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

News Digest: July 28, 2015

he following press releases and media reports about Chinese companies were carried on July 28. To view a full article or story, click on the link next to the headline.
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  • China Minsheng Investment to Acquire Sirius Int’l Insurance for $2.2 Bln (English article)
  • Baidu (Nasdaq: BIDU) Announces Q2 2015 Results (PRNewswire)
  • Delta Air Lines to Buy China Eastern (HKEx: 670) Stake for $450 Mln (English article)
  • Shanghai Traffic Regulator Gives Clear Road to Legality for Private Car Services (Chinese article)
  • US-Listed China Stocks in Monday Sell-Off, Changyou (Nasdaq: CYOU) Dips 11 Pct (Chinese article)

INTERNET: Xunlei Ties With Baidu, 58.com Works on ChinaHR

Bottom line: Baidu could buy a small stake in Xunlei but is unlikely to acquire the company outright as part of their new alliance, while 58.com’s plan to rebuild its newly acquired job site should have good chances of success.

58.com goes to work on ChinaHR

I’ve been predicting a marriage for a while for online video orphan Xunlei (Nasdaq: XNET), even as it remains stubbornly single despite its lack of scale to survive as an independent company. First it appeared the company might get bought by smartphone sensation Xiaomi after the pair boosted their strategic tie-up in May, but then nothing more happened. Now the gossip mills are likely to start turning again, following the latest announcement of a major partnership between Xunlei and Baidu’s (Nasdaq: BIDU) iQiyi online video service.

Meantime in another Internet news bit, the top executive at leading online classified ad site 58.com (NYSE: WUBA) is saying he will need 2 years to turn around the underperforming online job site ChinaHR, which he acquired earlier this year. His assessment comes after the site laid off nearly all of its staff as part of the deal that saw 58.com buy ChinaHR from its Irish owner. Continue reading

CELLPHONES: Huawei Surges, Lenovo Stumbles in Q2

Bottom line: Second-quarter smartphone data confirms recent trends that have shown a surge for Huawei and Apple, while Lenovo and Samsung struggle and Xiaomi also faces rapidly slowing growth.

Huawei consolidates spot as world’s No 3 smartphone maker

The latest smartphone sales figures are out, showing a recent surge for Huawei and strong but slowing growth for Xiaomi, as Chinese brands continued to take 3 of the top 5 global spots. Meantime, the same chart shows the lackluster Lenovo (HKEx: 992) continued to stumble as it failed to find an audience for its products, and global leader Samsung (Seoul: 005930) also continues to struggle.

The latest second-quarter figures from IDC come as another smaller data tracking firm IHS Technology released its own numbers showing Xiaomi continued to rule the China roost and even boosted its share of the market. Meantime, Samsung continued to slip in the world’s biggest smartphone market, falling a notch to barely stay in the top 5 brands. Continue reading

Shanghai Street View: Wealth Explosion

Wealth shops invade Shanghai
Wealth shops invade Shanghai

My first hint that something big was on the way came late last year when one of my younger friends, a 20-something and frequent job hopper, called to tell me he’d just changed jobs again. After all, this was the friend who first told me about WeChat back in 2011, the same year the service launched and well before most people had heard of the mobile messaging service that would later take China by storm.

My friend had previously worked at a wide range of jobs, from selling stored value cards to manager of a yoga studio, so I was curious to hear where he’d landed next. I was somewhat disappointed to hear he was now working for a wealth management company that his friend had recently opened, as that kind of company didn’t sound all that exciting. Never mind that he didn’t have any experience in the financial services industry. Continue reading