Kaixin, one of China’s top social networking service (SNS) sites, has discovered that Wall Street doesn’t necessarily like money-losing companies and has turned instead to Internet titan Tencent (HKEx: 700) for a cash infusion that looks like a shrewd move as China’s Internet bubble shows signs of correcting. A company spokesman has confirmed receiving the investment, though he wouldn’t elaborate on the size or nature of the tie-up. (English article) From my perspective, this is exactly the kind of investment that all money-losing Chinese web firms should be seeking, rather than rushing to make IPOs that simply tell the world how much money they are losing and forcing them to focus more on becoming profitable rather than building their business. The new tie-up with Tencent comes after another Chinese Internet leader, top web portal Sina (Nasdaq: SINA), has already invested in the company, giving Kaixin two very potent partners to help it build up its SNS business, whose growth founder Cheng Binghao previously said is starting to slow. (previous post) Like many of its Internet peers, Kaixin was previously gearing up to make a New York IPO, even though it was still losing money; but this Tencent investment appears to signal it has shelved those plans for the moment in favor of building up its business and waiting for sustained profitability before going public. Kaixin’s main rival, Renren (NYSE: RENN), was among a group of money-losing China web companies that went public starting late last year when their shares were in big demand from investors keen to buy into the China Internet growth story. Since then, however, sentiment has cooled considerably to all US-listed China firms, partly due to realization that China’s Internet was a bit overhyped. After jumping 30 percent on its trading debut in May, Renren’s shares have moved steadily downward and are now trading 60 percent below their IPO price. By bringing in Tencent as a new investor, Kaixin is not only giving itself more time to become profitable, but once it does go public should also avoid the kind of volatility that Renren has seen.
Bottom line: Kaixin’s new investment from Tencent looks like a good tie-up, and will give it more time to become profitable and avoid an unfriendly IPO market for China Internet stocks.
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◙ Gaopeng, Kaixin Spotlight China Internet Turmoil 高朋网、开心网凸显中国互联网混乱现状
Leading Chinese social networking site Renren (NYSE: RENN) has finally discovered microblogging, with the launch of a new service, called Xiaozhan, designed to emulate Twitter to complement its traditional SNS site that looks and feels more like Facebook. (
It seems that group buying Internet site Gaopeng isn’t the only one laying off staff as China’s Internet bubble shows early signs of bursting. In the latest indication of trouble, Chinese media are reporting that Vancl, the high-flying online clothing seller, is in the process of cutting 5 percent of its workforce as management tries to “right-size” the company in the run-up to a probable fourth-quarter IPO. (
which raised $350 million in a May IPO, isn’t blocked in China, but also that it hasn’t made an especially strong effort to cultivate the China market. Frankly speaking, I think the market for a more professional-type service like Linked In in China is probably relatively small, as most people who use SNS in China tend to be quite young and like to mostly chatter on these sites. But as these same young people grow up and move into white collar jobs, sites like Dajie could easily become a hot ticket in the China Internet market, and I wouldn’t be surprised at all if Linked In takes a serious look at China in the next 2 to 3 years as that happens, assuming that China doesn’t lock it out the way it has with other social networking sites like Facebook and Twitter. (
users with the ability to post longer messages, as well as photos and other multimedia offerings. Does this sound a bit like Facebook? The beta site at qing.weibo.com says the service already has about 700,000 users, though I’ve no doubt that is probably a bit inflated. Still, considering Google’s (Nasdaq: GOOG) early success with its new SNS product, Google Plus, despite being years behind Facebook, I’d say this new Qing product, which smartly draws on Weibo’s huge user base, stands a strong chance of success and could quickly pose a major challenge to industry leaders Renren (NYSE: RENN) and Kaixin, as well as SNS products being developed by established net giants like Tencent (HKEx: 700). From a broader perspective, Qing will undoubtedly be coupled with Weibo into a single SNS business unit at Sina, which is hoping to quickly build up the company for a blockbuster IPO in the next two to three years. It’s still too early to say if Qing will be able to make big headway in the market, but I would say the chances are good that it could quickly catch up with and possibly even overtake Renren or Kaixin in the next couple of years.
