INTERNET: 58.com Finds Work At Neglected Job Site
Bottom line: 58.com’s new purchase of an online job site extends its spree of recent acquisitions and partnerships, which looks like a focused, well-conceived plan that could position it to emerge as a leading Chinese Internet advertising specialist.
The savvy online classifieds site 58.com (NYSE: WUBA) is back in the headlines as we close out the week, with word that it’s signed a deal to purchase online job specialist ChinaHR. If true, the deal would mark the latest in a steady stream of acquisitions for 58.com, which looks well positioned to become a truly diversified leader in online classified advertising services.
Such a focused strategy looks much better than the more diversified M&A being practiced these days by China’s largest Internet companies, which are all venturing far beyond the core businesses that brought them their initial success. Of course it’s much easier for companies like 58.com to keep their focus due to their small size. Compared to names like Tencent (HKEx: 700) and Alibaba (NYSE: BABA), which are each valued at around $200 billion, 58.com still has a relatively small market value of about $7 billion.
There’s not much detail in the reports besides the fact that 58.com, often called the Craigslist of China, has reached a formal deal to buy ChinaHR for undisclosed terms. (English article; Chinese article) It is buying the company from Ireland’s Saongroup, which itself only purchased ChinaHR for $30 million in 2013 from struggling US recruiting site operator Monster Worldwide (Nasdaq: MWW)
Monster sold the site as part of its drive to focus on its core US operations, but the low sale price in 2013 reflected the fact that it was never able to develop ChinaHR into a very major player in China. ChinaHR competes with much bigger names like 51job.com (Nasdaq: JOBS) and Zhaopin (NYSE: ZPIN), which have market values of $2 billion and $800 million, respectively.
I’ll admit I’ve never really followed this sector too closely, mostly because of its narrow focus and limited growth potential. Thus ChinaHR’s purchase by 58.com looks like an exciting move, since this kind of online recruitment site was never really suited to remaining independent. Investors seemed to welcome the news, bidding up 58.com’s shares 2 percent after the rumors first came out. With the latest gains, 58.com’s shares have now more than quadrupled from their IPO price in late 2013. One of the reports indicates formal announcement of a deal could come as early as this week.
This particular deal is relatively small, and looks similar to a string of other acquisitions that 58.com has done this year. The latest of those saw it acquire 43.2 percent of leading rival Ganji for $1.6 billion in cash and stock. (previous post) Before that, 58.com purchased a small websites that specialized in home decoration and real estate, both in March. (previous post)
The company also has a major backer in social networking (SNS) giant Tencent, which purchased 20 percent of 58.com a year ago for $736 million. (previous post) We haven’t heard much about that particular tie-up since the original announcement, but I expect that 58.com will get preferred access to Tencent’s popular QQ and WeChat, as part of Tencent’s efforts to monetize those popular SNS platforms.
I haven’t followed 58.com too much before this year, but this flurry of activity and the meteoric rise in its stock seem to indicate that this could be a company to watch. Its revenues are still growing quite strongly, jumping 70-80 percent last year, though its profit growth looks less attractive due to heavy spending on product development and acquisitions. The stock does look a bit overpriced right now, but could still be attractive over the longer term if some of its spending starts to yield results with stronger profit growth.
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