Journalist China

Business news from China By Doug Young.
Doug Young, journalist, has lived and worked in China for 20 years, much of that as a journalist, writing about publicly listed Chinese companies.

He is based in Shanghai where, in addition to his role as editor of Young’s China Business Blog, he teaches financial journalism at Fudan University, one of China’s top journalism programs.
He contributes regularly to a wide range of publications in both China and the west, including Forbes, CNN, Seeking Alpha and Reuters, as well as Asia-based publications including the South China Morning Post, Global Times, Shanghai Daily and Shanghai Observer

LaShou: On the Cusp of Implosion? 拉手网或已面临生死抉择

By on

New developments are happening rapidly at group buying leader LaShou, which appears to be on the cusp of a meltdown as it runs out of money in the brutally competitive sector. As many of us prepare for the May 1 Labor Day holiday that marks the start of spring, many who follow this company may be wondering if LaShou will still be in business by summertime. In the latest development of this fast evolving story, domestic media are reporting a mass resignation of many top LaShou executives in recent days, including its top regional managers in Shanghai and Beijing, as well as a vice president. (Chinese article) That exodus would come only days after the company reportedly cut 40 percent of its technical staff in what looks like a desperate attempt to conserve cash. (previous post) These kinds of drastic cuts and resignations may indeed save cash, but if they continue there may not be any company left to operate. The rapid series of events seems to point to a company in crisis, which has  been building for more than a year as a natural clean-up takes place in China’s overcrowded and unruly group buying space. LaShou made headlines a year ago when the company, then just 1 year old, raised a cool $100 million from a group of investors hoping it would become the next Groupon (Nasdaq: GRPN), the US company that pioneered the group buying concept. (previous post) Back then it was saying it wouldn’t make an IPO for at least the next 1 to 2 years. But then investor sentiment abruptly cooled toward the sector as competition heated up, leaving LaShou and many of its peers short of cash after most expanded rapidly earlier in the year. LaShou tried to raise new funds through a New York IPO last fall, but had to indefinitely postpone the plan after the US securities regulator reportedly voiced concerns about its accounting. The company was reportedly trying to relaunch its IPO in the last few weeks; but we have yet to see any public filings and if these latest reports are true I seriously doubt anyone will want to invest even if it does file for an IPO. Clearly things are happening rapidly now, which means we will probably see LaShou either close or merge with a rival in the very near future — in what would be the biggest consolidation move to date in the group buying space. A number of companies have already merged or are on the brink of closure, so LaShou certainly wouldn’t be the first in this latest trend, though it would certainly be the most dramatic. If I were betting, I would predict the chances of a merger are better than 50 percent, with a profitable rival like Dianping or even a non-group buying company like Baidu (Nasdaq: BIDU) or Tencent (HKEx: 700) stepping in to acquire the company for a very low price. Then again, there is also the very real chance that LaShou could close, though I would put that chance at 30 percent or less. Either way, I would be surprised if this company is still in business as an independent group buying site by the time summer arrives.

Bottom line: A new exodus of top executives at LaShou reflects an accelerating cash crunch, with an an acquisition of the company the most likely outcome within the next 1-2 months.

Related postings 相关文章:

◙ IPO Chill Bites LaShou, China Auto 中资企业赴美上市连遭冷遇

◙ 55Tuan + Ganji: Group Buying Clean-Up Acclerates 窝窝团携手赶集网：团购洗牌加速

◙ Investors Shun Struggling Groupon.cn, Yaodian100 投资者规避挣扎中的团宝网和耀点100

Bank of China Results: Downturn Ahead 中行业绩黯淡 或预示银行业将迎来低迷期

By on

Bank of China (HKEx: 3988; Shanghai: 601398) made news earlier this week when it became China’s first member at the prestigious London Metals Exchange (English article), but its latest headlines are far less positive as it reported lackluster growth in the first quarter that was below market expectations. (earnings announcement; English article) The 10 percent profit growth for the quarter was less than half the 28 percent growth rate from a year earlier, when Bank of China and its peers were reaping big new profits after a lending binge ordered by Beijing to stimulate the domestic economy during the global economic crisis. With the economy now showing signs of slowing sharply as the government tries to cool the real estate market and tame inflation, many fear that Chinese banks could start to see many of the loans they made during that binge start to sour. Recent weakness in the stock market, following a rally early in the year, could add to the problems, as many recent bank loans have gone to fund stock buying. From a purely numerical perspective, Bank of China’s 10 percent profit rise doesn’t look too bad, since that kind of growth rate is certainly respectable. But more worrisome is growth rate’s slowing, which is likely to accelerate in the next 2 quarters and could even turn negative by the end of the year. Bank of China is one of the nation’s top 4 lenders, and first-quarter results will come out later today from the other 3, ICBC (HKEx: 1398; Shanghai: 601398), China Construction Bank (HKEx: 939; Shanghai: 601939) and Agricultural Bank of China (HKEx: 1288; Shanghai: 601288). I would expect all 3 of the other big lenders to report slowing profit growth as well, signalling a recent rally for their stocks could soon be finished. Most of China’s major bank stocks performed poorly for most of last year on concerns that they would soon face a flood of bad loans after the lending binge of 2009 and 2010. But most have bounced back since then as Beijing took steps to address the problem, including allowing many lenders to raise billions of dollars in new capital to strengthen their balance sheets. Bank of China’s own shares have risen nearly 50 percent since hitting a low early last October. Perhaps sensing that the rally may soon be over, Goldman Sachs (NYSE: GS) became the latest major shareholder in a Chinese bank to sell down its stake earlier this month, dumping more of its stock in ICBC. (previous post) Goldman joined Bank of America (NYSE: BAC) and Citigroup (NYSE: C), which last year also sold off large stakes in China Construction Bank and Pudong Development Bank (Shanghai: 600000), respectively, partly due to concerns about a looming Chinese banking crisis. Following this lackluster Bank of China earnings report, investors will be watching closely to see if the other 3 banks also report weak earnings, and also if any are showing signs of growing bad loans. If the reports are weak, which seems likely, look for a sell-off in Chinese banking shares next week, which could mark the beginning of a long downturn for the sector.

Bottom line: Bank of China’s lackluster first-quarter report could mark the beginning of a long downturn for Chinese lenders and their stocks.

Related postings 相关文章:

◙ Goldman Flees ICBC as Bank Crisis Looms 中国银行业危机隐现 高盛迅速转让工行股票

◙ UnionPay Stirs IPO Pot With Big Numbers 银联有望上市

◙ AgBank Results: First Look at Banking Winter 中国农业银行财报：银行业的冬天

Retail: Tesco Goes Online, Perry Ellis in New JV 零售：乐购推出网购，派瑞•艾力斯成立合资企业

By on

Let’s start off this Friday before the long Labor Day weekend with a couple of retail items, one from British grocery giant Tesco (London: TSCO) in the online space and another from mainstream clothing maker Perry Ellis (Nasdaq: PERY), which is entering China with a new joint venture. The Tesco plan attests to the incredible popularity of buying things over the Internet in China. As an American living in China, I’ll be the first to say the growing Chinese fondness for buying things online is quite unlike anything I’ve ever seen in the west. Nearly anything can be ordered over the Internet these days, from a McDonalds (NYSE: MCD) hamburger to books, clothing and just about any other merchandise you can think of. Now Tesco will be adding grocery store items to that list, according to a media report citing a company spokeswoman. WalMart (NYSE: WMT) is also playing in the online grocery game through its investment in Yihaodian, while Carrefour (Paris: CA) is developing the space through a tie-up with a Thai partner. This kind of online service differs from many more traditional ones because deliveries take place very soon after an order is placed, and same-day delivery is essential. But the economics for this kind of initiative seem to work in China, thanks to its high population density and the fondness for shopping online to avoid the throngs of people and long lines at grocery stores. I would expect this kind of initiative to be quite successful if Tesco and other big names can execute their plans well, perhaps meaning trouble for smaller operators like Lianhua (HKEx: 980). The other retail news will see Perry Ellis form a joint venture with local partner China Outfitters (HKEx: 1146) to open new stores selling the US company’s Manhattan brand. (company announcement) The partnership will initially focus on big cities like Beijing and Shanghai, with the first store set to open by the end of this year. This tie-up looks a lot like another one announced last November by Gap (NYSE: GPS), another mainstream US retailer, which said it planned to have 15 stores in China by the end of its current fiscal year and 45 within a year of that. (previous post) The arrival of these more mid-range retailers reflects the emergence of a growing middle class in China, who like to enjoy higher quality products like fashionable clothing and pricey lattes from Starbucks (Nasdaq: SBUX) but don’t want to pay the big prices for luxury brands. Perry Ellis and the Gap are joining even bigger chains like H&M (Stockholm: HMb) and Uniqlo (Tokyo: 9983) in their China expansions, and I don’t really see any problems yet as this segment of the market is growing so quickly it can probably support quite a number of well-run players. Look for more similar mainstream foreign clothing chains to join this trend in the next couple of years, and also for possibly 1 or 2 to withdraw as they discover that a big market doesn’t necessarily guarantee success.

Bottom line: Tesco’s testing of online sales reflects the popularity of e-commerce in China, while Perry Ellis’ new joint venture reflects the big opportunity offered by a growing middle class.

Related postings 相关文章:

◙ E-Commerce: 360Buy Explores IM, Wal-Mart Gets Serious 京东商城内测即时通讯工具,沃尔玛有意控股一号店

◙ Gap’s China Plan: Chasing the Middle End Gap锁定中国中产阶层

◙ McDonalds, Carrefour Latest Targets in Consumer Assault 家乐福、麦当劳被中国政府“点名

China-Hollywood Lovefest Continues With Latest Deal 小马奔腾携手数字王国 中国与好莱坞恋情继续

By on

The new love affair between China and Hollywood seems to be growing day by day, even as signs of some minor alarm bells emerge in Washington at the rapid development of this budding romance. The latest twist in the China-Hollywood saga has Digital Domain (NYSE: DDMG), a leading visual effects  company, teaming with Chinese partner Galloping Horse Film in a joint venture production house that will initially use Digital Domain’s technology to convert traditional films into 3D. (company announcement) But even as news of this latest Hollywood tie-up emerges, other media are reporting that the US securities regulator has informed several of the major studios, including Disney (NYSE: DIS) and DreamWorks, that they are being investigated for matters related to China. (English article) Perhaps not coincidentally, both Disney and DreamWorks Animation (NYSE: DWA) have both announced new animation joint ventures in China this year, marking major milestones as Beijing finally opens up the country’s long-closed media sector to foreign investment. (previous post) Let’s look first at the Digital Domain venture, which the partners are saying is designed to meet growing Chinese demand for big-budget films with all the latest visual effects, which are often quite costly to produce. The venture will initially be quite small, with Galloping Horse providing $50 million to build a facility and Digital Domain providing technology and training expertise. But obviously it can be quickly expanded if and when demand for its services grows, something that looks likely as China is already the world’s second largest movie market. This tie-up follows the Disney and DreamWorks ventures announced over the last 3 months, as well as another pending joint venture between US home shopping channel operator QVC and China’s leading radio broadcaster, China National Radio. (previous post) Perhaps in reaction to this sudden and fast-evolving love affair, the US Securities and Exchange Commission has reportedly sent letters to 4 studios informing them they’re under investigation, according to foreign media, citing unnamed sources. No reason for the investigations is given, but speculation is high that the studios may be suspected of bribing Chinese  officials to get more of their films shown in China under the nation’s strict quota system that allows only 20 foreign films into the market each year. This investigation could ultimately result in 1 or 2 resignations, but is unlikely to have any major effect on the studios. Instead, it may be the US government’s more subtle way of telling the studios that they’re welcome to join hands with Chinese partners, but they also need to behave according to international norms and avoid becoming too hypnotized by the illusory myth of 1.3 billion potential movie viewers and TV watchers.

Bottom line: Digital Domain’s new joint venture is the latest advance in the growing love affair between China and Hollywood, which may be raising concerns in Washington.

Related postings 相关文章:

◙ QVC Opens Shop in China QVC与中央人民广播电台合作运营电视购物频道

◙ Disney, Tencent Tie-Up to Animate China 迪斯尼、腾讯合作研发动漫

◙ Facebook, DreamWorks in Latest China Moves Facebook、梦工厂在华最新动向

New China Noise in iPad Dispute Bad for Apple 政府官员发表评论对苹果iPad之争不利

By on

The latest noise coming from the high-profile trademark dispute over the iPad name doesn’t look too good for Apple (Nasdaq: AAPL), whose assertion that it legally owns the iPad name in China is being undermined by comments from one of the few government officials to comment on the matter. I wouldn’t read too much into the comments, as China often engages in this kind of media-based debate to gauge public sentiment on less sensitive commercial issue. Still, the fact that a government official is making comments that appear to favor the plaintiff in the matter, in this case a near-bankrupt company called Proview, indicate that a ruling against Apple is a distinct possibility. Then again, the comments could also be a quiet pressure tactic to get Apple to negotiate, which it has reportedly been reluctant to do as it believes it will win the case and doesn’t want to appear to be getting blackmailed. Let’s look at the actual comments, which have a senior official from the State Administration for Industry and Commerce saying that Proview is the legal registrant of the iPad name in China. (English article) In fact, anyone who has followed this case closely already knows that this is true. Based on my understanding, Proview was obligated by a larger global agreement several years ago to transfer the iPad name to Apple in China, but then the transfer failed to take place for what may have been technical reasons. So now instead of honoring its previous obligations, Proview is taking advantage of the situation to try and get Apple to buy the iPad name again, only this time for a much bigger price. The whole case is taking place in a South China courtroom, where the judge is apparently trying to mediate the dispute to find a solution that will make everyone happy. But Proview lawyers have indicated that Apple doesn’t want to negotiate. The US tech giant has also used other channels outside the courtroom to make its case, including a recent visit to top leaders by Apple CEO Tim Cook, and its recent decision to withhold its latest iPad from China until the dispute is resolved. (previous post) This latest comment from the government official doesn’t really state anything new, but the fact the official made the comment at all means the government probably wants Apple to show a little more willingness to negotiate in the case and provide everyone with a face-saving compromise. If Apple refuses to do that, it could very well find the court ruling against it, meaning legal iPads may not be available in China — which now accounts for a fifth of Apple’s sales — for a long time.

Bottom line: The latest comments from a government official in the iPad trademark dispute may be aimed at pressuring Apple to negotiate a settlement in the case.

Related postings 相关文章:

◙ Apple Pressures Beijing With iPad Snub 苹果在华不售新iPad向中国政府施压

◙ Apple Feasts on China, Baidu Burps 苹果在华享受盛宴，百度盛宴停顿

◙ More Proview Empty Talk in iPad Dispute 唯冠寻求禁售新款iPad将是徒劳之举

 

IPOs: Fosun Pharma Tries Again, China Auto Stalls 上市：复星医药再次尝试，神州租车紧急暂停

By on

The prolonged winter for Chinese stocks listing overseas is clearly continuing, based on the latest IPO news that has seen one company delay its planned New York offering while another is making a second try at a Hong Kong listing. What’s perhaps significant in both of these cases is that neither company is a riskier tech start-up, and instead both come from mature industries with more dependable track records, meaning this IPO winter could be longer and deeper than many initially expected. The first development has seen auto rental specialist China Auto delay its already late New York IPO due to anemic demand; while the second has seen drug maker Fosun Pharmaceutical relaunch its own Hong Kong IPO after abandoning the deal last year. Let’s first look at China Auto, whose last-minute decision to delay its IPO should come as a surprise to no one. (Chinese article) Signs of trouble were already emerging earlier this week for what would have been the second offering this year by a Chinese firm in New York, where investor sentiment remains weak following a series of accounting scandals last year. Foreign media previously reported the offering, which initially hoped to raise up to $300 million when China Auto made its first public filing in January, was getting anemic demand and that buyers had ordered only half of the shares for sale just a day before the offering was set to price. I predicted the offering could ultimately raise around a quarter of its original target, and now it appears perhaps even that was an optimistic forecast. (previous post) In light of this latest delay, I wouldn’t be surprised if China Auto abandons the offering completely and waits for sentiment to improve. Meantime, Fosun Pharmaceutical has been approved to raise up to $800 million in a Hong Kong offering, according to numerous media reports. (English article) Anyone with a long enough memory might recall that Fosun Pharmaceutical originally filed to make a Hong Kong IPO worth up to $1 billion a little more than a year ago, but then never completed the plan. (previous post) No reason was ever given for the withdrawal of last year’s plan, which should have been attractive as it offered a window into China’s fast-growing health care industry. Clearly sentiment was much better at this time last year, so the fact that Fosun Pharma is relaunching its IPO in such a weak climate now probably reflects that it desperately needs cash. If that’s the case, look for this offering to also meet with weak demand, and for the company to ultimately raise far less than the $800 million it is targeting.

Bottom line: The latest IPO developments from China Auto and Fosun Pharma indicate the current winter for Chinese overseas IPOs could last for at least a few more months.

Related postings 相关文章:

◙ IPO Chill Bites LaShou, China Auto 中资企业赴美上市连遭冷遇

◙ IPOs: China Auto Slashes, People’s Daily Marches Ahead IPOs:神州组车减，人民网启动

◙ Fosun Pharma Offers Window to China Healthcare Reform

Perfect World Plays On Brazil 完美时空开拓巴西市场

By on

China’s online game operators contending with a fiercely competitive home market are trying a number of tricks to bring back some excitement to their business and sluggish stocks, as evidenced by an interesting new overseas licensing deal from Perfect World (Nasdaq: PWRD). I previously applauded NetEase (Nasdaq: NTES) as one of the sector’s more interesting names for its ability to develop its own popular games, and now would similar kudos to Perfect World, which is looking beyond its home market with this new deal to offer one of its own self-developed titles in Brazil. (company announcement) The deal will see Perfect World license its new “Forsaken World” title to a local operator for unspecified terms. “Forsaken World” marks an interesting milestone for Perfect World, as it is one of the company’s first online games developed by a multinational team, which probably means a team led by managers from the US or Europe. That move sounds strikingly familiar to a similar one by rival The9 (Nasdaq: NCTY), which in December announced a landmark deal to offer “Firefall”, the first major title developed by its own recently acquired US-based team, to a Singapore company that planned to operate the game in several Southeast Asian markets. (previous post) While NetEase has been able to build its business by creating popular games based on Chinese themes such as the classic novel “Journey to the West,” such titles have relatively limited appeal outside China and thus can’t really be used to generate profits through licensing deals in other countries. By contrast, this new generation of Chinese-owned titles developed by Western-based teams has much bigger potential as such games typically are designed by teams with more international experience in creating games that can appeal in many markets. I also like the fact that both The9 and now Perfect World have chosen developing markets like Southeast Asia and Brazil to launch this new crop of titles developed by their international teams, as such markets tend to be less competitive than the West and the Chinese firms can also offer some expertise to their licensing partners in areas like technical operations and payments for these less developed markets. Investors seem to like this new, more international focus, bidding up The9 shares some 40 percent since it announced its Southeast Asia deal last year. Perfect World’s shares are also up about 30 percent over the same period, though it’s latest announcement didn’t do much to boost its stock, perhaps because the company is already one of China’s most outwardly focused online game firms. Still, this newer focus on developing titles with more international appeal should help both of these companies find stable growth over the longer term by giving them a dependable revenue source from licensing fees, helping them to diversify beyond their own crowded home market.

Bottom line: Perfect World’s new licensing deal in Brazil marks an important step in global diversification, a longer-term move that more Chinese online game operators need to take to survive.

Related postings 相关文章:

◙ Online Games: Where’s the Excitement? 中国网游企业增长有限

◙ The9 WoWs Wall Street With New Deal

◙ NetEase: Still a Gamer With WoW Renewal　　网易续签《魔兽世界》运营权

MoneyGram In Latest Financial Services Move 速汇金携手中行 提供汇款服务

By on

After years of watching the major global banks first pile into China only to more recently retreat, it’s refreshing to see a new wave of lower-key investments and tie-ups coming into the country again from second-tier players with more realistic expectations for the market. The latest in this string of lower-profile deals has MoneyGram (NYSE: MGI) signing a deal to provide its specialty money-transferring services through Bank of China’s (HKEx: 3988; Shanghai: 601988) more than 10,000 branches nationwide. (company announcement) The deal sharply expands a previous tie-up that had the pair offering MoneyGram’s services at a much smaller 240 Bank of China branches in Beijing, and is clearly targeted at the growing number of Chinese living overseas, who now send an estimated $57 billion home each year. The deal follows another similar expansion of a tie-up between MoneyGram and ICBC (HKEx: 1398; Shanghai: 601398), another of China’s top 4 banks, aimed at money transfers between Japan and China. Other interesting lower-key deals in recent months have included an investment in a domestic electronic payments company called Lianlian by American Express (NYSE: AXP) (previous post), and several major tie-ups between foreign banks with UnionPay, China’s operator of a financial settlements network similar to the Cirrus and Plus networks operated by MasterCard (NYSE: MA) and Visa (NYSE: V). PayPal, the electronic payments arm of online auctions specialist eBay (Nasdaq: EBAY) has also indicated it wants to delve further into China’s domestic e-payments market, stating very clearly on several recent occasions that it has applied for a new round of licenses soon to be offered for such services. (previous post). While names like MoneyGram, PayPal and even American Express aren’t as high-profile as the more familiar global banking giants, their quieter and relatively cautious advance is a refreshing and strong contrast to big names like Citigroup (NYSE: C), Bank of America (NYSE: BAC) and Goldman Sachs (NYSE: GS), which have all recently  retreated from a market that all previously hyped as full of potential with its billion-plus consumers. Citi recently sold its long-held stake in a regional Shanghai bank, while Bank of America and Goldman have sold off most or all of their stakes in China Construction Bank (HKEx: 939; Shanghai: 601939) and ICBC, respectively. (previous post) Citi, Bank of America and Goldman were all quite bullish on China’s potential when they made their investments around 5-6 years ago; but since then they’ve discovered the tie-ups didn’t really help them to build up their China presence, and most finally sold their stakes to raise cash to bolster their balance sheets after the global financial crisis. I personally think these smaller, more targeted investments from the likes of MoneyGram, American Express and PayPal are much more realistic than the bigger headline-grabbing purchases of the big global banks, and would fully expect to see an acceleration in similar moves from other smaller global players in the next 2 years.

Bottom line: MoneyGram’s latest tie-up with Bank of China looks like a smart, targeted play at China’s financial services market, with more smaller, low-key deals likely in the next 2 years.

Related postings 相关文章:

◙ AmEx Chases E-Payments With Lianlian Link 美国运通联手中国连连集团

◙ Goldman Flees ICBC as Bank Crisis Looms 中国银行业危机隐现 高盛迅速转让工行股票

◙ New UnionPay Tie-Up Boosts US Presence in IPO Run-up 中国银联携手US Bancorp 未来有望两地上市

Apple Feasts on China, Baidu Burps 苹果在华享受盛宴，百度盛宴停顿

By on

I’ll start off today with 2 earnings stories from companies moving in opposite directions: one from Apple (Nasdaq: AAPL), whose China sales have exploded on the back of its hugely popular iPhones, and the other from online search leader Baidu (Nasdaq: BIDU), whose rapid growth is showing signs of having peaked. Let’s look at Apple first as that’s the story that has the world buzzing the most, with the company reporting quarterly earnings that beat Wall Street forecasts and dispelled doubts that its popular iPhones and iPad tablet PCs were losing their appeal. (English article; Chinese article) China was the story within the story this time, with the Greater China region accounting for a whopping $7.9 billion of Apple’s sales for the quarter, or a fifth of its $39.2 billion in revenue. That huge figure came largely on the back of a 4-fold surge in iPhone sales. While the latest China numbers were huge, there’s every indication that they will continue to grow in the current quarter thanks to a new partnership with China Telecom (HKEx: 728; NYSE: CHA), the most aggressive of China’s 3 telcos, which began selling the iPhone in early March, or right at the end of the first quarter. (previous post) Apple had previously only sold iPhones in China through Unicom (HKEx: 762; NYSE: CHU), China’s second largest mobile carrier. Additional upside could come from settlement of an ongoing trademark dispute over the iPad name, which recently prompted Apple to delay selling the newest iPad model in China. (previous post) I would expect that dispute to be settled as soon as the end of the current quarter, paving the way for sale of the latest iPad in China as early as July or August. Meantime, Baidu has also just announced results that have failed to impress investors, who have bid down the company’s stock by around 10 percent in after-hours trading. Some are blaming the share sell-off on Baidu’s second-quarter outlook that was below market forecasts, but from my perspective the entire report looks relatively uninspired. (company announcement) The company said its profit and revenue both grew about 75 percent in the quarter from the previous year — figures that would look great for any other company besides Baidu. The profit growth is roughly comparable to a 77 percent profit jump in the previous quarter, although revenue growth slowed from the previous quarter’s 82.5 percent gain. Also slightly worrisome was one of the first negative growth figures I’ve seen from this company in its core advertising business, with Baidu reporting that revenue per online marketing customer fell 7.6 percent in the first quarter of this year versus fourth quarter levels. All of this indicates that an advertising slowdown that I’ve been predicting for the last 8 or 9 months is finally arriving, and that Baidu’s growth has peaked and will soon start to slow considerably.

Bottom line: Apple’s explosive China growth could accelerate on the back of a recent new iPhone deal and resolution of a trademark dispute, while Baidu’s growth appears to have peaked.

Related postings 相关文章:

◙ Apple Pressures Beijing With iPad Snub 苹果在华不售新iPad向中国政府施压

◙ Baidu Diversification Sputters With E-Commerce Flop 乐酷天将关停 百度电商战略再折戟

◙ Apple Bytes: Labor, a State Visit and Baidu 库克中国行猜想：他在下一盘很大的棋

Rumored Tie-Up to Challenge Youku-Tudou 腾讯、搜狐和百度或结盟 挑战优酷-土豆联姻

By on

I’ve saved the most interesting tidbit from the China Internet space for my last posting today, which comes in the form of a report that 3 Internet leaders are preparing to pool their online video businesses in a bid to challenge the industry titan created by the recent merger of Youku (NYSE: YOKU) and Tudou (Nasdaq: TUDO), the sector’s top 2 players. The report cites an unnamed industry source saying that Tencent (HKEx: 700), Sohu (Nasdaq: SOHU) and Baidu’s (Nasdaq: BIDU) Qiyi will announce the deal this week, possibly as early as Wednesday, creating a second major platform that would act as a single buyer of copyrighted content such as popular movies and TV shows. (Chinese article) The fact that the source is saying a deal is so close, and also the proximity to the big Youku-Tudou merger announcement last month (previous post), lead me to believe it’s quite possible this story is true. What’s more, this new tie-up also appears to be a direct response to the Youku-Tudou announcement, meaning the deal was probably arranged very quickly, which is not a good sign for this kind of major tie-up. On paper at least, such a new tie-up would certainly look intriguing. Sohu is currently China’s third largest online video company with 13.3 percent of the market, while Qiyi is sixth with 6.4 percent, while Tencent is a relatively small player, meaning the new platform would have around 20 percent market share. That would be about half of Youku-Tudou, which will have around 40 percent market share when that deal closes. From a purely superficial perspective, the prospect of a Sohu-Qiyi-Tencent tie-up certainly looks attractive and would be the latest much-needed consolidation of this fragmented and money losing industry. These new larger players would have more bargaining power to get rights to the latest movies and TV shows at better prices, helping them in their drive to become profitable. As if to trumpet that fact, Youku has just announced its latest major licensing deal, this time obtaining exclusive China distribution rights for 2 hit TV series, “Survivor” and “America’s Next Top Model”, from US broadcaster and program maker CBS Studios (NYSE: CBS), marking the latest in a string of similar major licensing deals. (company announcement) On the one hand I’m quite encouraged by this kind of M&A activity, as China’s Internet companies have traditionally resisted such tie-ups due to reluctance by their founders to yield control, even though such consolidation is sorely needed to create major players that can keep expanding and perhaps even someday become global names. But at the same time, the presence of so many strong-willed personalities could make such mergers difficult and even ultimately fail in some cases. Early signs indicated that the Youku-Tudou marriage could suffer from the strong personality of Tudou founder Gary Wang. The founders of Tencent, Baidu and Sohu also have equally strong personalities, especially Sohu’s Charles Zhang, who would presumably lead the leader of any new tie-up. All that said, I would still look for Youku and Tudou to complete their merger and for this new tie-up to also move ahead, though there could be many difficult growing pains for both new partnerships in the year ahead.

Bottom line: Reports of a Sohu-Tencent-Baidu video tie-up could well be true, creating a major new player to counter the industry leader formed by the merger of Youku and Tudou.

Related postings 相关文章:

◙ Sohu’s Blowout Earnings: IPO In Store for Video? 搜狐发喜报视频业务或上市

◙ Baidu Video Tries Blockbuster Licensing

◙ Tudou, Youku: Stormy Marriage Ahead 优酷土豆“联姻”：想说爱你不容易

IPO Chill Bites LaShou, China Auto 中资企业赴美上市连遭冷遇

By on

It may be springtime, but the warmer weather can’t come soon enough for 2 of China’s leading New York IPO candidates, group buying leader LaShou and auto rental specialist China Auto, which are both still feeling the freeze from US investors towards Chinese firms. The latest media reports say that China Auto’s imminent IPO is meeting with weak demand that keeps getting worse, while LaShou is suffering an acute cash crunch due to its own ability to raise new funds from a long-delayed IPO. Let’s look first at China Auto, which looked strong early this year when it became the first Chinese company to file for a New York IPO after a half-year hiatus due to poor investor sentiment after a series of accounting scandals last year. Just a day before China Auto was set to price its delayed IPO, it was only able to find buyers for about half the 11 million American Depositary Shares it aimed to sell for $10.50 to $12.50 each, according to a foreign media report, citing unnamed banking sources. (English article) Presuming it lowers the price below the range, perhaps to around $9.50, and then manages to sell three-quarters of its planned 11 million shares, the company would end up raising around $80 million. That would represent about a quarter of the $300 million China Auto initially hoped to raise, which it cut to around $158 million earlier this month when signs of weak demand were already emerging. (previous post) I predict this IPO will go ahead, unlike several similar offerings that had to be aborted last year, since China Auto clearly needs the cash and is already so close to the final listing; but all the signs indicate investor sentiment is still extremely weak for Chinese companies, especially money-losing ones like China Auto. On a similar note, another major money loser, LaShou, is reportedly making large staff cuts and slashing its advertising spending as it seeks to conserve cash after the derailment of its own New York IPO last year. (previous post) The latest media reports are saying that LaShou has cut 40 percent of its technical staff, that the vice president of its online mall has resigned, and that it has slashed its advertising aimed at drawing visitors to its site. (Chinese article) The reports contain a response from a spokesman, who describes the moves as a “strategic adjustment”. LaShou’s original IPO plan reportedly derailed last year after several major investment banks refused to underwrite the listing due to concerns about some of the its accounting, which led US securities regulators to also request more information. One of my  sources told me the company was preparing to reactivate the listing several weeks ago, though we have yet to see any new public filings. Even if it manages to file for an IPO, considering the current chilly climate, I wouldn’t expect any investors to show interest in a LaShou offering due to its money-losing status and previous questions about its accounting. If that’s the case, look for LaShou’s cash crunch to worsen in the months ahead, potentially forcing it to either close or sell itself for a bargain price to a more cash rich rival or one of China’s healthier Internet companies.

Bottom line: Weak investor sentiment will lead China Auto to raise just a quarter of the funds from its original IPO plan, and will prevent cash-starved LaShou from making its own planned listing.

Related postings 相关文章:

◙ IPOs: China Auto Slashes, People’s Daily Marches Ahead IPOs:神州组车减，人民网启动

◙ 55Tuan + Ganji: Group Buying Clean-Up Acclerates 窝窝团携手赶集网：团购洗牌加速

◙ 55tuan Restarts IPO Race With LaShou 窝窝团和拉手网重启IPO争先赛