Does Focus Media Fully Reflect Allyes IPO Value? (FMCN)

There have been interesting developments in Focus Media Holding Limited (NASDAQ: FMCN) that might have otherwise garnered more media attention for growth investors had the financial markets not been in such turmoil.  Interestingly enough, this stock recovered before the news with the markets last week and has since traded up even more.  Its stock was as low as roughly $22.00 last Wednesday.  On Friday, the Chinese outdoor advertising giant said its subsidiary Allyes Online Media Holding Ltd. has submitted data to the SEC to go public via an initial public offering.

Allyes operates its internet advertising business and would provide thecompany greater flexibility in developing its leadership in theinternet advertising market in China.  The IPO is expected as marketconditions permit and is subject to Allyes’ filing publicly with theSEC.

There have been no dollar amounts nor any ADS indications proposed asof yet.  What is interesting is that Focus Media shares haverallied almost 40% from the lows before the news was out inthe US.  It is still down over 50% from the $66.30 highs seen inlate-2007.  As China’s massive growth rates and investor interest have both come down, Focus Media’sstock has been hit harder than many.  Its stock also bore the brunt ofpost-earthquake pressure as well.

Investors will have to make some decisions when the markets stabilize.This stock was grossly oversold just last week.  But now shares arealready up considerably.  Over the last 90 days its earnings estimatesfrom Wall Street have hardly come down for this year and next year.Estimates for 2008 are $1.80 EPS and $2.45 for 2009.  With a shareprice of $30.60, that gives its forward P/E expected ratios of 17.0 for2008 and 12.5 respectively.

Here is the problem.  Many are expecting further slowdowns in China andin the global economy for 2008 and some next year as well.  Whether ornot that hampers ad growth in China is still an unknown.  But if thatslowing down continues, then those estimates are making this stock seemartificially cheap.  Add on a post-low move of almost 40% and you mightthink the full value of the IPO or spin-off has been fully realized.

Stay tuned.

Jon C. Ogg
September 23, 2008