Thursday, March 19, 2009

Remind me again...What does "IPO" mean?

It has been so long since we've seen any IPO action that the average observer may be forgiven for not remembering what the term means.

Sohu, a Chinese portal site has filed with the SEC its intention to list the shares of its online game subsidiary on NASDAQ. Sohu, itself also listed on NASDAQ, controls 70.7 percent of the shares of Changyou, the subsidiary that it intends to list.

This latest IPO is all the more interesting because it is a Chinese company preparing to list shares in the United States. In the 1990s, Chinese IPOs in New York, particularly those of internet-related companies, were not uncommon. A number of large Chinese SOEs also listed their shares in the U.S. in order to take advantage of the vast sums of wealth available outside of China.

Over the past decade or so, there has been a noticeable decrease in overseas (not including HK) Chinese IPO activity for a couple of reasons. First, the Central Government has begun to speak out against overseas listings and encourage more domestic listings. Second, there's so much more money floating around China now, and domestic investors are always eager to snap up new offerings.

According to this story at Economic Observer Online, online games have been a bright spot in an otherwise dismal economy this year. Sohu's online game revenues are already 2.4 times the same period last year.

The market, however, is not impressed. Sohu was downgraded to "sell" this morning.