Taomee Holdings Limited, a leading Chinese children's online entertainment company, plans to list on the NYSE under the ticker 'TAOM', raising $71.8 million at a $362 million valuation. The company operates five virtual worlds for children, reporting significant revenues mainly from online subscriptions and virtual goods, and aims to increase offline revenue to 50% through media content and licensing. Taomee faces competition from Tencent but claims a 69% market share by revenue, with a strong focus on creating a healthy online environment for children.

1. 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

2. INSIDE
SUMMARY
 Taomee Holdings Limited, one of China's leading children's
online entertainment and media companies, plans to list on the
NYSE as “TAOM”. At the midpoint, Taomee would raise $71.8
million at a $362 million valuation.
 Taomee operates five virtual worlds for 5-15 year-olds, including
"Mole's World” and “Seer". A premium monthly subscription
(Taomee's most popular product) to one of the virtual worlds,
costs RMB 10 ($1.5)
 As of the first quarter of 2011, Taomee had approximately 27.3
million active accounts, 2.7 million paying users, and average
revenue 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 its
offline revenues to 50% of the total by co-producing media
content (TV, books, etc.) and licensing its IP.
 Taomee’s largest competitor in China is Tencent (0700.HK),
which launched an online children's community, "Roco
Kingdom" ( ) at the end of 2010. But Taomee claims 69%
market share by revenues.

3. 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

4. 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/

5. 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

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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

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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

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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

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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

10. 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

11. 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

12. 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

13. INSIDE
COMPETITORS
Taomee’s largest competitor in China is
Tencent (0700.HK), which launched an
online children's 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 did
not start charging users until January 9, 2011. Taomee attributes a drop in its active and paying users at the
end 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 attracted
some Taomee users to try their product. Roco Kingdom claims 60 million registered users with 0.55 million
peak concurrent users.
 Other competitors include Aobi Island by Baitian Info and Hezi World by Bcast Education Software
Source: Taomee Inc. F-1 SEC Filing

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MARKET CHARACTERISTICS
Taomee cites an iResearch report that it commissioned to address the children’s online entertainment
market 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

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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

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OFFICIAL STRUCTURE
Source: Taomee Inc. F-1 SEC Filing

17. 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

18. INSIDE
HOMEPAGE AFTER LOG-IN
Ads for Taomee’s Products
User Name
Games I Have Played (2)
Visitors to My Page
All Products List

19. INSIDE
PLAYING MOLE’S WORLD
Settings
Cartoonish
avatars
Game actions

20. 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)
All
Products

21. INSIDE
TAOMEE MOM
(PARENTAL MONITORING)
View child’s
footprint
Register
(tie parent’s email
to child’s account)

22. INSIDE
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