October 9, 2004
Beijing-based online travel company eLong plans to raise up to US$68 million (HK$530.4 million) from an initial public offering on Nasdaq later this month, kicking off another round of Internet-related stock sales on the tech-heavy stock exchange.
Based in Beijing's Chaoyang district, eLong will issue 4.385 million American Depositary Shares (ADS) at between US$11.50 and US$13.50 per share, raising up to US$59 million. The company's lead underwriter, Deutsche Bank, has the option of issuing up to 657,000 further ADS - each representing two existing shares - in after-market trading. Both eLong and Deutsche Bank declined to comment.
In its Nasdaq filing on Thursday, eLong said it planned to raise US$40.3 million from the stock offering, assuming it was priced in the mid-range, with the money going to fund expansion and employee retention. The company is offering 3.623 million ADSs in the sale, with the remaining 762,000 offered by selling shareholders.
Demand for new China-related Internet plays has surged since the successful stock sale of Shanghai recruitment website 51job.com earlier this month. 51job's Nasdaq listing was warmly received by investors, in sharp contrast to two earlier sales - Kongzhong, and Tom Online, a company controlled by Hong Kong mogul Li Ka-shing - which they spurned.
Several other mainland Internet-related firms are readying themselves for Nasdaq stock sales, including China Finance Online, another Beijing-based company that aims to raise up to US$86 million.
Analysts were upbeat on eLong's prospects.
``The company is similar to [US travel website] Hotels.com - they are more like a capacity consolidator than a standard travel site,'' said Eric Wen, an Internet analyst at UBS in Shanghai.
``eLong is close to [rival] Ctrip in terms of revenue from hotel bookings, but lags them in terms of airline ticketing and package tours,'' Wen added. ``It is, however, expanding aggressively into corporate travel, which is one area Ctrip has avoided. You always need a lot of capital up front to cater for [the corporate] market, as companies always want you to pay up front, and for them to reimburse you.''
The Beijing firm raised capital, and underlined its potential as a leading new-generation China Internet play in late July, when it sold a 30 per cent stake to e-business investment group IAC/InterActiveCorp for US$60 million. IAC, which also controls online travel services Expedia and Hotels.com, incorporated eLong into a new division, IAC Travel-Asia Pacific. IAC holds around 11.2 million ordinary shares in eLong.
The Beijing firm is led by a group of young senior managers - its chairman and founder, Justin Tang, is 33, as is business development director Richard Zheng Xue, while chief technology officer Richard Chen is 34. The three hold a combined 4.78 million shares, most of them owned by Tang.
Founded in 1999 as a community-based website, and overshadowed by heavyweight mainland rivals Sina and Sohu, eLong is a curious mix of old and new. In many ways it appears to be a classic old-style Internet firm. It is unprofitable - it lost US$654,000 in six months. It has periodically altered its business model to seek out customers and sales, deciding in 2001 to reposition itself as an online travel firm competing against larger rival Ctrip.com, which completed its own Nasdaq stock sale last December.
And it is challenged by a hoary problem - convincing customers to use credit cards online.
In other ways, it's a classically modern Chinese company, seeking out new ways to solve existing problems, and convincing investors of its success in doing so. Its answer to the problem of China's low credit-card penetration rate has been to charge hotels directly for tickets purchased via its website.
Mainland hotels have proved eager to do this. Many poverty-stricken regions and counties in China boast lavish hotel complexes that need customers. eLong and Ctrip were quick to spot the potential, and hotel owners have been prompt with their payments.
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