INTERNET: WeChat Takes Aim at WhatsApp in Europe

Bottom line: Tencent’s new WeChat push into Europe looks like a better strategy than its previous failed US effort, though it should provide more support to its local partners if it wants to succeed.

WeChat signs on Italian partner

After a disastrous and costly foray into the US, leading Chinese mobile messaging app WeChat is gearing up for a new attempt at going global, this time setting its sights on Europe. This particular push has WeChat, a unit of Chinese Internet giant Tencent (HKEx: 700), forming small tie-ups with local European partners to promote the service. The latest of those has seen WeChat link with a small Italian start-up called ChatSim, which provides technology that lets users link up different mobile chatting apps.

Announcement of this particular tie-up is clearly the work of ChatSim, which has put out a slightly amateurish press release announcing the partnership. (company announcement) That said, I do think that more broadly speaking Europe looks like a better place for Tencent to try its luck at global expansion. That’s because the US is already quite hotly contested not only with WhatsApp but also rival instant messaging products from Internet giants like Google (Nasdaq: GOOG) and Facebook (Nasdaq: FB), which also owns WhatsApp. Continue reading

INTERNET: Giant Eyes Big Valuation as Game Operators Struggle

Bottom line: China’s gaming market remains stubbornly fragmented and unprofitable despite its huge potential, with no clear signs of much-needed consolidation coming anytime soon.

Gamers continue to struggle

As much of China bakes under a summer heatwave, a major trade show this week in Shanghai is casting a different spotlight on the overheated state of the nation’s gaming industry. One report is saying that only 2 percent of companies in the emerging mobile gaming space can generate big profits, and the situation may not improve anytime soon due to a stubborn state of fragmentation.

The problem has led many of China’s US-listed gaming companies to launch privatization drives over the last 2 years, including Giant Interactive, a large but decidedly second-tier player that de-listed a year ago. Giant’s talkative chief Shi Yuzhu is blaming US investors for failing to appreciate his company, with the latest reports saying he thinks Chinese stock buyers will value his firm at more than 5 times what it was worth when it de-listed from New York. Continue reading

BANKING: Tencent WeBank Finds Sweet Spot in Credit

Bottom line: Tencent WeBank’s rapid growth over the last 2 months shows it intends to focus on high-interest small loans aimed at consumers and small businesses, challenging credit cards and credit lines from traditional banks.

WeBank lends $130 mln in 2 months

Seven months after its launch, Tecent-backed (HKEx: 700) WeBank is showing off some of its first financial accomplishments that hint at the direction it may take as it carves out a place in China’s banking sector. The numbers reveals that the bank, the first to launch under a private-sector pilot program by Beijing, is setting its sights on providing credit to small businesses and consumers. The tack looks like a direct challenge to traditional credit card issuers, and could ultimately provide consumers with yet another payment option in both the online and offline worlds. Continue reading

News Digest: July 30, 2015

The following press releases and media reports about Chinese companies were carried on July 30. To view a full article or story, click on the link next to the headline.
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  • Alibaba (NYSE: BABA) Cloud Unit Sets Sights on Amazon in $1 Bln Global Push (English article)
  • Giant Interactive Seeks 100 Bln Yuan Valuation in China Re-Listing Plan (Chinese article)
  • ICBC (HKEx: 1398) VP Zheng Wanchun May Become New Minsheng Bank Chief (Chinese article)
  • Departing China Mobile (HKEx: 941) Workers Complain of No Raises in 10 Years (Chinese article)
  • China’s Great Short Seller Suddenly Turns Bullish (English article)

MEDIA: Luxury Slowdown Clips Phoenix’s Wings

Bottom line: Sputtering demand for luxury goods and cars is likely to hamstring Phoenix Satellite TV’s earnings for at least the next year, as the company increasingly loses ground to new media rivals.

Sliding luxury demand undermines Phoenix

The recent slowdown in China’s luxury goods market is claiming one of its first victims in the media realm, with Phoenix Satellite TV (HKEx: 2008) warning that a sudden chill in luxury ad sales has wiped out its profits in the first half of the year. The news certainly doesn’t bode well for traditional media companies, which are a favored place for luxury goods makers to advertise. Car makers are another major source of ad revenue for these older media companies, and rapidly slowing sales in that sector also means that names like Phoenix and even some new media high-flyers like Baidu (Nasdaq: BIDU) and Sina (Nasdaq: SINA) could be looking at a difficult period ahead. Continue reading

BUYOUTS: Perfect World Wraps, Investors Wary on Others

Bottom line: Investors are regaining confidence that some of the bigger, recently announced buyouts for US-listed China companies could be completed, but believe many smaller deals will ultimately collapse.

Perfect World completes buyout

Online game operator Perfect World (Nasdaq: PWRD) has formally completed its management-led buyout, offering us a good opportunity to check the status of dozens of other pending offers that look shaky due to recent turbulence in China’s stock markets. Perfect World was one of a handful of companies that launched their privatization drives before May, when a wave of new bids fueled by speculative money from China’s frothy stock markets suddenly began.

I’ve previously said that many of the earlier bids like Perfect World’s are likely to succeed, as their funding sources seemed more solid. But some of the other bids may run into trouble due shaky money sources that may rapidly disappear as China’s stock markets show signs of heading into another tailspin. Continue reading

RETAIL: Walmart Eyes Alibaba, Amazon with China Buyout

Bottom line: Walmart’s Yihaodian could sharply boost its share of China’s e-commerce market in the next 2-3 years, following a buyout that will give the site better access to its parent’s experience, offline stores and global connections.

Walmart buys out Yihaodian partners

Just a week after sacking the 2 founders and top executives of its China e-commerce site, global retailing giant Walmart (NYSE: WMT) has taken the next step and bought out its partners in their Yihaodian joint venture. The buyout completes a takeover that began with Walmart’s purchase of a controlling 51 percent of Yihaodian 3 years ago. It also signals that Walmart is preparing to pump major new investment into the site, as it tries to become a major player in a market dominated by local giants Alibaba (NYSE: BABA) and JD.com (Nasdaq: JD).

I have to applaud Walmart for finally taking control and tossing out Yihaodian’s founders, who weren’t doing much to challenge any of the nation’s top e-commerce sites. But that said, foreign companies have a very poor track record competing with homegrown Chinese Internet firms, and its far from clear if Walmart can succeed where other big names like Google (Nasdaq: GOOG), Yahoo (Nasdaq: YHOO), Expedia (Nasdaq: EXPE) and eBay (Nasdaq: EBAY) have failed in the past. Continue reading

News Digest: July 29, 2015

The following press releases and media reports about Chinese companies were carried on July 29. To view a full article or story, click on the link next to the headline.
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  • Chinese ADRs Drop 3rd Day Amid Mainland Rout, Baidu (Nasdaq: BIDU) Plunges (English article)
  • WeChat Italy, ChatSim In Deal to Jointly Promote Instant Messaging in Europe (company announcement)
  • Air China (HKEx: 753) to Raise $1.9 Bln in Share Sale to Buy Planes (English article)
  • Phoenix Satellite (HKEx: 2008) Warns of Substantial Profit Decline in H1 (HKEx announcement)
  • Perfect World (Nasdaq: PWRD) Announces Completion of Merger (PRNewswire)

INTERNET: Shanghai Paves Legal Way for Uber, Didi-Kuaidi

Bottom line: Shanghai’s announcement of formal regulations for hired car services will finally provide legal status for Uber and Didi-Kuaidi, and will be followed by similar policies in other major Chinese cities.

Uber closer to legal status in Shanghai

Just a week after Beijing held a highly unusual meeting of 8 government agencies to discuss the oversight of private car services, China’s commercial capital of Shanghai is sending its own positive signal to this fast-growing group of companies led by US giant Uber and the homegrown Didi-Kuaidi. That signal comes in the form of a newly issued set of rules and regulations that hired car service providers will need to follow to gain formal legal status and remain in compliance with the law. (Chinese article)

This particular move looks incremental but also quite significant, since Shanghai is often considered a leader in developing and regulating new industries in China. In this instance we can probably assume the city was acting under directives from the central government, meaning Beijing has officially decided to support development of private hired car services that compete with traditional taxis. That means we can probably expect to see other major Chinese cities follow soon with their own similar guidelines, ending a period of regulatory uncertainty for Uber, Didi-Kuaidi and other smaller rivals. Continue reading

INTERNET: Soaring Costs Sap Baidu Profit Growth

Bottom line: Baidu’s heavy spending on new businesses is rapidly eroding its profits, a strategy that looks acceptable over the short-term but should be abandoned within a year or two if it fails to produce results.

Baidu profit disappoints

I have to commend online search leader Baidu (Nasdaq: BIDU) for steadily maintaining strong revenue growth of 30 percent or more over the last few years, even as China’s overall economy has started to slow and the company faces growing challenges from new rivals. But that said, Baidu’s costs seem to be rising even faster that its revenue, which has led to anemic profit growth in its latest quarterly results.

At the end of the day, investors should be most concerned about profits at any company, since a stock price is directly tied to the bottom line. But Baidu seems to be less interested these days in profits. The company is indeed facing many challenges, both to its core search business and also as it expands into new areas, which is driving the rising costs. But it also needs to learn to bring those costs under control, to roughly in line with revenue growth, or risk facing the wrath of investors. Continue reading

MULTINATIONALS: Unigroup’s Micron Bid Offers Trust-Building Opportunity

Bottom line: The purchase of Micron by Tsinghua Unigroup offers a good chance for Sino-US confidence building if Washington signals it will fairly consider such a deal and Unigroup demonstrates its actions are commercially driven.

Micron sale offers chance to boost Sino-US trust

A potential mega-deal that would see China’s Tsinghua Unigroup buy leading US memory chip maker Micron Technology (Nasdaq: MU) could become a major trust-building exercise between China and Washington if handled properly, but could also quickly end in an angry war of words if the opposite occurs. Both sides need to take important steps to ensure fair trade in the case, which is sensitive because it involves the acquisition of a US high-tech leader by a company with close ties to China’s top science university.

For its part, Unigroup could take steps to show its independence from Tsinghua University, and more broadly to show that it is a commercially-focused business that doesn’t make decisions based on government orders or support. For its part, Washington could signal it is willing to consider a deal that appears to pose no threat to national security, even though it would see a major technology company taken over by a Chinese peer. Continue reading