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Inside Taomee (NYSE: TAOM) - By iChinastock
 

Inside Taomee (NYSE: TAOM) - By iChinastock

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Taomee, one of China’s leading children’s online entertainment and media companies, is listed on the NYSE as “TAOM”. Taomee operates five virtual worlds for 5-15 year-olds, including ...

Taomee, one of China’s leading children’s online entertainment and media companies, is listed on the NYSE as “TAOM”. Taomee operates five virtual worlds for 5-15 year-olds, including “Mole’s World” and “Seer”. Presentation by iChinaStock.

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    Inside Taomee (NYSE: TAOM) - By iChinastock Inside Taomee (NYSE: TAOM) - By iChinastock Presentation Transcript

    • INSIDE INSIDE TAOMEE NYSE: TAOM CHILDREN’S SOCIAL NETWORK AND MEDIA REPORT BY iChinaStock.com profiles Chinese firms that are publicly-listed or may list soon in overseas markets © March 2011 iChinaStock
    • INSIDE SUMMARY   Taomee Holdings Limited, one of Chinas leading childrensonline entertainment and media companies, plans to list on theNYSE as “TAOM”. At the midpoint, Taomee would raise $71.8million at a $362 million valuation.  Taomee operates five virtual worlds for 5-15 year-olds, including"Moles World” and “Seer". A premium monthly subscription(Taomees most popular product) to one of the virtual worlds,costs RMB 10 ($1.5)   As of the first quarter of 2011, Taomee had approximately 27.3million active accounts, 2.7 million paying users, and averagerevenue per paying user of $4.60.   In 2010, total revenues were $36 million, 95% online and 5%offline, with net income of $21.6 million. Taomee aims to grow itsoffline revenues to 50% of the total by co-producing mediacontent (TV, books, etc.) and licensing its IP.   Taomee’s largest competitor in China is Tencent (0700.HK),which launched an online childrens community, "RocoKingdom" ( ) at the end of 2010. But Taomee claims 69%market share by revenues.
    • INSIDE BUSINESS MODEL Additional products: •  Taomee Bus (SNS) •  Taomee Mom (parental monitoring) Taomee Online (Virtual Worlds) Offline (5% of revenues) (95% of revenues) Flower Mole’s World Seer Gong Fu Pai Magic Haqi World Cuddly moles Sci-fi theme Kungfu Adventure 3D Virtual World Fairy tale story Ages 6-14 Boys 6-14 Boys 8-15 Ages 6-14 Girls 5-10 (China #1) (China #2) “Four of our virtual worlds ranked among the top six most visited online children’s entertainment communities in China, with Seer and Mole’s World, ranking first and second, according to an iResearch Report.” Source: Taomee Inc. F-1 SEC Filing Disclaimer: This is not the firm’s official structure, but rather iChinaStock’s representation of the firm’s key properties
    • INSIDE FOUNDER BACKGROUNDS   Taomee’s founding team comes from Chinese internet giant Tencent (0700.HK), now also its primary competitor. This includes Taomee Chairman Jason Liqing Zeng, CEO Benson Haibing Wang , CTO Crow Zhen Wei, and COO Roc Yunpeng Cheng. “One big plus as it grows: Taomee’s leaders know their domestic rivals well. The three founders all worked for Tencent, which is led by billionaire Ma Huateng. There, Wang headed up a successful project called ‘QQ Pet.’ Tencent’s online users paid to feed and take care of an online pet.  Ma invited Wang out for lunch when he heard the ambitious Anhui-province-born engineer wanted to leave Tencent back in 2007.” --Forbes Source: Forbes, “Watch Out Disney, Here Comes China’s Taomee” http://blogs.forbes.com/russellflannery/2010/09/03/mole-eyes-mouse-watch-out-disney-here-comes-chinas-taomee/
    • INSIDE USERS AND ARPPU Unit: 1,000 40,000   $5.00   36,213   33,989 $4.60   $4.50   35,000   30,344 $4.00   30,000   $3.90   26,609 27,329   25,967   $3.50   25,000   $3.30   $3.00   $3.00   20,367 Ac1ve  Users   20,000   $2.50   $2.30   Paying  Users   $2.00   15,000   $1.90   ARPPU*   $1.70   $1.50   10,000   $1.00   5,000   2,961 3,274 3,062   2,415   2,741   1,186 1,761 $0.50   0   $0.00   2009Q3   2009Q4   2010Q1   2010Q2   2010Q3   2010Q4   2011Q1   •  *ARPPU (average revenue per paying user – what Taomee terms “ARPU” per quarter) has risen steadily for Taomee, showing the firm is monetizing its user base more and more effectively •  Taomee attributes the fall in users (active and paying) at the end of 2010 to Tencent’s entry into the market with a new and free virtual world for children Source: Taomee Inc. F-1 SEC Filing
    • INSIDE REVENUES Millions USD Q1 2011: 40   Net revenues $12.4 million 36.0   Net income $9.1 million 35   30   25   20   21.6   Net Revenues 15   Net Income (Loss) 10   7.1   5   0.0   0.1   1.3   -0.9 0   -0.1 2007   2008   2009   2010   -­‐5  Source: Taomee Inc. F-1 SEC Filing Note: MAU = monthly-active users (unique log-ins) and Registered Users = activated users
    • INSIDE HIGH MARGINS Both Taomee’s online and offline businesses show high profit margins, 85% and 70% respectively. Taomee’s overall margin is 83.7% (2010). Millions USD 40   85% margin 35   33.7   30   25   20   15   Net  Revenues   Costs  of  Services   10   6.9   70% margin 5   2.3   0.1   -0.2 0.2   0   -0.1 Online -­‐0.1   -­‐0.7   -­‐5.2   -­‐5   Online Offline Offline Online -­‐10   2008   2009   2010  Source: Taomee Inc. F-1 SEC Filing
    • INSIDE ONLINE REVENUES: SUBSCRIPTIONS AND VIRTUAL GOODS •  Taomee’s online worlds monetize via two channels: –  Subscriptions: “Users may choose to pay a RMB10 (US$1.5) fee per virtual world to access premium features and gain privileges within each of our virtual worlds for 30 days. Users who pay the subscription fee enjoy additional capabilities, special privileges, such as having a higher upper limit for the total number of friends that the users can have and access to exclusive online parties.” –  Virtual goods: “users pay a fee for each virtual item within our virtual worlds.” “We generated a significant portion of our net revenues from online business through the time-based revenue stream in 2008, 2009, 2010, and the first quarter of 2011. We anticipate generating more revenues through the item-based revenues stream going forward as we introduce more virtual items. “ Source: Taomee Inc. F-1 SEC Filing
    • INSIDE PAYMENT METHOD: PRE-PAID CARDS 65,000 5-15 year-old Taomee distributors children Taomee’s virtual world operations revenues are collected predominantly through the sale of prepaid cards at retail outlets throughout China. In Taomee’s online world, the virtual currency is called “Mibi.” •  Nationwide distribution network : distribution network of over 65,000 retail outlets were located near schools or other places frequented by target users in over 2,100 towns and cities across 31 provinces in China as of March 31, 2011. •  More than 80% revenue from distributors :In 2008, 2009, 2010 and the first quarter of 2011, 83.5%, 80.1%, 87.1% and 85.1%, respectively, of Taomee’s net sales proceeds collected were from the sales of prepaid cards to distributors. •  No longer dependent upon any single distributor: Taomee’s largest distributor accounted for 92.0%, 83.6%, 25.9% and 9.8% of its net sales proceeds generated from prepaid card sales in 2008, 2009, 2010 and the first quarter of 2011, respectively. Source: Taomee Inc. F-1 SEC Filing
    • INSIDE PUSH TO OFFLINE “Taomee is not an internet company, it’s a children’s entertainment company.” --Taomee Co-founder & CEO Benson Wang In spite of CEO Wang’s aspiration, online accounts for 95% of revenues at present. Taomee aims to grow offline to 50% of total revenues in the next 5 years. Planned expansion in offline includes: •  Children s books and magazines, based on our franchises developed either by our staff writers or by partnering with authors and publishers; •  Licensing franchises to leading makers of consumer products for children in China, such as “Mengniu” in beverages and “Roly China” in apparel; •  Expansion to film and television through the co-production of, or investments in. ”China doesn’t have its own Disney, Mattel or Marvel yet, and we hope that this company will evolve into one of them.” --JP Gan, Qiming Ventures, investor in Taomee
    • INSIDE REGULATORY ISSUES   All media in China is closely regulated and those targeted at children are especially so   In August 2009, China’s state broadcaster CCTV released a series of reports alleging that Taomee’s Mole’s World drives internet addiction in children. Internet addiction is treated very seriously in China.   In response, Taomee assigned high priority to its regulatory policies: “We aim to create a healthy online environment suitable for children. There is daily server downtime between the hours of 00:00 and 06:00 to encourage children to form healthy Internet usage habits. For every 45 minutes of continued access, children receive a visual reminder and after two hours of continued access, users will experience a decrease in the rate of virtual reward accumulation. These measures encourage our users to develop moderate and sustainable usage habits.” Source: Taomee Inc. F-1 SEC Filing
    • INSIDE PARENTAL ISSUES   In addition to addressing regulatory concerns, Taomee has also established a site for outreach to parents, called Taomee Mom: “We launched our website for parents, “Taomee Mom,” in January 2010, as a monitoring and communications channel for parents and guardians. We put in place a sophisticated monitoring system, through which email addresses and cell phones registered by parents and guardians are tied to their children’s user accounts to closely track children’s time spent in our virtual worlds. Parents can also send inquiries and suggestions to our staff and communicate with other parents on Taomee Mom’s discussion board..”   Parents are an important demographic for Taomee as they control the purse strings and some will even play in Taomee’s virtual world themselves while their children are away. Source: Taomee Inc. F-1 SEC Filing
    • INSIDE COMPETITORS Taomee’s largest competitor in China is Tencent (0700.HK), which launched an online childrens community, "Roco Kingdom" ( ) at the end of 2010. •  Taomee holds 69% market share by revenue, according to iResearch •  When Tencent introduced Roco Kingdom on July 15, 2010, it offered a six-month free trial period and didnot start charging users until January 9, 2011. Taomee attributes a drop in its active and paying users at theend of 2010 to the launch of Tencent’s product, though user growth appears to have stabilized since. •  Roco Kingdom targets the same user base as Taomee’s virtual worlds and the free trial period attractedsome Taomee users to try their product. Roco Kingdom claims 60 million registered users with 0.55 millionpeak concurrent users.   Other competitors include Aobi Island by Baitian Info and Hezi World by Bcast Education Software Source: Taomee Inc. F-1 SEC Filing
    • INSIDE MARKET CHARACTERISTICS Taomee cites an iResearch report that it commissioned to address the children’s online entertainmentmarket in China: 1.  Large market size: •  China has 175 million children ages 5-15, of which 90 million are internet users. “Children represent 21.3% of the total Internet users in China and had an Internet penetration rate of 51.2%.” 2.  Internet is first choice for entertainment: •  “The Internet has gained wide popularity as a media and entertainment form for children in China, with 67.7% of the Internet users between five and 15 choosing the Internet as their favorite media form, compared to just 18.9% choosing television.” 3.  Dominance of online games: •  “An estimated 75.4 million, or 84.2% of all Internet users between five and 15, cited participating in virtual worlds and playing other forms of online games as their main reasons for using the Internet, followed by watching animation, films and downloading music” 4.  Geographic, gender, and age gaps •  Internet users are more urban than not. “Of Internet users between the ages of five and 15, 82.4% are older than ten and 59.4% of these users are boys.” Source: Taomee Inc. F-1 SEC Filing
    • INSIDE LISTING STATUS •  Taomee filed its IPO prospectus on May 18, 2011. Chinese media expect the listing date to be June 9, 2011 •  Taomee cited three reasons for raising funds via a public listing: •  approximately US$10.0 million to further develop and expand our online business; •  approximately US$10.0 million to further develop and expand our offline business; and •  the balance to fund our working capital and for general corporate purposes, including potential acquisitions, partnerships, alliances and licensing opportunities. •  In 2009, Taomee received a $5 million investment from Qiming VC. Previous investors in the firm include Zeng Liqing, founder of Tencent, and Sina Vice President Wang Bing. Source: Taomee Inc. F-1 SEC Filing
    • INSIDE OFFICIAL STRUCTURE Source: Taomee Inc. F-1 SEC Filing
    • INSIDE VIRTUAL WORLD LOG-IN (E.G., MOLE’S WORLD) All Products List Create an account Log-in to Mole’s World Notes for parents
    • INSIDE HOMEPAGE AFTER LOG-IN Ads for Taomee’s Products User Name Games I Have Played (2) Visitors to My PageAll Products List
    • INSIDE PLAYING MOLE’S WORLD Settings Cartoonish avatars Game actions
    • INSIDE TAOMEE BUS SNS Complete personal profile: 1. Photo 2. School & Class 3. Self-introduction Status Blogs Users located near you Photos Status Updates Newsfeed (includes updates from games) AllProducts
    • INSIDE TAOMEE MOM (PARENTAL MONITORING) View child’s footprint Register (tie parent’s email to child’s account)
    • INSIDE ABOUT ICHINASTOCK Snowball Finance is a financial media platform that includes two sites. One is iMeigu.com, a Chinese-language site that covers all US-listed stocks. The other is iChinaStock.com, an English-language site that covers Chinese stocks listed in the US. Each site provides stock quotes, business news, and analysis. Snowball Finance has also established my.iMeigu.com, a Web 2.0 platform for global investors to share news and insights on stocks they follow. Snowball Finance also publishes the iChinaStock 30 Index, a representative sample of Chinese stocks on the NYSE and NASDAQ. © March 2011 iChinaStock