Update on Shane McMahon's Company: YOU on Demand

Fidelity Just Bought a Huge Stake in This Chinese Penny Stock and Maybe "YOU" Should Too

At StreetInsider.com we rarely write about penny stocks, let alone ones that operate in China. However today one "penny" and "China" stock grabbed our attention after mutual fund-giant Fidelity, in a 13G filing with the SEC, disclosed a massive new stake.

The company in question is YOU On Demand Holdings, Inc. (OTCBB: CBBD), which dubs itself "the first national Pay-Per-View and Video On Demand platform in China."

Fidelity's FIL Investment Management (Hong Kong) Limited bought 73,440,972 shares at $0.09 per share in a recent private placement. The position puts Fidelity’s stake at 11.11% of the shares outstanding, or 9.4% including dilution from the offering.

Commenting on the investment earlier this week, YOU On Demand CEO Shane McMahon said, "Fidelity's interest and involvement in YOU On Demand is a testament to the strength of our business and growth plan."

As part of the investment, Fidelity made the company sign a securities purchase agreement which limits the company from selling additional common stock for the next six months. In addition, Fidelity is requiring the company file an application to be listed on any of the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or other national securities exchange acceptable to Fidelity. Fidelity also made CEO McMahon and senior executive Weicheng Liu sign lock-up agreements which will ban them from selling or transfering shares for one year.

The funds raised in the offering will allow the company to execute a previously proposed strategy. YOU On Demand said it has secured strategic partnerships with the largest media entities in China.

YOU On Demand is not without risk however: the company had just $1.7 million in revenue in the three months ended March 31, 2011 and reported a loss of $2.72 million during that time. The stock was also brought to the market through a reverse merger, a type of investment the SEC just warned about yesterday.

While risks are glaring, a first-mover advantage in the Chinese pay-per-view market could make YOU On Demand a stock to watch for years to come.

Press Release: YOU On Demand Raises $10.9 Million in Private Placement