Bloomberg News

Perfect World Drives Web Surge on Facebook IPO: China Overnight

February 04, 2012

Feb. 3 (Bloomberg) -- Perfect World Co. led a rally in Chinese Internet stocks traded in the U.S. as Facebook Inc.’s initial public offering plans lure investors to similar companies in the world’s fastest-growing major economy.

The Bloomberg China-US 55 Index of the most-traded Chinese stocks listed in New York climbed 0.6 percent to 105.61 yesterday, the highest since Sept. 1. Online game developer Perfect World jumped the most in four weeks and Renren Inc., which operates a social-networking website, gained 8.2 percent. Video site Youku Inc. surged to the highest level since August.

Facebook’s IPO, the largest ever for an Internet company, comes amid a 10 percent advance in Chinese stocks traded in the U.S. this year, and Renren, Youku and online bookseller E- Commerce China Dangdang Inc. are among the biggest gainers on the China-US 55 measure. There are a lot of “opportunities” in Internet companies that have undertaken IPOs, Kevin Pollack, a fund manager at Paragon Capital LP in New York, said at the Bloomberg Link China conference on Feb. 1.

“Given the massive market cap of Facebook, it is forcing a lot of investment managers to really focus on the sector for the first time,” Lou Kerner, a former analyst at Wedbush Securities Inc. who founded Second Shares, a New York-based blog focused on social media companies, said in an interview yesterday. “You’re going to see a lot of institutions that allocate money to social media.”

Beijing-based Renren gained 8.2 percent to $5.42 in New York, extending its advance this year to 53 percent. Perfect World, also based in the capital, climbed 9 percent to $11.50, the highest level since Jan. 6.

China ETF Jumps

Sina Corp., operator of a service similar to Twitter based in Shanghai, added 1.9 percent to $75.30, the highest Nov. 16. Beijing-based Youku climbed 7.9 percent to $24.72, the strongest since Aug. 31, and E-commerce, known as Dangdang, added 2.7 percent to $7.19.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., climbed for a third day, adding 1.3 percent to $39.93, the highest level since Aug. 3. The ETF is up 15 percent this year.

The rally in Chinese stocks has pushed Internet companies beyond prices that are justified by their earnings and growth prospects, Echo He, an analyst at Maxim Group LLC in New York, said by phone yesterday. Renren and Sina may struggle to grow amid competition from other Chinese social networks such as one devised by Tencent Holdings Ltd. Tencent, China’s biggest Internet company by sales, jumped 0.7 percent to $24.20 in New York yesterday.

No Profit

Renren won’t report a profit for 2011 as sales rise 55 percent to $119 million, according to analysts’ estimates compiled by Bloomberg. Sina’s revenue will increase 15 percent to $465 million for 2011, according to a separate analyst survey.

Facebook’s sales grew 88 percent to $3.71 billion in 2011. The world’s largest social network may be valued at $100 billion in the IPO, two people with knowledge of the matter who declined to be identified said last week. That’s 27 times 2011 sales. Renren trades at about 25 times estimated 2011 sales, while Sina trades for about 11 times revenue.

Casino operator Melco Crown Entertainment Ltd. advanced for a third day, rising 3.2 percent to $12.12, a 3.9 percent premium over its Hong Kong shares, which gained 4 percent to HK$30.15, or $3.89. Each Melco Crown American depositary receipt is worth three ordinary shares.

PetroChina Co., China’s biggest energy producer, advanced 0.5 percent to $148.90 in New York after the Beijing-based company’s Hong Kong shares rose 1.9 percent to HK$11.62, the equivalent of $1.50. Each ADR is worth 100 ordinary shares. The U.S. stock traded at a 0.6 percent discount to Hong Kong.

Government Restrictions

PetroChina agreed to buy a 20 percent stake in a Royal Dutch Shell Plc project in Canada, Mao Zefeng, the Beijing-based senior assistant secretary to PetroChina’s board, said yesterday.

Facebook is considering entering China, where it currently has little presence because of government restrictions, according to the company’s IPO filing.

“China is a large potential market for Facebook, but users are generally restricted from accessing Facebook,” the company wrote in the filing. “We do not know if we will be able to find an approach to managing content and information that will be acceptable to us and to the Chinese government.”

Maxim Group’s He said that Facebook doesn’t pose a threat to Renren and Sina because it will be difficult for the Menlo Park, California-based company to get government permission to work in the Chinese market. Facebook would probably have to censor its content to comply with Chinese rules, He said.

The Shanghai Composite Index of domestic shares rose 2 percent yesterday, the best one-day performance in two weeks. The Hang Seng China Enterprises Index advanced 2.9 percent in Hong Kong.

--Editors: Emma O’Brien, Marie-France Han

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net


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