Youku, LinkedIn and ChinaCache IPOs: Where Is Money Treated Best?

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 |  Includes: CCIH, LNKD, YOKU
by: Stone Fox Capital

I'm not sure many people noticed, but Youku.com (NYSE:YOKU) raised approximately $400M after the close last Thursday. In total, up to an aggregate of $670M of stock was sold as pre-IPO investors cashed out close to $270M. That's assuming the over allotment of 1.8M shares were bought; those results have not been announced yet. This is remarkable considering this was a follow-on offering after the December IPO.

Youku.com is the YouTube.com or Hulu of China, depending on whom you ask. It has huge growth potential, but limited revenue so far and no profits. The company will have a market cap approaching $6B after this offering.

Even more remarkable is that pricing took place at $48.18, with the stock closing at $49.59 the previous day. Considering the stock was up $2.16 on Thursday, the pricing took place at a higher level then the stock started the day. An incredibly strong secondary for a China internet stock, especially considering the large amount of sells by pre-IPO investors. Those investors still hold a large amount of stock, although it should concern the market that they wanted to sell out so soon after the IPO.

Possibly the secondary was helped by the huge debut of LinkedIn (NYSE:LNKD) on the NYSE that day. LinkedIn soared over 100% on its opening day, giving it a market cap close to $10B. Though LinkedIn only raised a shabby $350M when compared to Youku.com, it begs the question of why Youku.com needs more money then LinkedIn?

It's also remarkable considering the market for Chinese internet companies was supposedly fizzling. Clearly not for the right stock.

Another incredible stat is that Youku.com just raised more cash then fellow internet IPO fallen star ChinaCache (NASDAQ:CCIH) is now worth. After crashing further last week, ChinaCache is worth a paltry $240M. At that level, that places an Enterprise Value of 2x sales that could reach $100M this year. Youku.com could buy them and have cash left over from the secondary (not that I'm suggesting such a move, but rather just pointing out the irony of the situation).

Maybe your investment would be better treated investing in the fallen star then the bright star that could fade next month. Plus ChinaCache could easily benefit from all the cash raised by Youku.com and other fellow internet plays. These internet companies will require more services from the likes of ChinaCache that provide the content delivery network (CDN) that the likes of Youku.com will need.

Regardless, the facts are still remarkable that Youku.com raised more cash then LinkedIn. But an investor would only know that from following the sector and not the media. Anybody following Chinese stocks has come to assume they are all scams. However, some big investors were more willing to invest in Youku.com rather than the the first social media play in the U.S. This highlights that some of the fallen star China plays will rebound very strongly once the dust settles on all the scam assumptions.

Youku.com PR:

  • Youku today announced that its follow-on public offering of 12,310,000 American depositary shares ("ADSs") by the Company and certain of its pre-IPO investors was priced at US$48.18 per ADS. Each ADS represents 18 Class A ordinary shares of the Company.

  • In connection with this offering, the underwriters have been granted the option to purchase up to an aggregate of 1,800,000 additional ADSs from certain selling shareholders at the public offering price less underwriting discounts.

  • Youku will not receive any proceeds from the sale of the ADSs by the selling shareholders. The gross proceeds to the Company will be approximately US$400 million.


LinkedIn PR:

  • LinkedIn today announced the pricing of its initial public offering of 7,840,000 shares of common stock at a price to the public of $45.00 per share. A total of 4,827,804 shares are being offered by LinkedIn Corporation, and a total of 3,012,196 shares are being offered by selling stockholders.

  • LinkedIn granted the underwriters a 30-day option to purchase up to an additional 1,176,000 shares to cover over-allotments, if any. LinkedIn will not receive any proceeds from the sale of shares by the selling stockholders.

Disclosure: I am long CCIH.