New Stumbles from BYD, Sina, Qunar 比亚迪、新浪及去哪儿遭遇新问题

By newsdoug on June 28, 2012

Qunar hits speed bump Chinese companies are feeling the summertime heat of a slowing home economy, with new reports emerging from an array of sectors reflecting turbulence at troubled car maker BYD (HKEx: 1211; Shenzhen: 002594), and also at a year-old struggling luxury goods channel operated by leading web portal Sina (Nasdaq: SINA). Neither of these reports is too surprising for reasons I’ll soon explain; but perhaps a bit most worrisome are other reports saying up-and-coming online travel services site operator Qunar has also laid off some employees, in a sign that China’s economic slowdown is starting to affect even healthier companies.

Let’s look at the BYD and Sina reports first, starting with word that BYD, the car maker backed by billionaire investor Warren Buffett, has sharply cut its employees’ third-quarter performance bonuses, resulting in an average salary cut of around 14 percent. (Chinese article) The cuts have produced relatively modest savings for the company of about 240 million yuan, or less than $40 million.

This latest cut comes after BYD reportedly laid off large numbers of employees in the last year as its car sales plummeted and the company’s profits evaporated. BYD has shown some early signs of recovery with strong sales for a new SUV model; but high gas prices and a slowing economy could easily dampen demand and put the company back on a downward track, requiring even more salary cuts and new layoffs in the months ahead.

Meantime, media are also reporting that Sina has decided to shutter its luxury goods channel at the end of this month after less than a year of operation. (Chinese article) Again, this move shouldn’t come as a huge surprise since Sina hasn’t had much success with e-commerce, as reflected by a huge write-off it took last year for a big investment it made in struggling online retailer Mecox Lane (Nasdaq: MCOX).

Other online luxury goods sellers have also had a difficult time lately, perhaps reflecting the fact that the people who buy such goods prefer to buy them in real-world stores rather than online. If I were advising Sina, I would tell it to forget about e-commerce and instead focus on its popular Weibo microblogging service and other social networking services where it has found more success.

Lastly there’s Qunar, which has laid off some of its staff, according to media reports. (Chinese article) I’ll admit these reports surprised me somewhat, as I’d previously said this company, which received a large investment from online search leader Baidu (Nasdaq: BIDU) last year, looked like a hot company to watch and could pose some serious competition for established rivals Ctrip (Nasdaq: CTRP) and eLong (Nasdaq: LONG). (previous post)

Depending on which reports you read, Qunar is either denying it is laying off anyone or saying the figures are small, around 2 percent of its workforce, and is also hyping the rapid growth in its group buying business. But any kind of cuts at this kind of high-growth company should be a worrisome sign, since they mean that Qunar isn’t growing as quickly as its executives previously expected and may be experiencing other unforseen problems.

The company may have been overly ambitious in its previous growth forecasts, resulting in the need for this kind of adjustment. But I also suspect that Qunar, along with BYD and Sina, is becoming a victim of China’s rapid economic slowdown, and many other healthy companies could also start to feel some pressure in the months ahead.

Bottom line: The latest signs of trouble at BYD, Sina and Qunar are due not only to company-specific issues, but also to China’s economic slowdown, which is starting to affect even healthy companies.

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