skype (SKP), Demand Media (DMD), AMC Entertainment (NYSE:AMC), Toys "R" Us (TOYS) and HCA (NYSE:HCA), the US IPO market is on pace to see continued levels of accelerated activity into 2011.