2010-12-09 09:43

A pedestrian passes by a Youku ad in Shanghai on May 20,2010. [Asianewsphoto]

The shares of two companies considered to be China's YouTube and Amazon.com soared in their US debuts on Dec 8, as investors bet they could become dominant in a still-nascent market, Reuters reported.

Online video company Youku.com Inc's stock rose to $33.44, or 161 percent, above its IPO price in its first day of trading. The shares of online retailer E-Commerce China Dangdang Inc rose to $29.91, or 87 percent, above their IPO price -- the latest sign that investors are hungry for growth and eager to gain a foothold in China.

"Investors like to get in early in companies that could end up dominating their markets," said Paul Bard, an analyst at Connecticut-based IPO research and investment house Renaissance Capital.

"You have two potential leaders in two potentially massive markets in China. I think that's being reflected in their trading today."

Youku's triple-digit first day pop is the biggest since 2005, when Baidu.com rose 354 percent, according to data from the New York Stock Exchange.

Bankers typically target a first day pop of 10 percent to 20 percent. Those levels of gains insure that most of the money raised in the IPO goes to the company and selling shareholders, but investors are still rewarded for taking a risk on a new issue.

"They left some money on the table but the benefit in this case might exceed the cost," said Josef Schuster, founder of Chicago-based IPO research house IPOX Schuster LLC and principal portfolio manager of the Direxion Global Long/Short IPO fund.

"They are on the radar screen of every investor now," Schuster said, adding that the extra pop got the companies significantly more media coverage and could bode well for future share sales.

Investors are looking for "high quality, high growth" companies in China that can scale their businesses as more Chinese consumers come online, Dangdang Chief Financial Officer Conor Chia-hung Yang told Reuters.

"They look at the success of Amazon and they look for that in China," said Yang, citing a market of 100 million online shoppers. "We are in the early stages of the growth."

Youku founder and Chief Executive Victor Koo said Youku also focuses on growth. He said that the online video service -- akin to Hulu, YouTube and Netflix Inc -- intends to use proceeds from the IPO to expand its share in the Chinese market, and that the prestige of a US listing would help.

"The primary reason is that we feel listing on the (New York Stock Exchange) helps elevate the local brand and solidify our leadership position in the video market," said Koo.

So far this year, Chinese companies making their debuts in the United States are posting returns of about 30 percent, according to Thomson Reuters data.

That contrasts with an average return of 23 percent for all US IPOs this year, including companies based in China, according to data from Renaissance Capital.