NEW YORK - Tudou Holdings Ltd, China's second-biggest video website, tumbled 12 percent in its first day of trading after raising $174 million in a US initial public offering, selling at a discount to larger rival Youku.com Inc.

The Shanghai-based company's American Depositary Receipts (ADRs) fell $3.44 to $25.56 as of 4 pm New York time, after touching $23.50 and opening below the offering price.

Tudou sold 6 million ADRs on Wednesday at $29 apiece, the midpoint of the marketed range. The ADRs trade on the Nasdaq Stock Market under the symbol TUDO.

Tudou priced its stock at a 58 percent discount to Youku.com, which sold shares to the public in December, after a rout in equities this month shrank investors' appetite for new stock. Both companies tapped the public market to finance technology upgrades, bandwidth expansion and rights to videos as they vie for visitors in the world's biggest online market.

"We have plenty of challenges ahead to make sure we can bring in enough content to meet users' needs, that the platform is growing rapidly and advertising numbers are also growing rapidly," Tudou Chief Executive Officer Gary Wang said on Thursday in a interview from New York.

"We want to use the proceeds to grow the company organically," he said.

Wang trimmed his stake to about 9 percent following the IPO from 13 percent.

The offering valued Tudou at $822 million, or about one-third the size of Beijing-based Youku.com, which had a market value of $2.7 billion at Wednesday's close on the New York Stock Exchange.

Youku.com shares

The share sale also valued Tudou at about 16 times sales in the 12 months through March 31, compared with a multiple of 37 times for Youku.com, based on Wednesday's closing price. Youku.com's ADRs gained 13 percent on Thursday after declining 8.1 percent on Wednesday.

The company and its rivals get most of their revenue from advertising, which for Chinese video sites almost doubled to 1 billion yuan ($157 million) in the second quarter, according to Beijing-based researcher Analysys International.

The company accounted for 14 percent of online-video advertising revenue in China at the end of the second quarter, compared with 17 percent at the end of 2010, while Youku gained two percentage points to 23 percent and Sohu.com Inc's video site jumped to 13 percent from 7.9 percent, according to data from Analysys International.

Chinese users

Another 28 percent of the market is split among five competitors including Baidu Inc's Qiyi.com, a site operated by Xunlei Ltd, which is part-owned by Google, and the Nasdaq-listed Ku6 Media Co, the data show.

China had 485 million Internet users at the end of June, according to the China Internet Network Information Center. There were about 215 million Internet users in the United States as of July, according to Reston, Virginia-based researcher ComScore Inc.

Tudou completed its offering after 13 US IPOs were withdrawn or postponed between Aug 7 and Aug 12, the most in a week since 2000, according to data compiled by Bloomberg.

Each of Tudou's ADRs represents four Class B ordinary shares. Credit Suisse Group AG and Deutsche Bank AG led the offering.

Bloomberg News