E-Commerce China Dangdang, known as the Amazon of China, saw its shares rise 87% on its New York Stock Exchange debut.Wednesday marked another big day of IPO successes for China. Online retailer E-Commerce China Dangdang (DANG) sold 17 million American Depository Receipts (ADRs) on the U.S. market and saw those shares explode upward in trading. Its stock soared 86.9% in its New York Stock Exchange debut Wednesday.

Dangdang, often called the Amazon (AMZN) of China, has grown much faster than the Chinese economy. Bloomberg reports that its revenues grew 56% in the first nine months of 2010, compared to the previous year, and it plans to use the money it raised in its IPO "to broaden its product categories and expand its order fulfillment capabilities."

Investors buying in to the Dandang IPO are looking to tap into China's 420 million Internet users, who outnumber the entire U.S. population of roughly 312.7 million. Meanwhile, China's economy is expected grow at a 9.6% rate in 2011, almost five times faster than the measly 2.3% growth in gross domestic project forecast for the U.S., according to the International Monetary Fund.

Keys to Dangdang's Success

I have been following Dangdang for a few years, since I wrote about the company in my book, Capital Rising: How Global Capital Flows Are Changing Business Systems All Over the World, which I co-authored with Srini Rangan.

Here are three factors behind Dangdang's success:

  • Tapped global capital markets: It has raised more than $40 million from Western venture capital firms;
  • Vanquished global competitors: The company has successfully vanquished both Chinese competitors and Amazon.com in its home market. Dangdang doesn't boast a startlingly original business strategy, but has executed more effectively than its peers;
  • Its business strategy matches the market: It has tailored its online book-selling strategy to the unique limitations of the Chinese market. For example, it offers a very wide selection of books at steep discounts, it takes money orders (instead of credit cards, which have not caught on in China) and it uses bicycle couriers -- and now cars -- to get the books from its warehouses to its customers.

Now that Dangdang has gone public, its richly rewarded venture investors are going to be taking their exit cash and looking for new places to invest it in China. Meanwhile, Dangdang rose 87% in Wednesday trading. Considering the company's expected annual earnings of $2.7 million this year (it made $2.1 million in the first nine months of 2010), its current price gives it a price-earnings ratio of 78 -- more than Amazon's 71.

This is not the first successful Chinese IPO in the U.S. and it is not likely to be the last. As China continues to surpass the U.S. when it comes to IPOs, don't be surprised if Dangdang stock keeps rising.


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