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.
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.
58.com
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.
These 2 news bits reflect some of the smaller M&A that’s taking place on China’s Internet these days, after most major acquisition targets have either been acquired or indicated they want to remain independent over the last 2 years. I still expect we could see 1 or 2 blockbuster deals happen before the end of the year, with online video site Youku Tudou (NYSE: YOKU), recently listed group buying site Wowo (Nasdaq: WOWO), and perhaps one or two online game operators as the most likely targets.
In the meantime, M&A fans are having to settle for smaller deals, like the newest tie-up between iQiyi and Xunlei. The alliance doesn’t involve any equity investments, and will simply see Xunlei provide crowd-sourced bandwidth services to iQiyi. (company announcement; Chinese article) The deal looks like mostly a technology play that will give iQiyi access to Xunlei’s service that allows for faster web surfing in places with poor Internet connections.
This latest tie-up comes just a month after Xunlei announced a major boosting of its separate year-old alliance with Xiaomi, which is trying to build up an ecosystem of products and services around its core smartphones. (previous post) I said at the time that the alliance could presage an eventual purchase of Xunlei by Xiaomi, though Xunlei’s chief executive later indicated such a deal wasn’t on his agenda.
Staying Independent
Those comments seem to indicate that Xunlei wants to remain independent for now, even though I do think a purchase by Baidu or iQiyi would make a lot of sense and be a better fit for the company. Baidu currently has plenty of cash and other resources to make such a purchase, and Xunlei’s current market value of $620 million would make it relatively cheap. Perhaps we’ll see Baidu or iQiyi buy a non-controlling stake in Xunlei, though an outright acquisition does seem like a small possibility at this point.
Next there’s 58.com, which has made a number of small acquisitions over the last year as it attempts to become the Craigslist of China. The latest move saw it announce its purchase of ChinaHR in May, which was followed a week later by reports that nearly all of ChinaHR’s workforce had been laid off. (previous post) ChinaHR has long been a laggard in China’s online job market, and never became a major player under previous owners Monster Worldwide (Nasdaq: MWW) and Ireland’s Saongroup.
Now 58.com’s CEO Yao Jinbo is saying he plans to spend 1 billion yuan ($160 million) to rebuild ChinaHR over the next 2 years. This strategy of buying ChinaHR without any of its previous staff looks smart, since the company was obviously suffering from problems before. With that kind of a clean slate and 58.com’s own strong market position, I would expect that Yao should have a good chance for success and that ChinaHR could eventually challenge industry leaders like 51job (Nasdaq: JOBS) and Zhaopin (NYSE: ZPIN).
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