The Best E-Commerce Stock for 2007: TOM Online

Selling products online is nothing new. To stay ahead in this increasingly competitive landscape, companies must either provide a fresh approach to e-tailing, or be ready to adapt quickly to changes in the marketplace. TOM Online's (Nasdaq: TOMO  ) prime positioning in the growing mobile and Internet market, its clever business strategy, and its presence in the booming Chinese economy have all earned the company a shot at becoming 2007's best e-commerce stock.

Mobile madness
TOM Online is one of China's leading Internet portals, and one of its top providers of mobile multimedia products and value-added services, focusing on "young and trendy demographics." It's a relatively new challenger, but since its incorporation in 2001, the company has grown revenues from $6.4 million in its first year to more than $172 million in 2005.

To better understand TOM Online's business, take a look at its primary revenue driver: the Chinese mobile market. As of November 2006, China had reached 455 million subscriptions to mobile services, gaining 16% during the first 11 months of this year. While that number may sound large, it only represents about 34% of the population, according to China's Ministry of Information Industry, leaving the market ample room for growth. Furthermore, the number of mobile phone owners in China is almost 6% greater than those who use fixed-line service, demonstrating China's preference for cell phones and wireless services.

This comes as good news to two of China's largest mobile providers: China Mobile (NYSE: CHL  ) and China Unicom (NYSE: CHU  ) . Both companies contribute considerably to TOM Online's mobile exposure and revenue stream; 94% of TOM Online's revenues stem from wireless Internet services.

Aligning with China Mobile -- China's No. 1 mobile phone provider, controlling about 65% of the market -- will make sure the dollars (or renminbi) keep rolling in. Recently, China Mobile tapped TOM Online to operate the music and automobile channels on China Mobile's web portal.

The key ingredient
But TOM Online has an even bigger calalyst to capture the e-commerce market in 2007: a partnership with eBay (Nasdaq: EBAY  ) to create a new Chinese marketplace. eBay and other Internet companies have struggled to gain an edge in the Chinese online auction market. The U.S. auction giant's decision to partner with a local presence -- gaining exposure to TOM Online's subscriber base of more than 75 million -- is a smart move. This collaboration will create opportunities on both ends, combining eBay's e-commerce expertise with TOM Online's mobile positioning and knowledge of China.

The Foolish bottom line
Despite its shining prospects, TOM Online has endured some gloomy quarters. Still, the picture remains bright; as of September 2006, the company sported a 30% compounded growth rate over the trailing 24 months. Its current trailing P/E of 18 compares favorably to Chinese competitors Sohu.com (Nasdaq: SOHU  ) , Sina (Nasdaq: SINA  ) , and Baidu.com (Nasdaq: BIDU  ) , which post P/E ratios of 34, 48, and a whopping 168, respectively.

True, the company will need to make changes to remain China's No. 1 provider of wireless services. Its new joint venture with eBay, and its recent agreement with China Mobile, should help to reinvigorate the company, pumping some nice profits back into TOM Online.

The Foolish community also stands behind the company, giving TOM Online a four-star rating in Motley Fool CAPS, our new stock-rating database. To share your opinion on TOM Online's chances as the best e-commerce stock for 2007, sign up here, absolutely free. Based on your responses, we'll crown "The Best E-Commerce Stock for 2007" early next week.

See all our Foolish candidates for 2007's best e-commerce stock, then add your own ratings in Motley Fool CAPS.

TOM Online, eBay, and SINA are all Motley Fool Stock Advisor recommendations. Baidu.com is a Motley Fool Rule Breakers pick. Try any of our Foolish newsletters free for 30 days.

Foolish research associate Katrina Chan owns no shares in any of the companies mentioned, but she did purchase something from eBay in the past month. The Motley Fool's disclosure policy is internationally friendly.


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