Bottom line: The recent sell-off for US-listed Chinese Internet stocks represents some panic selling but also a more realistic view of these companies by western investors, and could presage a modest rebound for their shares.
New investor realism towards China Internet stocks
After all the turmoil on China’s stock markets over the last 2 weeks, I thought it was finally time to take a closer look at what’s happened to shares of US-listed Chinese Internet companies and give my view on what’s happened and what might happen next. I was quite surprised when the selling frenzy in China over the last 2 weeks spread to US-listed Chinese shares, since names like Baidu (Nasdaq: BIDU) and Alibaba (NYSE: BABA) seemed like they were being punished even though they never benefited from the massive price gains seen by many of their Chinese peers over the last year.
But after moving in tandem with China’s stocks over the last 2 weeks, US-listed Chinese shares finally broke the cycle and posted strong gains on Tuesday, even as the main Shanghai index slid another 7.6 percent. Some will say that US investors were acting in response to a surprise interest rate cut by China’s central bank after Chinese markets closed on Tuesday, and that may be partly true. But I also believe that their selling over the last 2 weeks reflects a new realism by US investors about China’s growth prospects, and that investors have also woken up to the biggest truth that governs China’s stock markets. Read Full Post…
Bottom line: Premier Chinese Internet names should eschew China’s stock markets and continue to make IPOs in New York, where they can gain more accurate valuations and greater access to global capital markets.
NY offers best value for China Internet listings
Shares of e-commerce giant Alibaba (NYSE: BABA) achieved a dubious milestone late last week, when they officially closed at their lowest price since the company’s record-breaking IPO nearly a year ago. The big rise and subsequent fall of Alibaba’s stock was part of a broader sell-off of US-listed Chinese shares, sparked by an equally large drop on China’s domestic stock markets.
The US sell-off once again cast a spotlight on the question of whether some of China’s most promising private companies should pursue such offshore listings or make IPOs at home where their names are more familiar. Despite occasional volatility like last week’s sell-off, such offshore listings remain the best choice because they provide companies with relative stability and far more accurate valuations than what their peers are getting in China’s immature markets. Read Full Post…
Bottom line: A steady series of leaked photos of a smartphone co-produced by Google and Huawei is designed to give face to Beijing, and could pave the way for a China entry for Google’s Nexus phones and app store by year end.
China wins face in Google-Huawei tie-up
Barely a day has gone by recently without a leaked photo appearing on the Internet of a new smartphone being developed in a landmark tie-up between Chinese up-and-comer Huaweiand Google’s (Nasdaq: GOOG) Nexus brand. A cynic like me would speculate that the growing volume of noise looks rather deliberate, and that both sides are intentionally trying to drum up buzz for a new Nexus model that will become the brand’s first to be made by a Chinese manufacturer.
Huawei
Huawei’s motivations for leaking the information are obvious: this particular tie-up will bring it the validation it craves for its young smartphone business, giving its products the stamp of approval from one of the world’s leading technology names. But Google’s motivations are a bit more subtle. Certainly it’s natural to hype up this kind of new product before the launch. But in this case Google is almost certainly aware of the “face” that China will receive from such a move. That could help to soothe its tense relations with Beijing as it eyes a return to a market it can’t afford to ignore. Read Full Post…
Bottom line: Airbnb should have a strong chance for success in China, thanks to its good choice of local partners, strong experience in its field and relatively little competition from homegrown rivals.
Airbnb hangs out China shingle
Not too many foreign Internet companies are coming into China these days, mostly due to the poor track record for previous big names. But that lackluster record of isn’t deterring online travel site Airbnb, which has been quite high-profile with a formal announcement of its entry to China.
The road into China is littered with cases of failure, with big names like Google (Nasdaq: GOOG), eBay (Nasdaq: EBAY), Yahoo (Nasdaq: YHOO) and Groupon (Nasdaq: GRPN) all entering the market at various times, only to withdraw later. In most cases companies failed to anticipate stiff competition, which was ready to use many tactics the big international names considered unacceptable. Failure to adapt to local tastes was also a factor, as many of these big names tried to use identical business models for China that they did in the west. Read Full Post…
Bottom line: Baofeng Technology’s meteoric rise and current crash reflect the irrational trading mentality in China’s stock markets, where price manipulation is rampant and shares are still likely to face an additional correction of up to 30 percent.
Aggressive buying, selling power Baofeng stock
I wrote about online video player maker Baofeng Technology (Shenzhen: 300431) in June when it was breaking numerous records during China’s stock market boom, so now it’s only fair that I follow up with what’s happened since the market began to correct last month. Not surprisingly, Baofeng’s stock has been leading the correction, having fallen by the daily 10 percent limit in the last 5 sessions.
Analysts are crediting a weak earnings report released last week for the sell-off of Baofeng stock, after the company said its profits tumbled 70 percent in the second quarter. But it’s probably more accurate to blame the ridiculous valuation for Baofeng shares, which even after the 50 percent drop over the last week are still trading at a meteoric price-to-earnings (PE) ratio of 250. Read Full Post…
Bottom line: Macy’s slow move into China reflect the company’s extremely conservative approach to overseas expansion, and is more designed as a PR exercise to deflect attention from its flagging performance at home.
Macy’s
Macy’s forms China joint venture
US retail giant Macy’s (NYSE: M) is looking to China as tonic for its sputtering sales at home, with the company trumpeting a major new e-commerce venture in partnership with 2 major local players. I had a slight sense of deja vu when I saw this latest series of announcements, since I could have sworn I’d seen Macy’s name appear in some China-related headlines before.
A quick check revealed the company did make a timid move into China e-commerce back in 2012, when it invested $15 million in a company called VIPStore, which was set to offer some of Macy’s private label products in its Omei.com site. (previous post) Reports a year later said Macy’s was once again looking to go into China, saying it was eying an online presence rather than build traditional brick-and-mortar stores. (previous post) Read Full Post…
Bottom line: Qihoo could drop its privatization plan and launch a buyout offer for Coolpad, in a bid to protect its joint venture with Coolpad and stop a rival offer for the company from LeTV.
Bidding war shaping up for Coolpad?
A new media report is detailing an intriguing behind-the-scenes clash taking place between security software specialist Qihoo 360 (NYSE: QIHU) and online video company LeTV (Shenzhen: 300104), with big stakes involved for both sides. If the report is true, Qihoo is quickly finding itself in a difficult position that could end with collapses for its recent privatization bid or its joint venture partnership formed late last year with smartphone maker Coolpad (HKEx: 2369).
The clash is pitting 2 of China’s highest-profile Internet executives against each other, with Qihoo’s outspoken CEO Zhou Hongyi coming under a surprise attack from younger rival LeTV CEO Jia Yueting. In this case it appears Zhou may soon have to choose between going forward with his plans to privatize Qihoo, or abandon that plan and instead mount a counter-offensive to prevent LeTV from making a bid to take control of Coolpad. Read Full Post…
Bottom line: Alibaba’s stock could be set for a modest rebound in the remainder of the year after a round of heavy institutional selling, while Baidu’s shares could see more downward pressure on concerns about its stagnating profits.
Alibaba shares set for rebound
Big news at the end of last week saw billionaire investor George Soros declare that he recently sold most of his shares in China’s 2 leading US-listed Internet companies, Alibaba (NYSE: BABA) and Baidu (Nasdaq: BIDU), as he decided to lock in profits on concerns the stocks were overvalued. His actual holdings in both stocks weren’t that big, but his huge influence almost certainly prompted other big fund managers to follow suit. That could explain the big downward pressure both stocks felt during the second quarter.
Of course small investors like myself and anyone reading this post are usually the last to find out about this kind of trading by influential buyers, meaning it’s already already too late to trade on this news. But the more interesting prospect is whether or not shares of one or either companies have reached a bottom and could be set for a rebound. Read Full Post…
Bottom line: SMG’s Whaley Tech division has become the focus of its drive into the new media realm, following Li Ruigang’s departure from his post as group chairman to focus on the unit’s development.
SMG chief tries hand at smart TV
I don’t generally hold out much hope for traditional Chinese broadcasters for making the transition to new media, since most are bureaucratic, state-run outfits staffed by an older generation that doesn’t really understand the emerging industry landscape. But 2 companies that have the potential make the transition are Shanghai Media Group (SMG) and Hunan Satellite TV, which are both making big drives into digital products delivered in on-demand formats over the Internet.
Of the pair, my favorite is Hunan Satellite, since the company has a strong track record of innovation that has helped it to build a national audience despite its location in the relatively backward interior Hunan province. But SMG’s longtime chief Li Ruigang is also trying to show he can take his company into the new media era, with word that he’s formally quit as chairman of his group to focus on development of its new media businesses. Read Full Post…
Bottom line: Lack of buzz around Xiaomi’s launch of production in India and Lenovo’s new line of ZUK smartphones reflect fatigue that is rapidly consuming domestic Chinese brands due to rampant competition in their home market.
More fatigue signs in China smartphone market
Signs of fatigue continue to grow in China’s overheated smartphone market, where rampant competition and unending price wars these last 2 years have led to saturation and a rapid slowdown. That fatigue is visible in 2 of the latest headlines, one of which has former superstar Xiaomi failing to garner much buzz as it launches production in India to jump-start its stalling growth. The other has the struggling Lenovo (HKEx; 992) launching its own new brand of smartphones, as it also faces lackluster performance for its current lineup sold under its own name and the Motorola brand it acquired last year.
China’s smartphone market is the world’s largest, but also the most competitive due to the presence of many homegrown domestic players. That reality has forced many mid-sized and smaller names to seek tie-ups with wealthier partners, and forced everyone to look abroad for growth as profits shriveled at home. Adding to the woes, China’s smartphone market has been contracting this year, with sales falling 4.3 percent in the first quarter after several years of explosive growth. Read Full Post…
Bottom line: Alibaba and Tencent are starting to look similar in terms of size and tapering growth, and are unlikely to excite investors again until they can reignite growth to above the 30 percent level.
Growth sluggish at Alibaba, Tencent
Near simultaneous releases of the latest earnings reports from Tencent (HKEx: 700) and Alibaba (NYSE: BABA) are providing a good opportunity to compare China’s 2 largest Internet companies, and also how they’re doing at the moment and what their prospects look like. The pair are surprisingly similar in terms of size, but their characters and core strengths and quite different, reflecting the personalities of their founders.
Tencent’s focus on games and social networking reflects the wonky, somewhat nerdy nature of its founder Pony Ma, who feels far more comfortable networking with other geeky people and communicating online than speaking at big investor forums. Alibaba founder Jack Ma is much more of a salesman, which explains why his company has emerged as China’s leading e-commerce company. Read Full Post…
