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A Chinese Technology IPO That's Actually Earning Money

http://www.fool.com/investing/general/2011/08/29/a-chinese-technology-ipo-thats-actually-earning-mo.aspx

Brian Stoffel
August 27, 2011

Investing in companies that are across the world, operating in a business climate altogether alien to the average U.S. investor, is a scary proposition.

It gets even more nauseating for an investor's stomach given the U.S. debt downgrade, sovereign debt crisis in Europe, and fears of a slowing economy in China. But there is one company that's -- at least over the very short term -- rewarded investors with impressive numbers: Qihoo 360 (NYSE: QIHU  ) .

Off to a rough start
This month hasn't been kind to those who have taken the leap of faith to invest in newly IPO'd technology companies coming out of China. Take a look at the valuations each of these companies sport, along with their performance over the rough month of August.

Company

Earnings Per Share

Forward P/E

August Performance

Qihoo 360

($0.06)

53

2%

Renren (NYSE: RENN  )

($0.85)

180

(34%)

Dangdang (NYSE: DANG  )

$0

115

(30%)

Youku.com (NYSE: YOKU  )

($0.38)

1,167

(37%)

Tudou (Nasdaq: TUDO  )

($3.25)**

N/A

(9%)*

Sources: Yahoo! Finance, Google Finance. N/A = Analyst estimates not available.
*Tudou IPO was Aug. 18.
**Tudou loss is divided by four shares per ADR. The absolute loss at Tudou is $103.29 million over the last 12 months.

Surging revenue, but no profits
Truth be told, I'm not saying these other four companies belong in the trash. Social-networking site Renren and e-tailer Dangdang each saw revenues climb 53% last quarter. But in the case of Renren, costs from sales, marketing, and G&A offset its top-line growth. And for Dangdang, much of the growth was attributable to lower-margin offerings that added little to the bottom line.

The Hulu and YouTube of China
Youku -- which like Hulu plays licensed content streaming over the Internet -- saw revenue grow by an astounding 178% last quarter. Sadly for the company, though, the costs for bandwidth and content licensing alone ate up 59% of those surging revenues.

And Tudou -- which like YouTube mostly offers content that is uploaded by registered users -- is just a little over a week old as a publicly traded company. Though the company receives and posts 47,000 videos daily, its net income was negative $103 million over the last 12 months. We'll have to wait until Tudou's first public earnings release comes out next quarter to see if we should be taking this company seriously.

A move to profitability
Qihoo 360 offers two products to the market. The first is Internet security software, which it has begun to give away for free. The second is a Web browser akin to Firefox, Safari, or Internet Explorer. The company makes its money by offering Internet value-added services on open platforms and through advertising.

Qihoo was able to avoid such stumbles in shar