IT companies target NASDAQ
By Liu Baijia (China Daily)
Updated: 2004-03-17 13:48

Since its listing on the NASDAQ stock market in New York two weeks ago, Shanghai-based Linktone Ltd has been much like a goldfish in a glass bowl, said its Chief Executive Officer (CEO) Raymond Yang.

He uses this metaphor to explain that since its initial public offering (IPO), the firm's performance has been and will continue to be under close scrutiny. Internet peers in China have been envious of the US$86 million in proceeds Linktone raised and the attention it receives for being an overseas-listed company.

Listing on the US stock market has again become a priority for many Chinese Internet companies since the first IPO tide of Sina Corp, Netease.com Inc and Sohu.com Inc on the NASDAQ in 2000.

The latest wave was led by the Shanghai-based online travel information company Ctrip.com International Ltd which listed in December, followed by Linktone and Beijing-based Tom Online Inc in the past two weeks.

Linktone CEO Raymond Yang (centre) signs his name on the debut of the American depository receipts on the NASDAQ on March 4. With the listings of Ctrip, Linktone and Tom Online, a new tide of IPOs by Chinese Internet companies is well underway.[newsphoto/file]

Reaction to Tom Online's IPO was mixed.

The Chinese wireless Internet portal, backed by Asia's richest man Li Ka-shing, raised HK$1.51 billion (US$194 million) from a listing on both the Hong Kong Growth Enterprise Market (GEM) and the NASDAQ on Wednesday and Thursday respectively, almost 100 times oversubscribed in the retail tranche and 50 times by institutional investors.

However, its price only grew 0.28 per cent on its first trading day on the NASDAQ and closed at US$15.58.

On the GEM market, it even suffered a 6.7 per cent fall from its IPO price on the first day and ended at HK$1.4 (18 US cents).

Despite the fall of stock prices, Tom Online CEO Wang Leilei remained confident about the company's prospects.

Wang Leilei, CEO of Tom Online

He believes the growth prospects for mobile communications and the Internet market will remain bright in China and will help boost his company, which relies on revenues from wireless messages sent to mobile phone users.

According to domestic research company CCID Consulting, 137 billion mobile messages were delivered in 2003, 40 per cent higher than the amount in 2002.

Revenues from data services, in this case mobile messages, reached 38.4 billion yuan (US$4.64 billion) last year, about 5 per cent of total telecom company revenues in China. That's two percentage points higher than in the previous year.

Wang said Tom Online will focus on wireless value-added services and target young Chinese users in the future.

On Monday, the company signed a contract with Taiwanese pop star Lee-Hom Wang, who is very popular among Chinese youth, as the representative for its brand to attract more young people.

Tom Online aims to expand its distribution channels this year to achieve stable growth in short messaging services (SMS), which contributed to 80 per cent of Tom Online's wireless business revenues or more than a half of the company's total.

This year, the company will double its 50-person sales team to increase co-operation with mobile operators and mobile phone makers and bundle their products together.

"Online marketing has a higher profit margin, but we should also notice there are 269 million mobile users, a population much larger than Internet users," said Wang.

Tom Online will also spend more efforts on building its Internet portal, including opening new content channels and strengthening its automotive and sports channels.

With improvements to its Internet portal and increasing traffic volume on the websites, Wang believes the company's revenues from online advertising will also grow.

He said the proportion between wireless value-added services and online advertising in 2004 will be about the same as in 2003. But considering the growth of wireless services, advertising will become one of the three fastest growing businesses with wireless application protocol (WAP), a wireless Internet connection, and interactive voice response (IVR), which allows mobile phone users to dial a number to listen to content provided by companies like Tom Online, becoming more popular.

Online advertising generated US$5.85 million or 7.6 per cent of Tom Online's total revenues, compared with the 72.5 per cent from wireless services.

But more importantly, the development of the portal business will attract more Internet users to Tom Online's websites and they are potential users of the company's wireless services.

"That is the paramount reason why we want to develop our portal business," said the 30-year-old chief of Tom Online.

Besides advertising, online gaming will act as a supporting role for the company's wireless business.

The company launched Karma Online in December, its first online game and also the first such product in China.

"The main purpose of our gaming business is to attract more Internet users and finally boost our wireless business," said Wang.

The contribution from online games to company revenues will not be very significant, he said.

Besides developing mature business lines like SMS and advertising, new products will provide long-term growth engines for the company.

The Tom Online executive believes new services like IVR and value-added services based on the 2.5 generation (2.5G) mobile communications system, including WAP and multimedia messaging service (MMS), will boost revenues this year.

In 2003, these services already accounted for about 20 per cent of Tom Online's wireless revenues and made the firm the biggest IVR service operator and the second-largest in MMS and WAP services in China.

With the US$194 million raised from the IPO, Tom Online is planning acquisitions to increase its competitiveness.

Wang said one kind of acquisition target is companies that can add more Internet users and content to its websites, such as instant messaging service providers and online communities.

The other category includes businesses that own solid wireless technologies or applications like audio and video compression, media streaming and JAVA applications.

Linktone

Compared with Tom Online's two-year listing process and the spin-off from its parent Tom Group, which is also listed on the GEM market, the IPO of Shanghai-based Linktone was a little surprising to many people.

It took only four months for it to be listed on the NASDAQ on March 4.

The flotation was so popular among investors that Linktone raised its IPO price of the 6.14 million American depository receipts (ADRs) from the US$10-12 range to US$14.

Even so, the stocks were still 15 times oversubscribed.

But for Yang, the IPO meant much more than the US$86 million fund.

"The IPO is only a new beginning for our company, but we need to work even harder," said Yang, Linktone CEO.

While Linktone was regarded as a minor wireless service provider with even fewer revenues than MeMeStar, which was acquired by Sina Corp with US$20.8 million one year ago, the company now has a more solid reputation. And this has allowed it to acquire other companies.

Yang said his company would be interested in buying some wireless value-added service providers, but there is no specific target at present.

In the promising, but fiercely competitive, wireless mobile market, the battle for top spot will be even more intense in the coming years with the entry of more players and consolidation of the market.

"I believe there will be only two or three super service providers (SPs) in the market in one or two years," said Yang.

Linktone has to face its peers on the NASDAQ, including big three Chinese Internet portals Netease.com Inc, Sohu.com Inc, Sina Corp, and Tom Online, as well as Shenzhen-based instant messaging provider Tencent.com, Beijing-based wireless service provider Kongzhong.com, which are also queuing at the NASDAQ's gate.

Similar to Tom Online's CEO, Yang pointed out that business focus is a major strength for his company.

While the three big portals operate online advertising, wireless messages, online games, and even e-commerce, and Tencent is mainly engaged in instant messaging services, Linktone's sole focus is on wireless value-added services.

He said SMS, 2.5G services, and voice services including IVR and reverse ringtones, which allows mobile users to set different ringtones according to different in-coming calls, are three major business lines for Linktone.

Ctrip

While the listings of Tom Online and Linktone will likely increase their competitiveness against bigger rivals like Sina Corp and Tencent.com, Ctrip's IPO just further consolidated its leadership in the online travel service market.

"Before, we competed with eLong.com for the number one title in the market, but now more and more people agree that we are number one," said Ctrip CEO James Liang in an interview in Beijing last Tuesday.

After the IPO, he explained, the company's influence among the public has been rising fast.

He said there was a significant increase in the number of Internet visitors on its website in the first two months, compared with the same period last year, although January and February are usually two flat seasons for travel firms due to less business travel during the Chinese Lunar New Year.

Ctrip predicted last month that revenues for this quarter will be US$6.6-6.8 million and profits will be between US$1.8 million and US$1.9 million.

Last year, Ctrip's revenues in the fourth quarter grew by 22 per cent quarter on quarter and 116 per cent year on year to US$8.1 million, on profits of US$3.0 million.

Liang said his company will focus on hotel reservations and air ticket booking while developing new services like travel packages.

The Ctrip founder said the net profit margins of the three services are 15 per cent, 5 per cent and 10 per cent respectively.

"Although travel packages will only contribute a little to our revenues this year, we believe it represents a trend in the industry," said Liang, explaining that this has become the most popular way to travel for Americans.

With increasing income levels, travel packages will gain more popularity in China.

He estimated that the business will account for 15 to 20 per cent of the company's revenues in the next two years.

On the other hand, as more Chinese people choose to spend their vacation in foreign countries and as more countries sign travel agreements with China, overseas travelling will become a new business area for Ctrip.

The company announced on February 25 that it formed a strategic alliance with Shanghai Charming International Travel Service Ltd and renamed the travel agency to Ctrip Charming.

Liang said that Ctrip Executive Vice-President Alfred Fan and several other Ctrip employees actually acquired the travel agency, but he declined to disclose the value of the deal and the exact amount of stakes Ctrip executives hold in the agency.