Ask a random adult in the U.S. if they’ve heard of Taomee, and you’ll probably get a blank stare. Ask a child in China the same question, and they’ll probably say yes. Taomee Holdings Ltd. (Public, NYSE:TAOM) operates the largest online entertainment community for children in China. Most of that community is centered around www.61.com, where Taomee has launched several interactive virtual worlds for children with names like “Seer” and “Mole’s World.” Although Taomee’s shares fell on their first day of trading, the company’s growth prospects are just too powerful to ignore. Here are five reasons to consider investing in Taomee:
1) Fairy tale sales. It’s hard to argue with cold hard cash, and Taomee’s growth has been startling. Total net revenue quintupled in 2010 to $36 million compared to 2009, per the Wall Street Journal. Net income was nearly as impressive during the first quarter of 2010. It almost tripled to $9.1 million.
2) Solid management. Taomee’s chief financial officer, Paul Keung, walks the walk. He was trained and educated in the U.S., so he’s well-versed in the American financial markets. That gives Taomee a leg up over domestically-insulated companies. A series of accounting scandals have shaken investor faith in Chinese ADRs. The fact that Keung’s poring over the books should allay some of those sector-wide fears.
3) Scale. Some 89.6 million children in China between the ages of five and 15 accessed the Internet in June 2010. More than 30 percent of that population (27.3 million) accessed Taomee’s site, 61.com, during the first quarter of 2011, according to iResearch.
4) Multiple revenue streams. In many ways, Taomee’s story reminds me of game-maker Zynga – the creator of the popular iPhone and Android game Angry Birds. Zynga’s success with Angry Birds has poured over into the real world with a line of plush toys and a movie in the works.
Similarly, Taomee is significantly growing its offline presence through children’s books, children’s magazines, partnerships with clothing and beverage makers and several massive film and television projects under development. These aren’t just pipe dreams, either.
According to Beijing OpenBook, two of the Top 5 best-selling children’s books in China last year were based on Taomee franchises. Even more intriguing: Taomee’s co-producing two animated TV series and two feature films based on “Mole’s World” and “Seer.” The company has plans to release more than 100 episodes of its animated series – a fact that should significantly boost traffic at 61.com. The company’s feature films are expected to debut this year.
5) Be greedy when others are fearful. I’m starting to think it could be the best possible time to buy stock in Chinese tech companies. Mutual funds – even stock brokerages – are nervous about shoddy accounting practices in China, and that’s led to wholesale sell-offs for a number of New York-traded Chinese stocks. You know it’s bad when even Baidu.com, Inc. (NASDAQ:BIDU) isn’t immune. The Chinese search engine company has shed nearly 20 percent since April. That makes the high-powered growth at companies like Taomee particularly attractive – provided, of course, the numbers we’re seeing are genuine. If they’re true, though, Taomee could be a bargain.
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