Kaxin Buys Time With Tencent Tie-Up 开心网与腾讯合作堪称一箭双雕

By newsdoug on October 19, 2011

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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