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Taomee Files NYSE IPO Prospectus

SEC, 5/18/11

Shanghai-based children's virtual world developer and operator Taomee Holdings Limited has filed its IPO prospectus with the U.S. Securities and Exchange Commission (SEC) to list on the New York Stock Exchange under the ticker symbol TAOM. The IPO will be underwritten by Credit Suisse, Deutsche Bank Securities, Oppenheimer, Pacific Crest, Stifel Nicolaus Wissel, and CICC.

Total net revenues for the three months ended March 31, 2011 were USD 12.4 mln, compared to USD 6.5 mln for the three months ended March 31, 2010, primarily due to growth of the online business.

Total net revenues generated from Taomee's online business for the three months ended March 31, 2011 were USD 11.8 mln, compared to USD 6.1 mln for the three months ended March 31, 2010. This increase in total revenues from the online business was primarily due to the continued success of virtual world Seer (51seer.com) and the commercial launch of children's virtual community Gongfu Pai ("Kung-Fu Party") and educational social game Xiao Hua Xian ("Flower Fairy") in the second half of 2010. ARPU for the three months ended March 31, 2011 increased to USD 4.6 from USD 2.3 for the three months ended March 31, 2010.

Total net revenues generated from Taomee's offline business for the three months ended March 31, 2011 were USD 0.6 mln, compared to USD 0.4 mln for the three months ended March 31, 2010. This increase in total revenues from the offline business was primarily due to increases in revenues generated from book licensing and merchandise licensing.

Net income for the three months ended March 31, 2011 was USD 9.1 mln, compared to USD 3.6 mln for the three months ended March 31, 2010.

Taomee's net revenues grew from USD 0.1 mln in 2008 to USD 7.1 mln in 2009 and USD 36.0 mln in 2010. For 2009 and 2010, 97.3% and 93.6% of net revenues, respectively, were generated primarily from subscription fees that allow users to access premium features and from sales of virtual items, and the remaining 2.7% and 6.4% of net revenues, respectively, were generated primarily from royalties and license fees from Taomee's offline business.

Taomee incurred a net loss of USD 0.9 mln in 2008. Net income grew from USD 1.3 mln in 2009 to USD 21.6 mln in 2010.

Taomee users may choose to pay a RMB 10 (USD 1.5) fee per virtual world to access premium features and gain privileges within each of 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. In addition, users pay a fee for each virtual item within virtual worlds. Users can purchase subscriptions and virtual items using Taomee's virtual currency, the Mibi, which in turn can be purchased from different distribution channels, such as Taomee prepaid cards, third-party prepaid cards, online payment channels and mobile operators.

Taomee's distribution network for prepaid cards 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. In 2008, 2009 and 2010, 83.5%, 80.1%, and 87.1%, respectively, of Taomee's net sales proceeds collected were from the sales of prepaid cards to distributors, respectively. Taomee's largest distributor accounted for 92.0%, 83.6% and 25.9% of net sales proceeds generated from prepaid card sales in 2008, 2009 and 2010, respectively.

In the first quarter of 2011, Taomee had approximately 27.3 mln active accounts, defined as registered accounts that were accessed at least once during the quarter. Taomee's online entertainment community, www.61.com, hosts four of the top six most visited virtual worlds by children in the 5-15 age group in China, based on a July 2010 survey conducted by Chinese market research firm iResearch. Taomee offers a wide range of children's books and magazines, based on its franchises developed either by staff writers or by partnering with authors and publishers. Two books based on its franchises were among the top five best-selling children's books sold in 2010 according to a ranking compiled by Beijing OpenBook, an independent information services provider for the publishing industry in China. Taomee has expanded to film and television through the co-production of, or investments in, two animation series with over 100 planned episodes and two feature films, based on its "Mole's World" (51mole.com) and "Seer" franchises, which it expects to release in 2011.

In 2008, 2009 and 2010, 16.5%, 19.9% and 12.9%, respectively, of net sales proceeds collected were generated from sales of virtual currency through third-party payment systems.

To view Taomee's IPO prospectus in full, please click here.

Keywords: SNS Flower Fairy game card active users ARPU Internet IPO NYSE distribution loss virtual items virtual currency 51mole virtual world Taomee 51Seer social game profit online gaming youth revenue royalty registered users fiscal report

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