China's Online Video Company Tudou's IPO Prices Within Range
Chinese online video company Tudou Holdings Ltd. priced shares in its initial public offering within the expected range on Tuesday, even though investor sentiment toward U.S.-listed Chinese stocks and the recent stock market turmoil had suggested it would be difficult.
Investor appetite for U.S.-listed Chinese stocks has waned after a series of accounting scandals, and 10 of the 12 IPOs scheduled for last week were pulled as concerns about the U.S. economy and the European debt crisis created a volatile trading environment.
Still, Tudou and its owners sold 6 million American Depositary Shares for $29 each, raising $174 million. They had planned to sell ADS for $28 to $30 each.
Much like Google Inc's YouTube, Tudou allows users to watch, upload, rate, comment on and recommend videos. It is the second-largest online video company in China and makes money primarily by selling ads but also sells mobile access to its site to China Mobile and China Unicom customers.
Tudou filed for an IPO last November but the process was delayed due to a lawsuit by the former wife of its founder, chairman and CEO, Gary Wang.
Since the launch of its online video site in April 2005, Tudou's growth has been dramatic. Its registered user base more than doubled to 78.2 million in the two-year period between the end of 2008 and the end of 2010, and was at 90.1 million as of the end of June 2011.
The company's revenue has also risen sharply in recent years, but its losses have widened. In the most recent reporting period, the three months ended March 31, the company's net revenue rose 167 percent to 79.4 million yuan, or $12.1 million. Its net loss attributable to ordinary shareholders widened almost ninefold to 340.7 million yuan, or $52 million, in the same period.
Tudou, whose main business operations are in China but which, like many Chinese companies, is registered as a Cayman Islands holding company, said in its regulatory filings it expects to have enough operating cash flow to continue as a going concern and to be able to raise funds for capital commitments and working capital by issuing redeemable convertible preferred shares or taking loans.
Tudou in the risk factors section of its prospectus, however, said it had found a "material weakness and a significant deficiency" in its internal financial controls.
The company said it does not have enough people with knowledge of U.S. accounting rules, which is not uncommon for Chinese companies. It also said its lack of internal controls had resulted in errors in recording and accounting for redeemable convertible preferred shares, share-based compensation, litigation losses, advertising agency fees, and certain other balance sheet line items.
Tudou, whose name means "potato" in Mandarin and conjures images of an Internet couch potato, said it plans to use its share of the IPO proceeds for content, Internet bandwidth, and working capital and general purposes.
CEO Wang is selling a small portion of the shares he controls in the IPO. Other, non-selling shareholders include funds affiliated with Singaporean sovereign wealth fund Temasek, which will control about 17 percent of the company immediately following the IPO.
Credit Suisse, Deutsche Bank Securities and Oppenheimer & Co were the underwriters on the Tudou IPO. The shares are expected to begin trading on the Nasdaq on Wednesday under the symbol "TUDO."
Shares of rival Youku.com, which went public in December, have risen nearly 87 percent since its IPO. Youku and Baidu Inc. were interested in buying Tudou, according to Chinese media reports last week, but a source close to the situation denied the reports.