This week’s Street View gets us into the festive holiday mood with a look at food, including the latest take-out dining craze sweeping our city and a much smaller but still significant development in the main campus cafeteria at the university where I teach.
The bigger trend has seen a sudden explosion of take-out dining services in our city, resulting in a new flood of bicycles and other deliver vehicles zipping through the streets of Shanghai. The smaller item saw the main dining hall at Fudan University officially launch a western-style restaurant over the past week, bringing tasty but greasy items like pizza, pasta, steaks and upscale coffee to some of our city’s best and brightest young minds.
One of my favorite things about writing this column is getting to chronicle the many booms and subsequent busts that continually sweep through a major city like Shanghai. I’ve previously written about local explosions in convenience stores, beauty salons, coffee shops and most recently asset management companies, as entrepreneurs and big chains flocked to these latest business trends. Read Full Post…
Bottom line: 58.com’s buying binge and LightInTheBox’s cost-cutting drive are both risky strategies that could boost profits if they succeed, but also stand a sizable chance of backfiring if they become too excessive.
Buying binge pushed 58.com into the red
When the history books are written, “turbulence” and “volatility” are 2 words likely to get liberal usage when describing the second half of 2015 for Chinese companies. Two mid-sized Internet names are in the headlines this week as they face their own separate headwinds, pressuring the profits and stocks of leading online classified site 58.com (NYSE: WUBA) and struggling e-commerce company LightInTheBox (NYSE: LITB).
The first story quotes 58.com’s CEO saying he’s engaged in a buying spree this year that could result in $200 million in losses for his company. The news around LightInTheBox stems from reports saying the company has embarked on a major cost-cutting campaign that has seen numerous employees leave and also suppliers express dissatisfaction over slow bill payments. Read Full Post…
Bottom line:Alibaba’s stock is likely to face downward pressure through the end of the year, but could see a modest rally of up to 20 percent in 2016 as speculators pile out and founder Jack Ma enters a period of relative silence.
Jack Ma heading for hibernation after bearish year?
Many are taking advantage of the one-year anniversary of Alibaba’s (NYSE: BABA) record-breaking IPO to reflect on the past 12 months and what the future might hold for the company, especially for its stock that has gone on a roller coaster ride in that period. Many are quite subdued and even bearish on the stock, citing bad investments and a slowing Chinese economy. But I would actually take a contrarian view and say the shares could be poised for a modest rebound next year after China’s stock markets settle from their current turbulence.
My theory is rather simple. Alibaba’s stock became the plaything of speculators in the first year of trading after its $25 billion New York IPO last September became the biggest offering of all time. First it was the bulls who piled in, buying into the hype that Alibaba happily dished out about the explosive growth potential of China’s e-commerce market. More lately the bears have moved in, seizing on slowing growth, questionable investments and a piracy scandal to make some short-selling profits on the overvalued stock. Read Full Post…
Bottom line: Contention around Meituan’s new mega-funding and Ele.me’s urgent desire to sell itself reflect overheated competition in the O2O restaurant services market, which could result in a major shake-up over the next 12 months.
Meituan denies rumors of funding collapse
Just a couple of days after reports emerged about the latest fund-raising by leading group buying site Meituan, the newest reports are painting a more chaotic scene in the sector for online-to-offline (O2O) services involving collaboration between web sites and restaurants. Meituan is once again in the news, though this time it’s denying rumors that its latest fund-raising has collapsed. Meantime, take-out dining delivery specialist Ele.me is also reportedly in frantic need of cash due to stiff competition gobbling up the industry.
This pair of stories reflects a cycle that’s all too common for emerging industries in China. That cycle typically sees one or two companies find success in a new business area, sparking a gold-rush that sees many others rush into the space. The result is always a surge in overcapacity, which is almost always followed by a shake-out that sees most companies close or withdraw from the business. Read Full Post…
Bottom line: Intensifying competition in dining-related O2O services is pressuring Meituan to raise more funds, and the company should seriously consider a strategic alliance with Alibaba.
O2O dining wars dog Meituan
Online-to-offline (O2O) services have become the flavor of the day on China’s Internet, and take-out dining has emerged at the epicenter of a stampede by all 3 of China’s leading Internet companies to develop the market. Over the last 2 years, leading search company Baidu (Nasdaq: BIDU), e-commerce leader Alibaba (NYSE: BABA) and social networking giant Tencent (HKEx: 700) have all launched major initiatives in the space, collectively pouring hundreds of millions of dollars into the area.
Against that backdrop, the independent Meituan is emerging as an orphan in the space, since it’s the only player without a major backer despite its status as China’s top group buying site. That could explain the latest reports that say Meituan has returned to financial markets and is in the process of raising up to $2 billion in new funds, less than a year after it raised $700 million in another massive cash-raising exercise. Read Full Post…
Bottom line: JD.com’s new share repurchase program looks like a good use of cash due to likelihood of a rebound for its stock, while its tie-up with a top Korean peer also looks like a good way to target Chinese consumers who like imported goods.
JD launches share buy-back
After amassing huge quantities of cash through a series of IPOs and other fund-raising activities, Chinese Internet companies are rapidly discovering a new use for those idle funds by buying back their own stock. The latest such move has JD.com (Nasdaq: JD), the nation’s second largest e-commerce company, announcing a new plan to buy back up to $1 billion worth of its shares, on the belief they have become undervalued in a recent sell-off.
JD was also in the headlines for another new tie-up with a major Korean retailer, announcing the opening of a flagship store to offer imported goods from South Korean e-commerce giant Lotte.com. This particular move is part of an ongoing drive by Chinese e-commerce firms to offer more imported goods to local consumers who are often wary of domestic products that are fakes and suffer from poor quality. Rival Alibaba (NYSE: BABA) has embarked on a similar drive, announcing its own new tie-up with Germany’s Metro Group the same day as the JD announcement. (company announcement) Read Full Post…
Bottom line: A plan by Alibaba’s chairman and vice chairman to borrow $2 billion using their company stock as collateral is a simple diversification move, and doesn’t represent any change in the company’s fundamentals or outlook.
Alibaba chairman, vice chairman eye $2 bln loan
Shares of e-commerce leader Alibaba (NYSE: BABA) have been buzzing these last few days since media reported that Chairman Jack Ma and one of the company’s other co-founders are preparing to diversify their company holdings that are worth billions of dollars. Neither Ma nor Vice Chairman Joe Tsai is planning an actual share sale, which would almost certainly undermine the company’s shaky stock. Instead, the pair are in talks to take out a $2 billion loan using their huge stash of Alibaba shares as collateral.
Alibaba’s shareholders didn’t seem to like the plan too much, and made their voices heard by trimming nearly 4 percent from the company’s share price after reports of the move surfaced late last week. The latest close means Alibaba stock now trades at a record low of $63.91, or about 6 percent below the $68 price for its record-breaking $25 billion IPO that will celebrate its one-year anniversary later this month. Read Full Post…
Bottom line: Alibaba’s new tie-up with a leading US wine maker is mostly symbolic and represents a boom in the e-commerce market for imported goods, while NetEase’s new share buyback plan is unlikely to provide much support for its sagging stock.
Robert Mondavi launches on Tmall
Leading Chinese Internet companies Alibaba (NYSE: BABA) and NetEase (Nasdaq: NTES) are trying different approaches to boost their sagging stocks, amid a broader sell-off for US-listed Chinese companies in tandem with China’s own tanking markets. The first case has e-commerce leader Alibaba launching a new online wine shop with US giant Robert Mondavi, as part of a broader move to let Chinese consumers buy imported goods online. The move by online game giant NetEase looks a bit more conventional, with its announcement of a plan to buy back up to $500 million of its stock.
Alibaba and NetEase certainly aren’t alone in watching their shares tumble, amid a broader sell-off for US-listed Chinese stocks over the last 2 months. Alibaba shares have lost nearly half of their value from their all-time high reached last November, and now trade about 5 percent below their IPO price from a year ago. NetEase shares have lost a quarter of their value since early August, in a plunge coinciding with China’s own tumbling stock markets. Read Full Post…
Bottom line: New O2O take-out dining investments involving companies backed by Tencent and Alibaba reflects intensifying competition in the space, and is likely to result in a costly price war for market share.
Alibaba, Tencent in new take-out dining investments
The take-out dining space continues to heat up, with word of a major new funding for Ele.me, the service backed by social networking giant Tencent (HKEx: 700), and a big new investment for Koubei, the service owned by e-commerce leader Alibaba (NYSE: BABA). Both investments reflect a recent rush into online-to-offline (O2O) services by all 3 of China’s top Internet companies, as each tries to forge a hybridized mix of services that are likely to make up the retailing landscape of the future.
The larger of the 2 deals has Ele.me raising as much as $630 million in new funding, in a deal that brings in existing investors Tencent, along with its main e-commerce partner JD.com (Nasdaq: JD) and several other major private equity firms. The second has Koubei, Alibaba’s recently resurrected take-out dining site, investing a more modest 300 million yuan ($50 million) in a rival that operates the service called SHBJ.com. Read Full Post…
Bottom line: The recent sell-off for US-listed Chinese Internet stocks represents some panic selling but also a more realistic view of these companies by western investors, and could presage a modest rebound for their shares.
New investor realism towards China Internet stocks
After all the turmoil on China’s stock markets over the last 2 weeks, I thought it was finally time to take a closer look at what’s happened to shares of US-listed Chinese Internet companies and give my view on what’s happened and what might happen next. I was quite surprised when the selling frenzy in China over the last 2 weeks spread to US-listed Chinese shares, since names like Baidu (Nasdaq: BIDU) and Alibaba (NYSE: BABA) seemed like they were being punished even though they never benefited from the massive price gains seen by many of their Chinese peers over the last year.
But after moving in tandem with China’s stocks over the last 2 weeks, US-listed Chinese shares finally broke the cycle and posted strong gains on Tuesday, even as the main Shanghai index slid another 7.6 percent. Some will say that US investors were acting in response to a surprise interest rate cut by China’s central bank after Chinese markets closed on Tuesday, and that may be partly true. But I also believe that their selling over the last 2 weeks reflects a new realism by US investors about China’s growth prospects, and that investors have also woken up to the biggest truth that governs China’s stock markets. Read Full Post…
Bottom line: Premier Chinese Internet names should eschew China’s stock markets and continue to make IPOs in New York, where they can gain more accurate valuations and greater access to global capital markets.
NY offers best value for China Internet listings
Shares of e-commerce giant Alibaba (NYSE: BABA) achieved a dubious milestone late last week, when they officially closed at their lowest price since the company’s record-breaking IPO nearly a year ago. The big rise and subsequent fall of Alibaba’s stock was part of a broader sell-off of US-listed Chinese shares, sparked by an equally large drop on China’s domestic stock markets.
The US sell-off once again cast a spotlight on the question of whether some of China’s most promising private companies should pursue such offshore listings or make IPOs at home where their names are more familiar. Despite occasional volatility like last week’s sell-off, such offshore listings remain the best choice because they provide companies with relative stability and far more accurate valuations than what their peers are getting in China’s immature markets. Read Full Post…
