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Bottom line: The latest reports on Facebook’s China plans indicate the company is aggressively aiming to enter the market, with a potential new joint venture possible by the end of this year.
Related postings 相关文章:
◙ Facebook, NY Times Make New China Moves Facebook和纽约时报在华新动向
◙ Despite China Rebuff, Facebook Going Back for More Facebook明知山有虎，偏向虎山行
◙ Twitter Eyeing China? Twitter想进中国？
An important trial has just begun in southern Guangdong province, testing China’s young anti-monopoly law and its legal system in a case that could spell big headaches for leading Internet firm Tencent (HKEx: 700). Analysts also point out the case could have a domino effect for other areas where a single company dominates the Web, with online search leader Baidu (Nasdaq: BIDU) perhaps the most vulnerable to a similar lawsuit. But let’s look at the Tencent case first, as that’s the main point here. Perhaps appropriately, the case is being bought by Internet software company Qihoo 360 (NYSE: QIHU), a seasoned veteran with litigation in China, having been sued numerous times by others, including Tencent, and also filing numerous lawsuits of its own against rivals. This latest case has Qihoo suing Tencent for monopolistic practices in the instant messaging space, claiming Tencent’s wildly popular QQ service has a virtual lock on the market. (Chinese article) The case, which began on Wednesday morning，has Qihoo seeking 150 million yuan, or about $24 million, in damages. Chinese courts rarely award that much money due to legal restrictions, but even if they did such an award would be trivial to a company like Tencent that has a market cap of $56 billion and a huge cash pile. Of course the much bigger threat is that the court will determine that Tencent does indeed have an instant messaging monopoly, which it has used to quickly gain dominance in other Internet spaces such as online games. From my perspective, Qihoo’s case does indeed look convincing, as Tencent currently controls more than 70 percent of the instant messaging market. I personally don’t use QQ, but in my experience the only other platform that has any users at all in China is Microsoft’s (Nasdaq: MSFT) MSN, whose service is basically just a copy of its global product and is far less popular among Chinese users. A court ruling against Tencent would be interesting for a number of reasons, all of which would obviously be bad for the company. Qihoo and others are clearly interested in seeing the court order Tencent to de-link QQ from its other initiatives, as that would seriously hamper the company’s ability to take advantage of its massive instant messaging user base to quickly develop into other areas like search, online video and e-commerce. But the court, if it rules against Tencent, should also take steps to break its instant messaging monopoly, which is what the anti-monopoly rule was designed for. Of course, if the court rules against Tencent the next major target would be Baidu, which also controls more than 70 percent of China’s search market, the legal definition for a monopoly. Accordingly, China Internet watchers and investors should be paying close attention to this case, which could have big implications for both Tencent and Baidu stock.
Bottom line: Tencent will suffer a big setback if a court rules it has a monopoly in instant messaging, potentially paving the way for a similar lawsuit against Baidu.
Related postings 相关文章:
◙ Tencent Search: Baidu Beware? 腾讯搜搜成功关键依赖创新
◙ Search Wars Heat Up With Latest Anti-Baidu Moves 中国网络搜索战升温
There are a couple of interesting news bits from the e-commerce space, one from e-commerce giant Dangdang (NYSE: DANG) whose CFO has just resigned, and the other on an interesting new move by an increasingly aggressive Suning (Shenzhen: 002024) into online travel services. I was originally planning to start with Suning, as that news looks the most interesting in terms of broader strategy. But then I had a look at Dangdang’s stock, and was a bit surprised to see it plunged more than 15 percent after news of the CFO resignation came out, indicating investors are clearly concerned about this development. Dangdang itself wasn’t saying much, except that CFO Conor Yang, who joined the company 2 years ago and saw it through its IPO in late 2010, tendered his resignation for personal reasons. (company announcement; Chinese article) Yang helped Dangdang raise more than $300 million in the successful IPO, with Dangdang shares initially soaring in their trading debut. But since then they have tumbled due to fierce competition in China’s e-commerce space that has led Dangdang and most of its peers deeply into the red, and now they trade at about half of their IPO level. It’s never good to lose a CFO, and it’s especially bad when your CFO leaves when the company is so deeply in the red. Such departures often imply the CFO, who is traditionally more conservative about financial matters, may believe his bosses are pressuring him to understate the nature of bad news like big losses. If that’s the case, look for more turbulence for this already-battered stock as its accounting comes under increasing scrutiny. Meantime, Suning, which has aggressively moved into e-commerce over the past year and is now the country’s fourth-biggest player, announced it is getting into the online travel business by selling airplane tickets and hotel reservation services. (English article) This move looks interesting as the online travel space is already quite crowded, dominated by established players like Ctrip (Nasdaq: CTRP) and eLong (Nasdaq: LONG) and recent entries to the space by e-commerce rival 360Buy and search giant Baidu (Nasdaq: BIDU). (previous post) Suning seems to be quite good at executing its new business strategies, and thus could offer a serious product in the space in a relatively short time. If that happens, along with all these other new initiatives, look for the online travel sector to see a serious jump in competition — and profit erosion — in the next 2 years.
Bottom line: Dangdang’s CFO resignation could point to accounting issues, while Suning’s entry to online travel services will further heat up this increasingly crowded space.
Related postings 相关文章:
◙ Dangdang Loss Balloons In E-Commerce Wars 当当网在电子商务大战中亏损严重
Baidu (Nasdaq: BIDU) has been phenomenally successful in its core online search business, but it’s had a much harder time diversifying into other areas like social networking and e-commerce. The company called it quits in microblogging last year after a late arrival and half-hearted effort in the space (previous post), and now its latest e-commerce initiative, called Lekutian, appears to also be suffering from its own identity crisis. Lekutian is Baidu’s second major attempt at getting into the lucrative but highly competitive e-commerce space, following its failed effort with another site, called You’a, last year. With Lekutian, Baidu was hoping to avoid the same fate by setting up the business as a joint venture with Rakuten (Tokyo: 4755), one of Japan’s a leading e-commerce companies. Signs that the venture wasn’t progressing as quickly as planned first emerged late last year when domestic media reported that Baidu was halting its new investment in the business — reports that Lekutian denied. Now a new flurry of reports have again emerged on Lekutian, with some saying the venture is making a major directional shift while others are saying the site is implementing major layoffs. (English article; Chinese article) Not surprisingly, Lekutian is denying the layoff reports, though it is also talking openly about the directional shift. One report cites a company spokeswoman saying the site wants to take advantage of its Japan connections to transform itself into an e-commerce platform with a distinctly Japanese flavor, including Japanese brand products and a more Japanese look and feel. The site will also emphasize a more mall-like business model, similar to Alibaba’s Tianmao, which operates a platform on which other retailers can open online stores rather than selling merchandise directly itself. Frankly speaking, this move by Lekutian smells a bit of desperation to me, and hints that the site isn’t doing very well and could easily end up with a similar fate to the failed You’a. At the same time, I should commend Baidu this time for realizing that it is a latecomer to the e-commerce game, and will have to develop a more niche product as it clearly can’t compete with much bigger and more established giants like Tianmaol, 360Buy and Dangdang (NYSE: DANG), as well as sites operated and invested by big foreign names like Amazon (Nasdaq: AMZN) and Wal-Mart (NYSE: WMT). I do question whether the “Japanese experience” niche that Lekutian is pursuing will find a big audience in China, and suspect the site will ultimately end up as a small player that will later get quietly shut down. Not all of Baidu’s non-core investments have done so badly, with a big bet last year on an online travel site called Qunar looking like it could have good potential. (previous post) If Baidu is smart, it might be advised to invest in more existing companies like Qunar that already have a strong operating record, rather than trying to start its own new businesses, where its record is decidedly not so good.
Bottom line: A major directional shift by Baidu-invested e-commerce site Lekutian hints at troubles at the joint venture, which could end up as a niche player at best.
Related postings 相关文章:
◙ Baidu’s Qunar: Going Places 百度投资的去哪儿网：前途无量
◙ Baidu’s Takes a $300 Mln Spin on Travel Market 百度斥资3亿美元进军旅游市场
The following press releases and media reports about Chinese companies were carried on April 10. To view a full article or story, click on the link next to the headline.
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◙ Baidu’s (Nasdaq: BIDU) Lekutian Repositions, Launches Store Operations Service (English article)
◙ China’s Mobile Internet User Base Reaches 356 Mln (English article)
◙ LDK Solar (NYSE: LDK) Implements Large-Scale Lay-Offs – Source (Chinese article)
◙ Shanda Sells Non-Core Assets in Post-Privatization Clean-Up (Chinese article)
◙ Muddy Waters Says to Soon Release Short Selling Report on HK-Listed China Firms (Chinese article)
We’re getting a bit more clarity on Qunar, the online travel site that made headlines last June when it received a major investment from search leader Baidu (Nasdaq: BIDU), following the release of some new financial data showing a company that looks quite intriguing and potentially positioned to soon challenge eLong (Nasdaq: LONG) for the place as the sector’s second largest player. I’ll be the first to admit I was a bit skeptical when Baidu forked out a hefty $300 million for an unspecified stake in Qunar last year, assuming the stake was probably a minority interest and also unconvinced about the wisdom of investing in an area so far removed from Baidu’s core search business. (previous post) But now Chinese media are reporting that according to a Baidu filing with the US securities regulator, it actually purchased 62 percent of Qunar in the transaction, making it the company’s major shareholder. (Chinese article) Some quick math will show that investment values Qunar at just under $500 million. A further look will show that eLong, which I’ve long considered an industry laggard, also has a market capitalization in the same range, at just over $500 million. eLong also made headlines last November when longtime minority investor Expedia (Nasdaq: EXPE), a top US online travel agent, paid a hefty premium to boost its stake to a majority share. (previous post) But after rallying on the news, eLong shares have since given back nearly all of their gains and now trade at about $15, far below the $23 per share that Expedia paid to boost its position. All this reflects the reality that despite its longtime presence in the industry and Expedia ties, eLong has failed to ever bridge the large gap between itself and market leader Ctrip (Nasdaq: CTRP), whose market capitalization of around $3 billion means investors think it is worth six times as much as eLong. Founded in 2005, Qunar had revenue of about $23 million and a profit of about $420,000 from the time of Baidu’s mid-year purchase of its controlling stake, according to the newly released data. That would translate to annual revenue of about $46 million and a profit approaching $1 million, versus eLong’s $93 million in revenue and $6.2 million in profits last year. So clearly eLong is more profitable and twice the size of Qunar in terms of revenue; but eLong was also founded in 1999, meaning it had a 6 year head start over Qunar. Based on Qunar’s valuation from the Baidu deal and eLong’s inability to become bigger and pose a more serious challenge to Ctrip, I would say that Qunar looks like a company to watch closely, especially following the Baidu tie-up which could see it use Baidu’s hugely popular search and other sites to boost its position. If things proceed smoothly, I wouldn’t be surprised at all to see Qunar pass eLong in terms of revenue in the next 2 years, with a potential IPO for the company also possible in that timeframe.
Bottom line: New financials for Baidu-invested online travel site Qunar show a company poised to make a potential IPO and challenge eLong for the sector’s number-two spot in the next 2 years.
Related postings 相关文章:
◙ Baidu’s Takes a $300 Mln Spin on Travel Market 百度斥资3亿美元进军旅游市场
◙ Expedia Boosts China Ties, Watch Out Ctrip Expedia增持艺龙股份携程要小心了
Bottom line: Tim Cooks’ weeklong China trip underscores that the market will become a top priority for Apple during his tenure as CEO, as will improving his company’s corporate image.
Related postings 相关文章:
◙ Apple CEO Cook Stirs Up Guessing Firestorm 苹果CEO库克低调访华意欲何为？
◙ China Telecom iPhone Debut Looks Strong 中国电信iPhone初次发售，势头强劲
◙ Apple Wins iPad Round in Shanghai: New Justice? 苹果在iPad商标侵权案中扳回一局
The following press releases and media reports about Chinese companies were carried on March 29. To view a full article or story, click on the link next to the headline.
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◙ Apple (Nasdaq: AAPL) to Make Baidu (Nasdaq: BIDU) China Default Search Engine – Reports (English article)
◙ ZTE (HKEx: 763) Announces 2011 Annual Results (HKEx announcement)
◙ Youku (NYSE: YOKU), Buick (NYSE: GM) Debut “Micro Movie” Series from Major Directors (PRNewswire)
◙ Huawei Sales Rose 11.7 Percent in 2011 – Executive (Chinese article)
◙ CNOOC (HKEx: 883) Announces Record High 2011 Profit (PRNewswire)
The following press releases and media reports about Chinese companies were carried on March 28. To view a full article or story, click on the link next to the headline.
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◙ China Life (HKEx: 2628) Plans to Complete $6 Billion Sub-debt Sale in 2012 (English article)
◙ Apple (Nasdaq: APPL) CEO in China Mission to Clear Up Problems (English article)
◙ Geely (HKEx: 175) Targets to Become China’s Largest Exporter of Cars (English article)
◙ Huawei Willing to Reveal Source Code to Enter Australia Network Bidding (Chinese article)
◙ Baidu (Nasdaq: BIDU) Merges YouA into Leho (English article)
◙ Latest calendar for Q4 earnings reports (Earnings calendar)
Baidu (Nasdaq: BIDU) may be China’s undisputed Internet search leader, but new reports circulating about an abrupt collapse of talks over a new video partnership illustrate just how dependent this company is on less-than-ethical business practices like piracy and stealth advertising for its rapid growth. Chinese media are reporting that Baidu has ended discussions that would have brought online video to its service through a new partnership with LeTV (Shenzhen: 300104) after Baidu refused to LeTV’s condition that it eliminate pirated video from its video search site results. (English article) While other major Internet sites seem to be making a real effort to eliminate pirated music, video and other copyrighted material from their sites, Baidu has made some high-profile announcements to try to convince people it is making similar moves, while quietly allowing pirating activity to continue unabated on its sites. The company announced a major new initiative last year to offer legal music over its site in a tie-up with several major record labels, only to add it had no plans to simultaneously close its older popular music sharing site where piracy is so rampant that the major global music labels filed a lawsuit against Baidu several years back. (previous post) This latest development just underscores how addicted Baidu is to piracy, one factor that has helped it to triumph in the domestic search market over global players like Google (Nasdaq: GOOG) and Yahoo (Nasdaq: YHOO), ,which actively police their sites to keep off pirated material. This addiction to piracy is just one of Baidu’s less-than-ethical practices. The other big one is its reported willingness to manipulate search results for anyone willing to pay for such services. That includes not only giving advertisers high placement in search results without telling web surfers that such high placement was paid for, but also reportedly other things like conveniently removing negative news from search results for any individual or company that is willing to pay. So why does Baidu engage in such practices when clearly they go against international standards? The answer is simple: because it can, and because such practices are one of the main drivers for the high growth rates have made Baidu stock a darling of investors. I have no doubt that Baidu will continue to engage in such practices, and a smart, well-funded competitor like Google or Tencent (HKEx: 700) should take advantage of the situation to launch a campaign to inform the public and steal some of Baidu’s traffic. But that looks unlikely to happen anytime soon, meaning Baidu will continue with its current practices for the foreseeable future until someone — be it consumers, a rival or the government — finally steps in and says “enough is enough”.
Bottom line: The break-up of talks for a online video tie-up between Baidu and LeTV underscores Baidu’s dependence on piracy as a major driver of traffic to its site.
Related postings 相关文章:
◙ After Years, Baidu Does the Right Thing 百度多年来的一个正确之举
Note to readers: This article was written and published on Tuesday, March 13, in Hong Kong’s Economic Journal, but I’m just posting it today (Thursday) on my blog as part of my agreement with them.
It’s not often that mergers happen among publicly traded companies in China’s crowded Internet space, so I’m not even sure where to begin in discussing the just-announced deal that will see leading online video site Youku (NYSE: YOKU) buy rival Tudou (Nasdaq: TUDO) to form an undisputed domestic leader in online video. (company announcement) On paper and in theory the deal sounds quite attractive, combining China’s biggest and second biggest video sharing sites in an interesting marriage between Youku’s more corporate style and Tudou, which has a much more entrepreneurial background under the leadership of outspoken founder Gary Wang. But the reality is much less interesting, with this newly merged company still a relatively small entity likely to face numerous challenges going forward. For Tudou shareholders at least, the deal looks quite sweet. After seeing Tudou shares sink steadily to lose about half of their value following the company’s initial public offering last August, investors who had enough patience to hold on will get a rare premium of 38 percent to the company’s original IPO price, and an even juicier 160 percent to its last closing price before the deal was announced. Investors bid Tudou shares up by nearly that amount in Monday trade after the deal was announced, in a jump that should surprise no one. But perhaps more telling, Youku shares also rose 27 percent, a jump partly due to excitement about this new industry leader but also, in my view, because many believe the new company could itself soon become an acquisition target. At the end of the day, the deal itself is relatively tiny, valuing Tudou at just over $1 billion even after the big premium. That, combined with Youku’s own market value of $2.85 billion, means the entire merged company will be worth just under $4 billion — hardly a figure to get anyone too excited, and still trailing most other big Chinese Internet names like Sina (Nasdaq: SINA), NetEase (NTES) and well behind Internet search leaders Baidu (Nasdaq: BIDU) and Tencent (HKEx: 700). Youku now controls about 22 percent of China’s online video market and Tudou another 14 percent, meaning the combined company will still control less than half of this highly fragmented space. Both Youku and Tudou are also currently losing money, though this deal could help them move to profitability more quickly than each might have done as an individual company. Still, both companies’ latest quarterly results are hardly reassuring. Youku saw its loss actually widen 32 percent in the fourth quarter from a year earlier, not the best sign for a company aiming for profitability. Tudou, meantime, also saw its fourth-quarter loss balloon ten-fold from a year ago, after it notched an unexpected profit in the third quarter. The situation doesn’t look set to improve anytime soon, with a looming advertising slowdown for the broader Internet market also likely to hurt video sites in general, since advertisers looking for the most effective channel for their money are likely to skip those sites in favor of more effective platforms like Sina’s popular web portal and Baidu’s sector-leading search page. From the perspective of someone who has watched China’s Internet space for years, I have to say that I like this deal from a historical perspective as it represents one of the largest friendly mergers to date of two companies that strongly complement each other. But from the perspective of an investor, I honestly can’t get too excited about this deal, since both Youku and Tudou are ultimately just little players in China’s huge Internet realm that will quickly find that one small potato plus another small potato still equals a small potato. Furthermore, both companies have a number of factors working against them, including bottom lines moving in the wrong direction, potential integration issues of 2 very different corporate cultures, and a looming slowdown in advertising, their key revenue source. If I were a gambling man, I would bet that this new merged company will face a number of issues in the next year, but could ultimately still reward investors if it gets acquired by an even bigger company in the next 2 years, much the way that Google (Nasdaq: GOOG) purchased Youtube.
Bottom line: The Youku-Tudou merger is notable for setting a precedent, but will ultimately still create a small Internet player most likely to get purchased itself in the next 2 years.
Related postings 相关文章:
◙ Regulator Eyes Online Video in Ad Crackdown 广电总局或限制视频网站广告
◙ Tudou-Sina Tie-Up: More to Come？ 土豆网联手新浪
◙ Tudou Surprises With Profit, Licensing Deal 土豆网意外扭亏为盈视频分享市场的好兆头
