Bottom line: A new landscape in China’s O2O restaurant services market is taking shape around the “big 3” firms of Alibaba, Baidu and Tencent, with a Tencent-backed Meituan-Dianping the most likely to succeed.
Alibaba eyes Ele.me stake
We’re seeing more signs of a major shuffle in the China market for online-to-offline (O2O) dining services, with e-commerce leader Alibaba(NYSE: BABA) at the center of 2 major new developments in the space. One would see Alibaba invest $1.5 billion for about a third of Ele.me, the leader in O2O takeout dining services. The other has media reporting that Alibaba is looking to sell its 7 percent stake in Meituan-Dianping, China’s recently formed leading group buying site that operates a rival takeout dining service.
The big driver behind both of these stories is a major consolidation taking place in the O2O marketplace, where money-losing companies are suddenly scrambling to find wealthy backers after being cut off by their more traditional funding sources. Many of those companies have found a receptive audience from China’s cash-rich “big 3” Internet titans of Alibaba, Tencent(HKEx: 700) and Baidu (Nasdaq: BIDU). Read Full Post…
Bottom line: Ctrip’s recent series of equity tie-ups, including a new rumored deal with Tuniu, could prompt the anti-monopoly regulator to take action to preserve competition in China’s online travel market.
Ctrip eyes new travel tie-up with Tuniu
A strong earnings report from online travel titan Ctrip (Nasdaq: CTRP) and word of a potential new business alliance with a major rival has ignited the company’s shares, which soared 14 percent after it released its latest financials. Ctrip has become a master at the strategic tie-up, buying stakes in most of its rivals over the last 2 years without actually acquiring any of them.
That strategy seems designed to make sure its rivals act more friendly and aren’t competitors, which will help support its profits by reducing the constant price wars that have plagued the industry for much of the last 2 years. The only problem is that such actions have distinctively anti-competitive overtones, and could well draw the attention of China’s anti-monopoly regulator. Read Full Post…
Bottom line: Tencent’s recent cash-raising frenzy probably signals a major equity investment coming in the next few months, with a merged Meituan-Dianping or Activision as the most likely targets.
Tencent raises more cash via syndicated loan
Tencent(HKEx: 700) may be the lowest-key of China’s big 3 Internet companies, but the company has been far louder on the money- raising scene by borrowing billions of dollars in cash lately. The social networking (SNS) giant has raised billions through a series of bond issues over the last year, and now looks set to raise another $1.5 billion through a syndicated loan that it’s reportedly negotiating with several major western lenders.
All this raises the question of what exactly Tencent is targeting with all the new cash. The company has been the least acquisitive of China’s big 3 Internet companies, which include itself, Alibaba(NYSE: BABA) and Baidu(Nasdaq: BIDU), amid a major consolidation in China’s Internet over the last 2 years. Read Full Post…
Bottom line: Tencent’s latest plan to invest $1 billion in Meituan-Dianping looks like an awkward bid for control of the newly merged company, which could attract a rival bid from Alibaba.
Tencent as awkward suitor
Social networking giant Tencent(HKEx: 700) has never been very good at public relations, unlike slicker Internet rivals Alibaba(NYSE: BABA) and Baidu (Nasdaq: BIDU), whose founders are much better at wooing the media and investors. That refrain is ringing true once again with the latest mega-investment headlines, which appear to show Tencent making an awkward bid for the newly formed group buying giant created by the merger between former rivals Dianping and Meituan.
In fact, Tencent isn’t really bidding for the new company outright, but appears to be voicing its future intent by offering the merged company $1 billion in new funding. Such a funding would boost Tencent’s current equity in the merged company, in which it already holds a stake following its purchase of 20 percent of Dianping last year for $400 million. Such a bid would seem like a direct challenge to Alibaba, which also holds a relatively large stake in the newly merged company through its participation in a $300 million funding round for Meituan last year. Read Full Post…
Bottom line: SouFun should be commended for its proactive and open approach to a recent crackdown on internal corruption, which could provide some potential upside to its shares after negative publicity subsides.
SouFun clamps down on corruption
Real estate services provider SouFun (NYSE: SFUN) has become the latest Chinese Internet firm to join a national anti-corruption campaign, with its issue of a slightly cryptic statement that looks related to a scandal that rocked the company earlier this month. That scandal saw media report that SouFun had fired a number of salespeople over vague allegations of inflating their business. (previous post)
More than 2 weeks after those reports broke, SouFun has just issued a statement outlining a recent internal probe that netted an unspecified number of employees who were engaged in corrupt practices. I have to commend SouFun for taking the action and also being relatively open about what it’s doing, even though this particular statement isn’t extremely clear and was almost certainly prompted by the earlier reports. Read Full Post…
The following press releases and media reports about Chinese companies were carried on October 28. To view a full article or story, click on the link next to the headline.
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Alibaba (NYSE: BABA) Announces September Quarter 2015 Results (Businesswire)
3 Chinese Suitors Show Interest in Starwood Hotels (NYSE: HOT): Source (English article)
Apple (Nasdaq: AAPL) Beats Wall Street, Investors Wary of China Sales
Bottom line: LeTV’s latest hired car services investment and high-profile poaching of top talent from a rival look similar to the recent rapid rise and sputtering of Xiaomi, and the company could follow a similar trajectory by this time next year.
LeTV steals top talent from Youku Tudou
After watching the meteoric rise of online video sensation LeTV (Shenzhen: 300104) over the past year, I’m quickly tiring of this company and its hyperactive diversification strategy. The latest move in that drive is taking LeTV onto the road, with word the company is investing a hefty $700 million for a controlling stake of struggling private car services firm Yidao Yongche.
At the same time, other media are reporting that LeTV has just stolen a top executive from chief rival Youku Tudou (NYSE: YOKU), which announced last week it has received a buyout offer from e-commerce giant Alibaba (NYSE: BABA). Anyone feeling a sense of deja vu from these latest 2 LeTV headlines, and from LeTV’s meteoric rise in general, would be correct. Read Full Post…
Bottom line: Beijing needs to accelerate reform of traditional media in the face of rising challenges from players like Alibaba and Baidu, or risk seeing many of these state-run companies fall into irrelevance.
Alibaba challenges traditional media to speed up reform
A wave of mega-mergers sweeping through China’s Internet over the last 2 years saw its biggest deal to date announced late last week, when e-commerce leader Alibaba (NYSE: BABA) offered $4.6 billion for the more than 80 percent of leading online video site Youku Tudou (NYSE: YOKU) it doesn’t already own. The move marked the latest challenge to China’s traditional media industry, which has been monopolized for years by state-run broadcasters and printed publications.
If this latest mega-deal gets completed, a new Youku Tudou with access to Alibaba’s cash and other vast resources will almost certainly accelerate its challenge to traditional media by aggressively rolling out compelling new on-demand products and premium content. Read Full Post…
Bottom line: Jiuxian’s decision to list in China and Dangdang’s continued effort to de-list from New York show that low-quality Chinese firms will have difficulty getting attention from US investors and are probably better listing in their home market.
Jiuxian wine cellar to list on China’s OTC
Two news items continue to show a growing distaste for New York by Chinese web firms, led by word that veteran online wine seller Jiuxian has just received approval for an IPO on China’s over-the-counter (OTC) board. The second items comes from veteran e-commerce site Dangdang (NYSE: DANG), whose outspoken CEO is quoted complaining about his company’s low valuation and saying his plans are moving forward to de-list from New York and re-list in China.
The most commonly heard theme to these stories is that Chinese firms can get better valuations in their home market than New York, because their names are more recognized in China. But another theme that gets far less attention is that many of these complaining companies are simply low-quality products whose only real attraction is their “made in China” label. Read Full Post…
Bottom line: New global initiatives by Alibaba and JD.com are largely cosmetic and could bring some short-term support to their stocks, but both will need to show results to satisfy investors over the longer term.
Alibaba, JD in outbound migration
China’s 2 leading e-commerce firms are in a sudden migratory mood, with Alibaba(NYSE: BABA) and JD.com (Nasdaq: JD) both announcing the opening of new offices in the US and Europe. At the same time, Alibaba has also declared that the headquarters for its annual November 11 Singles’ Day shopping extravaganza will migrate, leaving its original location in the company’s hometown of Hangzhou to set up a new shop in Beijing.
The sudden migratory story looks squarely aimed at investors, who want to see these domestic e-commerce giants laying the groundwork for future growth beyond their home China market. But while opening new offices may look nice on the surface, the US and European markets that both companies are targeting will be extremely tough due to competition from entrenched local players and global giant Amazon (Nasdaq: AMZN). Read Full Post…
Bottom line: A major US trade group’s new call for censure of Alibaba over piracy will bring more negative publicity, though the company’s name is unlikely to reappear on the next edition of Washington’s “notorious markets” list for trade in counterfeit goods.
Group says Taobao still plagued by fakes
A major US trade group that launched an assault on Alibaba (NYSE: BABA) earlier this year is ratcheting up the volume of its attack, calling for direct censure of the Chinese e-commerce giant for not doing enough to fight piracy. The American Apparel & Footwear Association (AAFA) was quite scathing in its earlier criticism of Alibaba back in July, blasting the company for its flawed approach and lack of transparency in tackling piracy on its Taobao C2C marketplace.
At the time of that critique the AAFA said it was sending a letter detailing its concerns to the US Trade Representative’s office, which compiles an annual list of “notorious markets” where piracy is rampant. Now the AAFA, which represents more than 1,000 American clothing and shoe makers, is being even more direct by specifically calling for Alibaba to be included on the next edition of the “notorious” list that is likely to be published in the next 2-3 months. (AAFA announcement; English article) Read Full Post…
