Chinese tech IPOs are hot, but risky, investments

Traders work on the floor of the New York Stock Exchange in New York City.

TEXT OF STORY

Tess Vigeland: You may remember last week we did a story about the return of the tech bubble. Marketplace's Steve Henn made the case that this time things are different. Unlike the IPO craze of the late '90s, big companies including Google are sitting on mountains of cash and driving up the value of start-ups, like Groupon. Well, a couple tech IPOs caught our attention this week, so as they like to say in Congress, we're giving Steve a chance to revise and extend his remarks.


Steve Henn: It looks like Wall Street may have found a simple new recipe for high-flying IPOs. Just take one part tech, add one part China, shake well and pop.

Two Chinese Internet companies went public on the U.S. stock markets yesterday and the results were intense. Youku.com, which streams TV shows in China and has never turned a profit, almost tripled in value and is up again today. And DangDang, an e-commerce bookseller, has doubled its stock price in less than 48 hours.

Kate Mitchell is at Scale Venture Partners.

Kate Mitchell: The institutional investors are comfortable on the U.S. exchange and they're very interested in owning part of the China growth story.

Darren Fabric runs IPOX capital management and sells a mutual fund that invests only in IPOs. Yesterday, he bought a little piece of DangDang.

Darren Fabric: I think there's been investor appetite especially in American for Chinese companies. People looking for a growth. They don't see it here, so they are willing to pay up.

While both DangDang and Youku have expanding revenues, and are leaders in China's online marketplace, Fabric says these are still very high-risk investments.

Fabric: We like to say Chinese IPOs can be hazardous to your wealth.

One study found that jut adding the word "China" to the name of a company can move its stock price up 30 percent. Now Wall Street's adding tech to the mix and it's getting a powerful, intoxicating and bubbly punch. Just watch out for the hangover.

In Silicon Valley, I'm Steve Henn for Marketplace.

About the author

Steve Henn was Marketplace’s technology and innovation reporter for the entire portfolio of Marketplace programs until December 2011.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...