When was the last time you saw Google (Nasdaq: GOOG) or Amazon (Nasdaq: AMZN) spin off one of its units into a separately listed company or inject assets from its parent company into a listed unit? The answer of course is that they never engage in any of these common practices of big China state-run companies, but that hasn’t stopped the country’s booming private Internet sector from becoming increasing masters at such games. The latest machinations in these games have seen Sohu (Nasdaq: SOHU) sell its online game information site, 17173.com, to its separately listed online game unit, Changyou (Nasdaq: CYOU) for a nifty $162 million (English article; Chinese article), while search leader Baidu (Nasdaq: BIDU) is spinning off its struggling e-commerce site YouA into an independent company complete with its own venture funding. (English article) Of course, the granddaddy of this kind of shell game is Shanda Interactive (Nasdaq: SNDA), which listed on the Nasdaq many years ago, then spun off its core online game business into a separately listed company, Shanda Games (Nasdaq: GAME), and is now in the process of trying to spin off its online literature unit into yet another public company, Cloudary, even as Shanda Interactive itself attempts to de-list as its share price languishes. (previous post) Leading web portal Sina (Nasdaq: SINA) has also engaged in this kind of financial shell game. This situation has evolved in part because many of China’s Internet companies often stray from their core business into completely unrelated areas — a practice seldom seen at major Western firms. But from an investor perspective, this kind of game results in a lack of transparency, as parent companies can often manipulate situations to make results of these spun-off companies appear on their own balance sheets if the results are positive, and then magically disappear if the business is performing poorly. Shares of Chinese web firms are currently mostly the playthings of speculative short-term investors; but if these companies ever want to be taken seriously by longer-term institutional buyers, this kind of game playing is one of the first things that needs to stop.
Bottom line: The latest spin-offs by Baidu and Sohu cast a spotlight on China web firms’ fondness for financial shell games, which will continue to scare off long-term institutional investors.
Related postings 相关文章:
◙ Shanda Moves Ahead With Privatization 投资者对盛大私有化仍持保留态度
◙ Shanda Plays Games With Big Dividend 盛大游戏寄望高额分红计划提振股价
◙ Sina’s Weibo: Growth Engine or Growing Burden? 新浪微博：动力or负担？
Malaise continues to inflict the overheated Chinese Internet realm, with veteran new media firm Kongzhong (Nasdaq: KONG) falling into the loss column and newly listed children’s website Taomee (Nasdaq: TAOM) reporting a shrinking profit, as both fell victim to stiff competition. I won’t go too much into the reports of these two companies, but Kongzhong reported a $17 million loss, compared with a profit a year earlier, as its Internet games business saw an especially sharp drop. (
I’ll take a break now from all the Internet turmoil to take a look at an area that’s showing much more promise these days, namely the sector that makes video content for TV stations and increasingly Internet video sites. In fact, I’ve already talked about the big potential for this space on several occasions, following landmark licensing agreements this year between some of the major Hollywood studios and leading video sites operated by Youku (NYSE: YOKU), Tudou (Nasaq: TUDO) and Sohu.com (Nasdaq: SOHU). (
You know things are getting bad when the short sellers seizing on the the confidence crisis for US-listed China stocks themselves come under attack, which was the case with a recent rumor that short seller Muddy Waters was preparing an assault on leading web portal Sina (Nasdaq: SINA). (
There’s a couple of interesting news bits coming from the struggling real estate sector, which indicate its current downturn could be nearing a bottom and that better days may be on the horizon in the next year or two. One of those bits is seeing E-House (NYSE: EJ), one of China’s top real estate services providers, taking control of the China franchise of major US home seller Century 21 (NYSE: CTC); while the other is seeing several major players, including Blackstone (NYSE: BX) and China’s sovereign wealth fund, setting up a real estate financing joint venture. Let’s start with the E-House deal, which is seeing the Chinese firm take a 58 percent stake in Century 21 China for a relatively modest $25 million. This deal is clearly being driven by a weak real estate market that has seen transaction volumes plummet as China takes steps to cool the market, driving E-House into the red in its latest quarter (
Shanda (Nasdaq: SNDA) head honcho Chen Tianqiao, lacking any major news to boost languishing shares prices of his 2 public companies, is resorting to playing games to lift their stocks, first through a privatization plan for one and now with a massive special dividend for the other, Shanda Games (Nasdaq: GAME). (
China is clearly excited about the prospect of cloud computing, as evidenced by the steady stream of big names like Alibaba, Huawei and Shanda (Nasdaq: SNDA) that have announced initiatives in the space this year. Now even Microsoft (Nasdaq: MSFT) is trying to get in on the act, announcing a major new cloud computing campaign for China. Whether any of these initiatives will ultimately work is another question, however, as China has yet to prove that it can lead in any major new technology like this. First let’s look at Microsoft’s latest initiative, which will see it build a cloud platform and trading center in the interior city of Chongqing. (
US retailer Gap (NYSE: GPS) is bringing its formula for selling cheap but trendy clothing to mainstream young Chinese, with a plan that looks like a smart way to tap the nation’s growing urban middle class despite its late arrival to the market. Executives from the US chain, an early pioneer in the trendy, affordable clothing business whose image has become a bit faded lately, detailed their China plans during a trip to the region late last week for the opening of their first Hong Kong store. (
