Focus Media, the Chinese Digital-Media Company

The Nasdaq Stock Market issued a press release on Friday, Dec. 14, announcing that Focus Media Holding (FMCN), a Chinese digital-media company, had been added to the Nasdaq 100 Index. This may not sound that significant, but it is quite momentous, especially in what it says about Focus Media.

Only a select group of companies are chosen to be part of the Nasdaq 100. The index is made up of the largest domestic and international non-financial securities listed on the Nasdaq Stock Market, based on market capitalization, according to the stock exchange's official website, Nasdaq.com. To be a member of this group, the company's securities have to have an average daily trading volume of at least 200,000 shares.

Focus Media currently has a market capitalization of US$7 billion, according to TheStreet.com. What is remarkable is that this company didn't even exist five years ago, and now it has replaced Sweden's Ericsson - a global telecom company - and XM Satellite Radio on the index. These two companies were among five that were dropped from the Nasdaq 100 at the same time Focus Media and four other companies were added.

So what is Focus Media all about, anyway?

It's basically an advertising firm. It describes itself as an "out-of-home lifestyle media company," according to its website. Founded in 2003, Focus Media specializes in placing ads in shopping centers, on mobile phones, and in "high-traffic" areas, such as elevators in commercial buildings.

One strategy it has used to grab eyeballs is to place flat-panel LCD displays in areas where higher-than-average-income consumers work, pass through and shop. Focus Media claims it has 83,500 of these displays set up in 90 cities across China.

This advertising strategy seems to have made quite an impression, as Focus Media boasts more than 3000 domestic and international customers, including big brand-name conglomerates like Toyota, Proctor & Gamble, Nokia and Motorola.

Its success is reflected in its balance sheet. In the third quarter of 2007, Focus Media reported total revenues of US$151.4 million, an increase of almost 150% over the third quarter of 2006, and a rise of 33% since the second quarter of 2007. Profits have been rising 50% a year, according to BusinessWeek.

"We are confident Focus can keep growing that fast for the next two years at least," Tian X. Hou of Pali Capital (which owns shares) told the magazine.

How will it be able to achieve this growth? Through acquisitions. In 2006 it bought an equity stake in ACL, a British Virgin Islands company that specializes in placing ads in movie theaters. Focus Media now has ads running in 120 movie theaters across China.

In February of this year, the company bought Allyes Information Technology Company, a large Internet advertising service company in China. Focus Media is now positioned to place ads on the Web.

Watch out, Google and Baidu!