By Perry Wu
If China's Tom.com were a real person, a psychologist would have a field day. It has had so much history in the last four years that it's hard to know where to begin. Tom is a company that was formed in the blazing final days of the Internet craze in 2000. As many know, this is Li Ka Shing's Internet baby. Mr. Li, still the pride of Hong Kong's business community, controls 36.7% of the company through both his Hutchison Whampoa and Cheung Kong companies. An additional 24.5% is owned by his longtime pal Ms. Solina Chau. The remaining 39% is owned by the public.

By dint of Li Ka Shing's star power alone, Tom was first listed on the Hong Kong Growth Enterprise Market in March of 2000. Soon thereafter, the company adapted to the bursting of the Internet bubble in 2000 by embarking on a new set of strategies. In 2001 and 2002, Tom began to get into the billboard advertising business, the offline publishing business, the television business and the sports business.

In fact, the company became so far removed from its original Internet portal business that it spun off its Tom online business.

In March of this year, Tom Online was separately listed on both the NASDAQ and the Hong Kong Growth Enterprise Market. So now there are two publicly-traded Toms to keep investors occupied: Tom and Tom Online, both registered in the Cayman Islands. Tom, the parent company, has still retained a 72% interest in Tom Online after the IPO.

As is typical with spin-offs, the parent company has left its subsidiary in the red. So from a book accounting perspective, Tom Online did not start life with a silver spoon in its mouth. It already has cumulative losses of US$65 million to putrefy its balance sheet. But this should not have much practical effect, except for crimping Tom Online's desire to pay dividends (if it so desired).

Like the other top Chinese Internet portals, Netease and Sina, Tom Online has also developed a wireless content service business. Tom Online for the full year 2003 had revenues of around US$77 million, and 27 million registered users.

Tom Online has also focused heavily on partnerships with content providers. It was the official Chinese Site for the Euro 2004 football championships, and it has a potentially lucrative partnership with ESPN STAR to provide English Premier League football content. Tom, no doubt, easily landed this latter deal because its chief financial officer was previously a top lieutenant for STAR in Asia. Relationships are wonderful.

Now, let's discuss the parent–Tom, not Tom Online. Tom has now cobbled together a multi-prong bricks-and-mortar strategy. And as the company sees it, its business strategy now has five nodes: outdoor media, publishing, sports, TV and its online portal.

With its outdoor advertising business, Tom seems to have found a steady cash generator. Tom is now the number two operator of billboards in mainland China, covering 56 cities. Its billboards now comprise about 260,000 square meters of space in mainland China, and their occupancy rates are upwards of 80%.

However, with its publishing business, something does not seem so right. Forget about the oft-discussed threat to traditional publishing from e-books and the like, Tom has other problems. To capture this book-selling market Tom is now aggressively pursuing a major partnership with Xinhua Books. This will surely involve a major capital investment, so let's think about this carefully.

Tom rightly sees China as a book market with potential. A significant portion of the Chinese population are book buyers, and steady price increases on books over the last two decades does not seem to have dampened Chinese consumers' enthusiasm for books.

While there are few other retail outlets in China with the national coverage of the Xinhua bookstore, it strains the imagination to think of Xinhua as a big money-maker. As a state-owned enterprise, Xinhua is almost certainly a net capital destroyer. Tom thinks that it can ride into China with money and then make Xinhua profitable through generating "efficiencies". But this is the same old song that has been played by many foreign investors, and almost never works. Good Luck, Tommy, I'll be reading the obituaries to find how you fared.

So that's where the Toms stand now. Although at first glance, the two related companies now have a coherent strategy, the Toms have shown little problem with changing course in mid-stream. It's almost like a brief respite from multiple- personality disorder. Expect a relapse sometime soon, and don't put your wallet in Tom's mouth if seizures occur.

About the author:
Perry Wu is a writer and correspondent for ChinaTechNews.com and can be reached here at the site. Perry Wu does not hold any positions, long or short, on any of the Chinese or American company securities mentioned in this article.