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

Report Takes Wind Out of Inflated Qihoo 奇虎遭遇Citron釜底抽薪

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A report from a small research house appears to have finally awakened the world to the reality behind the Chinese Internet comedy known as Qihoo (NYSE: QIHU), which has steadily lured in investors — achieving a ridiculously high valuation — since its IPO in March. The research report by Citron sparked a sell-off in Qihoo shares, which tumbled 10 percent on Tuesday during a turbulent session that saw the broader indexes also fall by more than 2 percent. So, what exactly did Citron say that got everyone so spooked and prompted Qihoo to issue a “clarifying” press release? (Qihoo announcement) I haven’t seen the actual report so can’t comment in too much detail. But based on other media reports and Qihoo’s own announcement, the Citron report essentially called into question many of Qihoo’s claims about the size of its user base and the company’s scale as a major Chinese Internet player. Citron further commented that Qihoo’s stock price should be around $5 per share, or about a quarter of its value of $20 per share at the beginning of the Tuesday New York trading day. (Chinese article) Bloomberg data lists Qihoo’s forward price-to-earnings ratio at a massive 900 times, which seems overstated although I’ve read that its PE is the largest of all China Internet companies. All of this doesn’t surprise me, as I’ve repeatedly questioned Qihoo’s credibility, as the company has been the subject of a number of high profile lawsuits, most of which it has lost, though with little financial consequences. (previous post) I honestly don’t know why investors have been so excited about the stock, and wouldn’t be surprised if this unethical company has engaged in some manipulative activity to get its valuation so high even compared with leaders like Baidu (Nasdaq: BIDU) and Tencent (HKEx: 700). All that said, this new report looks like it may finally awaken investors to all the questions surrounding this company, and could well mark the beginning of a broader decline to Citron’s $5-per-share target or even lower.

Bottom line: A report by a small research house has finally awakened investors to the many questions surrounding Internet firm Qihoo, whose stock could drop steadily for the rest of the year as a result.

Related postings 相关文章:

◙ Qihoo Goes to War With Mobile Browsers 奇虎360加强移动互联网布局

◙ Qihoo Loses Yet Another Lawsuit, But No One Cares 奇虎败诉不足为戒

◙ China Legal System Takes Bite Out of Tencent’s Qihoo Lawsuit 中国法律体系让奇虎在与腾讯的官司中免受重大损失

Baidu Video Tries Blockbuster Licensing

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Baidu’s (Nasdaq: BIDU) online video joint venture Qiyi seems to have learned a lesson from its pirating parent, announcing a new exclusive licensing deal for the China online video rights for the popular latest installment in Paramount’s (NYSE: VIAb) “Transformers” movie franchise. (English announcement) Baidu itself has found big success in allowing the exchange of pirated material, mostly music, over its web site in recent years and continues to offer such services despite ongoing government pressure on Chinese web firms to get out of the pirating business. But in a nod to that pressure, in July it formally launched a service for legally obtained music, and announced a series of high-profile licensing deals to offer music on it from several major Hollywood record labels, though added it had no intention of closing its piracy-plagued older music site. (previous post) This new strategy from Qiyi, which already appears to offer legal copies of popular US TV series, looks relatively smart to me, drawing on exclusive rights for individual big-name movies to draw in viewers. Still, it will have to compete with the likes of online video leader Youku (NYSE: YOKU) and the video site operated by Sohu (Nasdaq: SOHU), which have also signed similar though much bigger deals with major Hollywood studios in the last few months. Its unclear if Qiyi, founded less than 2 years ago, will be able to pay the big bucks that these older, more established companies are paying for exclusive rights to big-name films, which may explain its approach of buying of single blockbuster title rather than signing broader licensing deals which are much more expensive. The company also has the advantage of tapping a huge potential audience of users from Baidu, China’s dominant search engine with nearly 80 percent of the market. That tie-up, combined with this early approach to exclusive licensing for single blockbusters, could create a potent formula for success as Qiyi looks to establish its name in the online video space.

Bottom line: Online video site Qiyi’s signing of an exclusive deal for a single Hollywood blockbuster looks like an interesting approach, which, combined with support from parent Baidu, could boost its chances for success.

Related postings 相关文章:

◙ Baidu Comes Under Government Fire 政府“修理”百度

◙ Baidu Seeks Diversification in Tudou Talks 百度求购土豆，寻求多元化

◙ After Years, Baidu Does the Right Thing 百度多年来的一个正确之举

News Digest: November 2, 2011

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The following press releases and media reports about Chinese companies were carried on November 2. To view a full article or story, click on the link next to the headline.

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◙ China Mobile (HKEx: 941), Unicom (HKEx: 762) Lower Int’l Fees to Lure High-End Users (Chinese article)

◙ CNOOC (HKEx: 883; NYSE: CEO) Still in Talks For BP’s PAE Stake After Deadline Lapses (English article)

◙ Taobao Says China’s 2010 Online Shopping Service Market Reached RMB 2 Bln (English article)

◙ Giant Interactive (NYSE: GA) Announces Q3 Results (PRNewswire)

◙ Baidu’s (Nasdaq: BIDU) QIYI In China Online Distrib Deal for Paramount Transformers Film (PRNewswire)

Sputtering Unicom’s Latest Excuse: Lack of Leadership

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China Unicom (HKEx: 762; NYSE: CHU) is reportedly conducting a massive search for top-level managers in many provinces, once again underscoring how the company is badly in need of strong new leadership as it increasingly appears to be squandering its golden opportunity to gain market share over dominant carrier China Mobile (HKEx: 941; NYSE: CHL). According to Chinese media reports, Unicom is looking for people to head its operations in a large number of provinces, continuing a search that dates back as far as February last year. (Chinese article). It’s been nearly 3 years now since Unicom merged with rival China Netcom in a major industry restructuring, and certainly the company can be forgiven for not filling key positions for the first year or so after such a big change. But 3 years is quite a long time, and if it’s taking them this long to fill these key positions it’s no surprise that the company is making little or no progress at bolstering its position in China’s mobile market. Most will recall that Unicom was given a golden opportunity to gain share over China Mobile, which controls over two-thirds of China’s mobile market, nearly 3 years ago when it was awarded a 3G license based on the world’s best technological standard. By comparison, China Mobile received a big handicap by having to develop its 3G service using a homegrown standard with lots of problems. Despite that, Unicom’s share of the 3G market has remained stagnant since the beginning of the year, at around 30 percent. Meantime, China Mobile’s 3G share has eroded from 45 percent in April to 42 percent in September, with the country’s third-largest carrier, China Telecom (HKEx: 728; NYSE: CHA) picking up all of those loses. Unicom, which also has the enviable advantage as China’s only official seller of Apple’s (Nasdaq: AAPL) iPhones, previously blamed a lack of 3G handsets for its failure to pick up share despite its obvious technological advantages. Now it looks like it’s blaming lack of strong management at the provincial level. Either way, Unicom seems to be better at making excuses than doing good business, and I’m fast losing confidence in its ability to bolster its position under current management.

Bottom line: Unicom’s latest problems in filling top management jobs at the provincial level reflect a poorly run company that is fast squandering its golden opportunity to pick up market share from rivals.

Related postings 相关文章:

◙ Unicom’s Sputtering 3G: Blame It On the Handsets 联通幡然醒悟 借低价手机扩张3G市场

◙ China Mobile Shuffle: Sea Change Coming? 中移动高层变动或引发重大变化？

◙ China Telecom Set for Boost With Imminent iPhone Deal 中国电信借力iPhone

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

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Sohu (Nasdaq: SOHU), a perennial second-place finisher to Sina (Nasdaq: SINA) in China’s Internet portal space, has just posted quarterly earnings that look quite impressive, showing its video business is fast becoming a major industry player and its online search may finally be gaining traction after years of struggling. Of course the one potential dark cloud over all of this may be China’s looming Internet bubble, which could abruptly halt the rapid growth for both of those businesses when it comes, probably around the middle of next year by my estimation. But first the good news. Sohu reported that revenue for its video segment more than doubled for the quarter, making it China’s second largest player, behind only Youku (NYSE: YOKU). (company announcement) Like Youku, Sohu has been a leader in the video space by signing some big licensing deals to offer content from the major Hollywood studios. It also has an advantage over independent video companies like Youku and Tudou (Nasdaq: TUDO) because it operates a more diversified Internet business, allowing it to leverage video over more of its other channels. Given the business’ rapid rise, Sohu must surely be thinking of spinning off video for an IPO as soon as the business turns profitable, possibly as soon as the second half of 2012, much the way it spun off its lucrative Changyou (Nasdaq: CYOU) online game business several years ago. After years of struggling, Sohu’s online search engine Sogou also appears to have finally gained some traction, with revenue soaring 244 percent in the quarter to $18 million, to take around 2.2 percent of the market. Those numbers are clearly still quite modest, but Sohu forecast that revenue would grow another 14 percent quarter-on-quarter to around $21 million in the fourth quarter. Of course all the growth could come to a screeching halt if and when China’s Internet bubble bursts, which would put a chill on advertising revenue. Sohu itself hinted at possible early signs of such a slowdown, forecasting brand advertising revenue would see little or no growth in the fourth quarter from the third. But for now at least, the company seems to be riding high on China’s Internet boom.

Bottom line: Sohu’s latest results show strong gains for its search and especially its video business, with the latter set for a possible spin-off and IPO as early as the second half of 2012.

Related postings 相关文章:

◙ Renren Finds Video Bargain in China Web Bubble 人人网低价收购56网 凸显中国互联网困境

◙ Hulu Makes First Global Stop in Japan, China Next?

◙ Sina Taps On Back Door Into Tudou 新浪可能收购土豆

New Regulatory, Competitive Waves Hit E-Commerce 监管和竞争冲击电子商务领域

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Turbulence continues to pelt China’s e-commerce sector, with new reports showing how rampant competition is pushing up costs as an industry regulator gets looks into anti-monopoly claims against top online mall operator Taobao Mall. A new foreign media report cites the top executive at luxury e-commerce site Xiu.com saying that rents for the massive warehouses required by most online merchants have soared in the last year, as players like 360Buy and Wal-Mart-invested (NYSE: WMT) Yihaodian all vie for facilities near major cities where they can store and then ship their goods. (English article) Global e-commerce leader Amazon (Nasdaq: AMZN) has joined the fray, announcing last week that its China operation was opening a 120,000 square meter facility in the city of Kunshan, not far from Shanghai, quadrupling its warehouse space in the affluent Yangtze River Delta region. (previous post) The soaring warehouse rents are just the latest headache for the overheated e-commerce sector, where most major players are already hemorrhaging money as the industry heads for a much needed consolidation that is likely to come by the middle of next year. Meantime, domestic media report the Commerce Ministry is entering the e-commerce fray by launching an anti-monopoly investigation into Taobao Mall, Alibaba’s B2C operation, in response to merchant complaints that the online mall operator used its dominant position to unilaterally force a massive fee hike on its merchants, leading many small- and mid-sized sellers to rebel. (English article) I personally think this latest Commerce Ministry investigation is a bit misguided, as there’s plenty of competition in the e-commerce space though less so in the online mall sector. If the ministry really wants to chase someone for anti-monopoly violations, it should focus on online search leader Baidu (Nasdaq: BIDU), which controls nearly 80 percent of the market.

Bottom line: Soaring warehouse rents are the latest sign of overheating in China’s e-commerce space, which is also facing the threat of increasingly heavy-handed regulation by Beijing.

Related postings 相关文章:

◙ Amazon Name Shift Signals China Ramp-Up 亚马逊改名背后折射中国野心

◙ Albaba Faces New Assaults From Merchants, 360Buy 阿里巴巴受到中小商户和京东商城的双重夹攻

◙ China Regulors Threaten E-Commerce, Group Buying 官方监管威胁到电子商务与团购业务

News Digest: November 1, 2011

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The following press releases and media reports about Chinese companies were carried on November 1. To view a full article or story, click on the link next to the headline.

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◙ Sohu.com (Nasdaq: SOHU) Reports Q3 Unaudited Financial Results (PRNewswire)

◙ China Online Sales Seen Tripling Driving Warehouse Surge: Retail (English article)

◙ Tencent (HKEx: 700) Confirms Strategic Investment in Kaixin (Chinese article)

◙ Baofeng Selects Underwriters for 2012 US IPO (English article)

◙ Sina Corp (Nasdaq: SINA) to Report Q3 2011 Results on November 8 (PRNewswire)

Beijing’s Financial Shufflle: Bankers or Regulators? 中国金融高层“大换血”

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Beijing made a major shuffle of its top financial industry regulators over the weekend, underscoring once again why investors should think of China’s big 4 banks more as government policy lenders and not be deceived into belieiving they are real commercial banks. In a move that was rumored but finally made official on Saturday, top executives from two of the big 4 banks, Agricultural Bank of China (HKEx: 1288)(Shanghai: 601288) and China Construction Bank (HKEx: 939)(Shanghai: 601939), were named to head China’s insurance regulator and its securities regulator, respectively. (English article) The two men, Xiang Junbo and Guo Shuqing, were both chairmen of their respective banks until late last week, when they abruptly resigned just ahead of the announcement. So let’s think about this for a minute: chairmen of two of the country’s top 4 banks are now chairmen of two of the major financial regulators. In any other country, this kind of move would raise major concerns about conflicts of interest, as the big banks all deal in both insurance and securities through their various affiliates and vast webs of relationships in China’s financial world. Does this mean that if new insurance regulations are about to come out, then Agricultural Bank of China will know about them first and potentially use that information to its advantage? Or if the country decides to reform its securities policies, does that mean that China Construction Bank will be forced to more strongly enforce the new regulations than other banks because its former chairman now heads the securities regulator? The answer to all these questions is “probably yes”, and shows why the big banks are nothing more than policy tools that the government uses to train future top party and industry officials. This kind of shuffle isn’t unique to the banking industry, as the oil industry saw a similar move earlier this year (previous post) and the telecoms sector did something similar a few years back. But it does underscore why investors should be wary of these big state-run giants, and why China should seriously consider re-privatizing its big 4 banks.

Bottom line: The latest shuffle at the top of China’s big 4 banks underscores once again that these lenders are nothing more than policy instruments of Beijing and not true commercial lenders.

Related postings 相关文章:

◙ Message to Beijing: Privatize the Big 4 Banks 对中国政府说：将四大银行退市吧

◙ ICBC Discovers China’s Latest Low-Cost Export: Currency 工行将从非洲人民币结算业务中获益

◙  China’s Oil Shuffle: Not So Fast, Naysayers 石油巨头高管轮换：先别急着唱衰

Alibaba’s Etao Faces New Merchant Revolt

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E-commerce leader Alibaba Group looks set to soon get its long-awaited wish for separation from major stakeholder Yahoo (Nasdaq: YHOO), but it won’t have much time to celebrate as new fires seem to be popping up everywhere for nearly all of its major businesses. The latest crisis for the increasingly embattled company has cropped up at its Etao search site, which Alibaba is trying to build up as a specialist in e-commerce searches that can eventually rival online search titan Baidu (Nasdaq: BIDU). Chinese media are reporting that Etao has confirmed that it is no longer indexing search information from sites for a number of major online retailers, including general merchandiser Dangdang (NYSE: DANG) and electronics giant Suning (Shenzhen: 002024) (Chinese article). The confirmation comes just a week after another leading e-commerce site, 360Buy, hinted it may block its pages from Etao searches (previous post), and indeed 360Buy was among the new list of confirmed companies whose pages will no longer be indexed by Etao. With all these major online retailers blocking their material from Etao searches, and the list likely to grow, Alibaba must certainly be worried about the future viability of Etao as a true e-commerce search engine. This latest crisis follows an uprising earlier this month by independent merchants on Alibaba’s B2C platform, Taobao Mall, after the site sharply hiked its fees. That same group of merchants, which has been wreaking havoc on the Taobao Mall site, later moved its rabble-rousing campaign to Alibaba’s electronic payments site, Alipay, as well. (previous post) While all of these crises rage, Alibaba got a rare piece of good news as domestic media reported that Yahoo is looking to sell its 40 percent stake in Alibaba, as the US web giant tries to dispell broader talk that the entire company itself is for sale. Alibaba has long clamored for Yahoo to sell the stake amid friction between the two companies, so clearly it should be happy about this news. But with all the crises now happening in its own businesses, Alibaba won’t have much time to celebrate and indeed might wish it had an ally to help it in this time of trouble.

Bottom line: Alibaba may soon get its official independence from major stakeholder Yahoo, but it won’t have time to celebrate as it faces an escalating crisis at its Etao search site.

Related postings 相关文章:

◙ Albaba Faces New Assaults From Merchants, 360Buy 阿里巴巴受到中小商户和京东商城的双重夹攻

◙ Taobao Mall’s IPO March Collides With Merchant Uprising 淘宝商城IPO或因商户“起义”被推迟

◙ Alibaba Sharpens Focus in Yahoo Buy-Out, Taobao Mall 阿里巴巴回购雅虎所持股权有望

Lashou Files For IPO, Launching Race With 55tuan 拉手网与窝窝团打响IPO竞争战

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The race to make an IPO by China’s top 2 online group buying sites, Lashou and 55tuan, has officially begun, with Lashou taking the early lead by making the first public filing for an offering to raise up to $100 million. (English article; Chinese article) The only problem is, this is a race that could very well see neither player ever reach the finish line, as both companies are hemorrhaging cash and investors are very unlikely to show interest in either, regardless of how low the selling price. According to its first public IPO filing late last week, Lashou, which is trying to polish its image by adding a capital “S” and calling itself “LaShou”, lost a hefty 391 million yuan, or about $60 million, in the first half of this year. With competition incredibly fierce in China’s group buying space and all kinds of quality issues and a potential government crackdown looming (previous post), Lashou’s situation is unlikely to improve anytime soon. I previously received quite a few sarcastic complaints when I remarked that Lashou was forced to turn to a couple of “second-tier” investment banks, CICC and Nomura, for the offering after Goldman Sachs and Morgan Stanley resigned the account citing conflict of interest, amid reports that they were really dubious of Lashou’s accounting records. (previous post) Now we can add Barclays Capital to the list of Lashou underwriters, again underscoring my previous assertion as none of these underwriters is a major New York bank with strong connections in the US and experience in the Internet space. 55tuan has also reportedly hired underwriters for its offering,  though no one is quite sure who they are and no doubt they are even less experienced than Lashou’s trio of banks. Despite that, 55tuan came out very publicly and said earlier this month it plans to make an IPO by the end of this year, even as it was implementing mass layoffs. (previous post) All that said, there probably won’t be any winner in this newest IPO race, as whoever makes it to market first will probably have to sell their shares at a steep bargain to attract any investor interest. At the end of the day, I wouldn’t be surprised if neither company makes it to market at all, at least not by the end of this year.

Bottom line: The latest race to market between online group buying leaders Lashou and 55tuan is likely to yield no winners, as investors give chilly receptions to both struggling companies.

Related postings 相关文章:

◙ 55tuan: A Company in Denial 窝窝团拒不接受现实

◙ Lashou Ropes in Small Potatoes For US IPO 拉手网聘二流承销商赴美上市

◙ Group Buying Turmoil Grows With 55tuan Layoffs 窝窝团撤站裁员 团购业整合在即

News Digest: October 29-31, 2011

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The following press releases and media reports about Chinese companies were carried on October 29-31. To view a full article or story, click on the link next to the headline.

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◙ Lashou Files For IPO to Raise Up To $100 Million (Chinese article; English article)

◙ E-House (NYSE: EJ) Proposes to Buy Outstanding CRIC (Nasdaq: CRIC) Shares (PRNewswire)

◙ Sohu (Nasdaq: SOHU), Microsoft (Nasdaq: MSFT) May Partner on Online Video – Source (English article)

◙ Yahoo (Nasdaq: YHOO) Aims To Sell Asia Assets, Not Entire Company – Source (Chinese article)

◙ ICBC (HKEx: 1398; Shanghai: 601398) Third-Quarter Profit Gains 28% (English article)