Bottom line: Sohu could privatize and sell itself after its Changyou buyout, while LeEco’s mass layoffs could presage a shuttering of all its newer operations as it reverts to its original online video business.
LeEco slashes jobs
Two relatively large pullbacks are in the headlines as we reach the midpoint of the week, led by the latest privatization bid for online game specialist Changyou (Nasdaq: CYOU) by parent Sohu (Nasdaq: SOHU). That news is coupled with the unrelated by equally large retrenchment by struggling online video company LeEco (Shenzhen: 300104), which is making mass layoffs in its bid for survival.
Each of these stories is interesting because the future existence of a major company is at stake. In the first case, the Changyou privatization could signal a future privatization and sale of the company’s parent, Sohu, one of China’s oldest Internet players. The LeEco story represents the latest twist in the downward spiral for this company, which appears to be rapidly slimming down or closing most of its operations outside its original core online video service. Read Full Post…
Bottom line: The departure of Ofo from 14 cities reflects growing frustration by local officials with bike sharing services, and could be followed by more expulsions until the industry consolidates to a single major player.
The honeymoon seems to be rapidly ending for China’s cash-rich shared bike services, with word that Ofo, one of the oldest players, is withdrawing from 14 cities in its bid to figure out what exactly it’s doing. At the same time, media are reporting that Ofo has also settled a dispute with a customer who was injured when his brakes failed while he was biking downhill in Beijing.
These stories highlight just a couple of the many issues that Ofo and Mobike, the industry’s other leader, will face as they pedal into uncharted territory with their innovative but problematic services. Reflecting the looming consolidation that’s coming, one of my sources tells me that BlueGogo, one of the larger late arrivals to the scene, is currently shopping itself but is apparently finding little or no interest. Read Full Post…
Bottom line: Alibaba’s potential new partnership with China’s rail operator could become a major new business opportunity, and could see the pair sign a strategic equity tie-up within the next year.
Alibaba ties with railway operator
Up until now, I’ve written about China’s mixed-ownership reform program mostly in the context of China Unicom (HKEx: 762; NYSE: CHU), the nation’s second largest wireless carrier, which is in the final stages of drafting a plan to sell some of itself to one or more private companies as part of a strategic alliance. But now the latest headlines on the program are coming from a decidedly low-tech source, with word that China’s railway operator has invited Internet giant Alibaba (NYSE: BABA) to participate in its own mixed-ownership reform plan.
This particular development is interesting because it marks the second time that Alibaba’s name has come up in the context of the mixed-ownership reform plan. The e-commerce giant has also come up in reports as a potential partner for Unicom, as have China’s other two Internet giants, Baidu (Nasdaq: BIDU) and Tencent (HKEx: 700). Read Full Post…
Bottom line: Stellar earnings by Weibo and new funding for services from Toutiao and YY reflect the rapid rise in live broadcasting and short videos, in the latest boom for China’s internet that will end with a bust in around 2 years.
Live streaming sucks up big funds
A trio of stories in the headlines are nicely spotlighting the oh-so-typical Chinese pattern of industries that suddenly become hot, leading people to pump huge amounts of cash into them in a fight for market share. Internet watchers will probably guess that I’m talking about the recent crazes in live broadcasting and short videos , which have thrust three companies, YY (Nasdaq: YY), Toutiao and Weibo (Nasdaq: WB) all into the headlines.
Leading those headlines are the latest results from Weibo, whose profit has risen nearly 7-fold in its quarterly report, igniting a 25 percent rally for its already-inflated stock. The other two headlines have YY and Toutiao pumping big new funds into their live broadcasting and short video services, $70 million and $140 million to be exact, respectively. Read Full Post…
Bottom line: Yum’s purchase of a high-end take-out delivery service looks smart in targeting a higher margin, niche product in the competitive space, while McDonald’s and Starbuck’s rapid growth in mobile payments reflects rapid growth of the technology.
Yum buys take-out specialist Sherpa’s
Three of the world’s top restaurant chain operators are in the China headlines as we head into summer, in different moves that reflect their attempts to tap into the nation’s growing love affair with high-tech dining. The most interesting of the headlines has Yum Brands (NYSE: YUM), parent of the KFC and Pizza Hut chains, buying up one of China’s oldest take-out delivery services, hinting at a potential big push into the ultra competitive space. The other two headlines have McDonald’s (NYSE: MCD) and Starbucks (Nasdaq: SBUX) independently releasing new data that show just how hot electronic payments have become for both companies.
As someone living here in China, I have to admit I have completely embraced the country’s homegrown brand of mobile electronic payments, which has quickly become dominated by Ant Financial’s Alipay and Tencent’s (HKEx: 700) WeChat. But at the same time, I’ll also openly admit I’ve eschewed the home delivery services that are also all the rage in China, though the tide seems to be fading as people rediscover the fun of actually going out to eat. Read Full Post…
Bottom line: A tussle that resulted in injuries to a Tencent worker by a Youku peer at an industry event reflects the big tensions that exist in China’s online video sector due to years of stiff competition that shows no signs of easing.
Wine glass incident reflects tensions in online video
Stiff competition in a wide range of online industries is pretty much par for the course in China, but a scuffle between employees of Tencent (HKEx: 700) and Youkuat an industry event is underscoring just how high tensions can get. This particular case won’t really mean much for either company beyond a few sensational headlines in the next few days, and perhaps some internal emails at both companies. But it does show how tough things are in the online video space, where everyone is looking for the elusive formula for profits.
This particular story looks quite similar to another one that happened in February, in which a video of brawling take-out deliverymen from rivals Meituan and Ele.me went viral. (English article) That particular story had a very blue-collar feel, since most of these deliverymen are migrants from the countryside with relatively low education and who tend to stay at their jobs for relatively short periods. Read Full Post…
Bottom line: Sesame Credit’s new tie-ups with Unicom and a shared phone company are part of a string of deals to aggressively build up its credit rating business, and could add buzz to Ant Financial’s future IPO.
Sesame Credit in 2 new deals
Lest anyone think Alipay is the only asset in financial services giant Ant Financial’s portfolio, the company’s newer Sesame Credit unit is also hankering for headlines these days, with a couple of new deals for its service. The larger of those will see China Unicom (HKEx: 762; NYSE: CHU), the nation’s second largest wireless carrier, waive deposit requirements for some of its users with high credit scores, based on Sesame’s system. The other deal looks similar, and will see a shared phone operator also waive deposits for people with similarly high credit.
This kind of aggressive promotion is quite typical of Jack Ma, founder of e-commerce giant Alibaba (NYSE: BABA) and one of the main people calling the shots at both companies. Ma likes to be ahead of the curve, and is quite aggressive about peddling his vision for emerging sectors like credit ratings. That strategy has served him well in e-commerce and electronic payments, where Alibaba now dominates. Read Full Post…
Bottom line: Baidu’s sale of its mobile game unit represents a broader shedding of non-search assets as it moves into artificial intelligence, though it’s far from clear how AI will provide a future business model.
Baidu continues AI migration
Search giant Baidu (Nasdaq: BIDU) is in yet another headline today that reflects its latest attempt at transformation from its original search business to an artificial intelligence (AI) specialist. This time the development is relatively incremental, with word that Baidu has formally sold off its inconsequential mobile games division for an equally inconsequential sum of 1.2 billion yuan ($174 million).
This particular news comes just days after Baidu founder Robin Li issued a letter to all employees talking about the first official change to his company’s mission statement in its 17 year history. (English article) That move seemed a bit overly dramatic to me, and resembled Li’s similar talk about putting all his energy into mobile search a few years ago. It all seems to be part of Li’s broader personality, that leaves him itching to do something new every 2 or 3 years. Read Full Post…
Bottom line: New anti-corruption moves at JD.com and Meituan-Dianping show the cleanup campaign is moving down to the grass-roots level, in a positive development that should help the companies as many seek to go abroad.
Meituan, JD.com in new anti-corruption snares
Anyone unfamiliar with China might find it peculiar and even worrisome that near simultaneous announcements appear to show problematic internal corruption at two of the nation’s top Internet companies, e-commerce giant JD.com (Nasdaq: JD) and leading group buying site Meituan-Dianping. While the timing does seem somewhat coincidental, this kind of thing is becoming quite common these days, as China’s companies fall in behind the central government’s nearly 4-year-old anti-corruption campaign.
From an observer’s perspective, I have to say this kind of campaign is sorely needed in China’s corporate sector, both for state-run and private companies. The kinds of internal corruption detailed in these latest reports are far too common in companies, where employees regularly use their position to do things like extort money from and cheat customers, and even rip off their own companies. Read Full Post…
Bottom line: Tencent’s soaring market value reflects its leading position as a developer of social networking products, and its concurrent ability to monetize those products.
Tencent opens A1 lab in Seattle
It seems that Internet titan Tencent (HKEx: 700) can do no wrong these days, at least based on a recent run-up in its share price. Just a couple of weeks after China’s Internet wunderkind passed US banking giant Wells Fargo (NYSE: WFC) to become the world’s 10th most valuable company, Tencent has just passed another milestone to become officially become worth more than $300 billion. (English article)
Of course all of this is just movement based on investor belief that the company’s prospects look rosy. In this case I would have to agree, though I might also argue the 10 percent rise in its share price over the last month may look a little too aggressive. At the same time, Tencent has also just announced its opening of an artificial intelligence (AI) lab in Seattle, joining Internet rival Baidu (Nasdaq: BIDU) in the race to see who can delve the fastest into an area that’s become a daily buzz word for Chinese media. Read Full Post…
Bottom line: Sohu founder Charles Zhang should privatize his company in the next year and then sell off the pieces, or risk see his dwindling empire slowly become worthless.
Sohu’s incredible shrinking empire
You know you’re a CEO when you can call results like those just released by Internet company Sohu(Nasdaq: SOHU) “solid”. Of course that’s my sarcastic assessment, after reading the latest quarterly report that absolutely nothing upbeat about it from one of China’s oldest Internet companies. Nearly all of the numbers in Sohu’s latest report were down, with the lone exception of its online search business, whose anemic growth shouldn’t excite anyone.
Also down was Sohu’s stock, which slumped 6.4 percent after the results came out and is rapidly approaching lows not seen for nearly a decade. All that brings us to my assertion that perhaps it’s time for founder Charles Zhang to consider the unthinkable and break up his company and sell of the various pieces while there are still potential buyers. If he waits too much longer, those pieces will continue to diminish in value to the point where nobody wants them. Read Full Post…
