On April 25, 2007, Tom Group announced that a proposal to take its Tom Online (TOMO) subsidiary private was approved by shareholders. This is a move that should quickly be replicated in many Chinese Internet companies hoping to have long lives.
Listed both on Nasdaq and Hong Kong's Growth Enterprise Market, Tom Online has already filed its necessary Form 6K. And after posting last week a 26% year-on-year decrease on its total first quarter revenues of US$35.14 million, the company should move as fast as possible to get out of the public spotlight.
Why do public companies go private? When a firm reduces the number of its shareholders to less than 300, it is no longer required to file reports with the the U.S. Securities and Exchange Commission. This is the result of maybe one company wanting to buy another company's publicly held shares or a firm plans to merge its assets with another company. But in Tom Online's case, the situation comes down to not wanting to have so much pressure from the public markets and the excessive price volatilities.
Why is pressure from the public markets bad for a Chinese firm? Very few Western investors understand the dynamics of China's media and technology space. Apart from this website ChinaTechNews.com, there are very few resources for potential investors and executives to make sound decisions in China's technology sector. Pressure therefore comes from unforeseen spots: a political calamity in China might manifest itself in worried investors ridiculously tying politics to the well-being of a Chinese technology firm. Or, as we have seen recently, investors get on the mobile and gaming bandwagon and think there are so many great opportunities for gaming and mobile value-added firms in China, so they pressure these technology companies to enter sectors better left forgotten.
Name one wireless value-added service company that is doing well in China. Sure, the owners of these firms cashed-out on the shoulders of their investors, but are Kongzhong, Linktone, or Hurray pushing the envelope of this sector, or are their checks bouncing? Tom Online was also pressured by market forces to enter this space, but it should have listened to its gut and stuck with more sustainable business models involving online niche content, online advertising, and online services. Wireless service revenues for the company were US$31.82 million this first quarter, representing a 28.4% decrease from the same period last year but a 7.5% increase from the previous quarter. Wireless Internet service revenues made up 90.6% of the company's total quarterly revenues! Yes, Tom Online is indeed creating revenue in this sector, but it better diversify before China Mobile and China Unicom close the spigot. Don't forget: China Mobile is the big brother in China and will never let the MVAS firms win.