Chinese Internet usersChinese Internet companies seem to like U.S. stock exchanges better than their American counterparts do. Maybe it's a mad dash to raise capital before the Chinese economy overheats and dampens Wall Street's interest in them, but several Chinese Internet companies are hitting the market around the same time.

Among the more promising is an online bookstore turned general-merchandise e-tailer called E-Commerce China DangDang (DANG), or DangDang for short. Like many new IPOs, the company has risks, but its longer-term prospects could be appealing to investors who can tolerate them.

DangDang closed Friday at $32.79 per American Depository Share, more than double its offering price of $16 per ADS two days earlier. That left the online store with a market cap just over $2.5 billion. Still, that's significantly below the market cap of last week's other big Chinese IPO, Youku (YOKU), a would-be Chinese YouTube that was worth $3.8 billion by week's end.

The Amazon of China?

DangDang's market cap was nevertheless impressive. It's worth seven times Overstock.com (OSTK) and one-third as valuable as Sears (SHLD), even though Sears's $44 billion in revenue last year was more than 200 times as large as DangDang's $218 million.

But nobody's really comparing DangDang to Sears, or even Overstock. It's being touted as the Amazon.com (AMZN) of China. Amazon's market cap of $78 billion is 31 times bigger than DangDang, and its revenue was 112 times as large. In an interview with Bloomberg, DangDang co-founder Peggy Yu Yu said she hopes that one day Amazon will be thought of as the American version of DangDang.

That day is pretty far off, but it may not be smart to bet against her and her co-founder Victor Koo. As DailyFinance's Peter Cohan pointed out last week, DangDang didn't grow because it was the only online bookseller in China. It faced competition from the likes of Joyo, which Amazon bought in 2004. So, DangDang tailored its service to its home market.

Case Studies in Raising Capital


Founded in 1999, five years after Amazon, DangDang drew inspiration from others such as Bertelsmann's book club and New York independent bookstores. It grew much more slowly than Amazon did, partly because Chinese consumers are as passionate about saving money as Americans are about spending it. But mostly because the Chinese Web was slower to mature.

According to Yu, DangDang had a pretty big advantage when it came to building warehouses, a daunting cost for online retailers, because local governments were willing to share the burden in order to attract the company's operations. Amazon relied instead on the private credit markets. Both companies are case studies in how both capital venues can work, but DangDang's solution is a lot easier on the balance sheet.

Yu comes across in the Bloomberg interview as thoughtful and articulate -- similar to U.S. Web pioneers like, say, Amazon CEO Jeff Bezos. Like Bezos, Yu and Koo expanded by putting a focus on discounts and low costs. But unlike him, they built their online bookstore -- which Yu says is already China's biggest bookseller, including bricks-and-mortar chains -- without racking up debt.

A decade after its launch, Amazon faced more than $2 billion in long-term debt, enough to prompt some bearish analysts to predict its bankruptcy after the dot-com crash. DangDang raised money through venture investments from the Tiger Technology Fund and Kewen Holdings in 2004 as well as Silicon Valley firms like DCM-Doll Capital and Walden International in 2006.

Slower and Steadier Might Win Out

Compared to Youku, DangDang seems like a (relatively) sensible investment -- a notion that seems to be reflected in the stocks' performances on Dec. 10. DangDang inched up 2%, while Youku -- which had more than tripled in its first two days of trading -- dropped 12%. After all, DangDang had nearly 10 times as much revenue as Youku did last year. And it had a $2.5 million profit, while Youku has yet to earn any.

DangDang's revenue growth is slower and steadier than Youku's, but its bottom-line performance suggests it's a better bet for investors, especially given rising concerns about the Chinese economy. Inflation is starting to be worrisome, and interest rates will eventually move high enough to slow China's scorching economic growth and consumer demand.

That will make for some rocky times ahead for DangDang investors. But for those in for the long haul, the company's ability to navigate a market that will one day see massive growth is an intriguing story.


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dogsdlf2

We as a nation need to realize that it's not the cheap lead ridden toys,toxic dogfood or watered down formula. Every job sent to CHINA affects all jobs from the railroad ,electricians,taxes and so many others there isn't enough room to list them all. Our money hungry CEO'S and big shots in major companys just don't care about American jobs. They care only about MONEY. Well it has finally come to bite us in the ass. Check out this ...www.madeinamerica.com...buy American....SCREW CHINA

December 14 2010 at 6:39 PM Report abuse rate up rate down Reply
Hi Catmom!

Instead of bitching about it, why don't we learn and change. We can do better.

December 14 2010 at 4:29 PM Report abuse rate up rate down Reply
hannahholbrook

I just have no money for this Christmas. Http://www.bestbankruptcysite.info It's not so bad - others have it worse than me.

December 14 2010 at 3:48 PM Report abuse rate up rate down Reply
kamalonkitty

Mira Mira ... the West is Falling ... 500 years of white oppression Judgment is executed on 3 levels ... individual, family , nation

December 14 2010 at 1:58 PM Report abuse +1 rate up rate down Reply
Paul FIQUET

I NEVER THOUGHT I WOULD SEE THE DAY THAT OUR COUNTRY WOULD DEPEND ON COMMUNIST CHINA FOR FINANCES AND GOODS LIKE WE ARE NOW. OUR CAPITALIST SYSTEM HAS FAILED US...BIG MONEY INTERESTS COULD CARE LESS ABOUT WHERE THEIR MONEY COMES FROM JUST SO THEY HAVE IT...PITIFUL IT IS.

December 14 2010 at 11:57 AM Report abuse +3 rate up rate down Reply
1 reply to Paul FIQUET's comment
ectullis

Obsama?

December 14 2010 at 3:17 PM Report abuse rate up rate down Reply
beemerboxer

It galls me to support the Chinese economy to the point where Americans suffer unemployment. Of course our money driven finance corporations have no cares about where money comes or goes from so long as profit is made. This year I have managed to buy Christmas gifts made in America by my fellow citizens. I have no desire to see Wall St. renamed Mao Tse Tung Avenue nor do I want to enable this nation to continue holding huge IOU,s over my grandchildren.

December 14 2010 at 11:34 AM Report abuse +5 rate up rate down Reply
1 reply to beemerboxer's comment
ectullis

Way to go. keep up the good work.

December 14 2010 at 3:21 PM Report abuse rate up rate down Reply
glaimc863

i won't even buy anything that says "MADE IN CHINA", screw them........

December 14 2010 at 9:18 AM Report abuse +7 rate up rate down Reply
1 reply to glaimc863's comment
ectullis

I avoid Wal-Mart like the plague because everything they sell is made in China.

December 14 2010 at 3:19 PM Report abuse +1 rate up rate down Reply
Robert & Lisa

Why would anyone invest in a communist country? They can nationalize your investments anytime leaving you with nothing but a memory.

December 14 2010 at 7:44 AM Report abuse +9 rate up rate down Reply
1 reply to Robert & Lisa's comment
emoore2927

Kind of what we did to the British in 1776

December 14 2010 at 5:45 PM Report abuse rate up rate down Reply
perfect704

Youku stock will hit $$$ 60.00 a share the company will be a success story.
It just takes patience --the fundamentals are promising.

December 14 2010 at 7:03 AM Report abuse -4 rate up rate down Reply