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Wednesday
Dec082010

Chinese IPO Frenzy

Chinese IPOs are the center of attention today after strong showings from Youku (YOKU) and Dangdang (DANG).  YOKU bills itself as the Youtube of China, while DANG calls itself the Amazon of China.  If you're wondering why each company is being marketed as the ______ of China, there is a reason.  The last company to use this strategy was Baidu (BIDU), which was marketed as the Google of China. 

If you don't recall BIDU's IPO, it was one of the most highflying IPOs ever.  After pricing at $27 per share on 8/5/05, BIDU opened above $60 per share and traded as high as $151 before finishing the day at $124.88 for a one day gain of over 360%!  Since the close on its first day of trading, BIDU has rallied an additional 795%, and if you got in at the IPO price of $27, you are now up over 3,000%.  The S&P 500, on the other hand, has done nothing (literally) over that same time period.  On 8/5/05, the S&P 500 closed at 1,226.42, which is exactly where it is trading now!

Looking back at the history of BIDU, it seems like it has been a can't lose stock.  In reality, though, following that initial one-day surge back in August 2005, the stock actually performed poorly over the following year.  As shown in the table below in its first six months of trading post IPO, BIDU actually traded down over 60% from its closing level on 8/5/05.  So even if YOKU or DANG are the next Youtube or Amazon of China, or even the next BIDU of IPOs, investors looking to go along for the ride better make sure their seat belts are fastened.

 

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