2010-12-09 09:43

Seeking profit

There have been some Chinese flops, however. The shares of Chinese online retailer Mecox Lane Ltd, which launched in late October, are currently trading more than 38 percent below their $11 IPO price, for example.

Soon after its IPO, Mecox reported a year-on-year drop in gross margin, causing its shares to swoon and triggering several class action lawsuits.

Youku and Dangdang's greatest challenges may lie in making money. Both are in competitive businesses and both are fighting for profitability.

Youku's revenue increased by an average of 1,000 percent a year over the past two years and was up 135 percent in the first nine months of 2010 compared with the year-earlier period -- but it has yet to turn a profit.

Its net loss widened by 22.5 percent to 167 million yuan ($25 million) in the same period.

Youku relies mostly on advertising revenue but is attempting to diversify its model by testing a subscription plan for people who want to watch movies and other entertainment programming in a high-definition format.

Youku's Koo declined to say when the company is expected to turn a profit.

Dangdang has fared slightly better. It swung to a roughly 16 million yuan profit in the first nine months of 2010 from a 5.2 million yuan loss in the year-earlier period. Revenue grew 55.6 percent to 1.6 billion yuan in the same period.

The company holds 50 percent market share for books and media and is currently expanding to general merchandise categories such as beauty, home and lifestyle, and baby goods.

"We want to leverage our client base and execution in the media sector and then go into general merchandise," Yang said, adding that in the first nine months of 2010, some 6.8 million "active" customers had placed orders. That is up from 1.9 million in 2007 and 6 million in 2009.

Dangdang currently generates half of its business from customers in first-tier cities in China, but the company can deliver goods to 750 cities around the country and collect cash -- the payment method of choice -- on the spot.

Youku sold 15.8 million American depositary shares for $12.80 each on Tuesday, raising about $203 million. It had planned to sell 15.4 million shares at $9 to $11.

Dangdang's IPO priced at 14.3 percent above the expected range on Tuesday, raising $272 million by selling 17 million American depositary shares for $16 each.

The company had previously raised the expected price range for its IPO.

Credit Suisse Group AG and Morgan Stanley led the underwriters for the Dangdang IPO, while Goldman Sachs Group Inc led Youku's underwriters.