Bottom line: Stiff restrictions on private investment in Chinese financial services will hobble a new insurance tie-up for Ant Financial, and were likely a big factor behind the resignation of the head of Tencent’s young WeBank.
WeBank chief resigns
China’s 2 largest Internet companies are in the headlines for major new moves in financial service, reflecting the rapidly evolving picture for this newer part of their business. Alibaba (NYSE: BABA) was in the headlines for more positive developments, as its affiliated Ant Financial unit announced a new insurance tie-up with Cathay Financial (Taipei: 2882), one of Taiwan’s leading financial services companies. The news was less upbeat for Tencent (HKEx: 700), with word that the head of its young WeBank was leaving just 9 months after the bank’s launch.
Both of these stories reflect the huge potential financial services hold for big private companies like Alibaba and Tencent, as Beijing opens the sector to private investment. But at the same time, the newness of the opening means that many rules are unclear and sometimes even contradictory. Tencent has learned that lesson quickly with WeBank, which has faced major limitations in its early days. 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…
The following press releases and media reports about Chinese companies were carried on September 16. To view a full article or story, click on the link next to the headline.
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Carmakers Curb China Output as Sales Growth Stalls (English article)
Tencent (HKEx: 700) to Invest 2 Bln Yuan in Cloud Unit Over Next 12 Months (English article)
Meituan Denies Rumors of Failure for Latest Funding Round (Chinese article)
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: Major new funding raising by Uber, its Chinese equivalent, and Alibaba’s logistics arm reflect continued interest in such leading Internet firms by major global Investors, though funding will slow sharply for smaller, less known players.
Three new Internet deals raise $5 bln
It seems my earlier forecast was incorrect that major fund-raising for Chinese Internet companies could be cooling due to waning investor sentiment during the recent market volatility. The latest headlines include 3 major new deal close to completion, worth a collective $5 billion. The largest has Didi Kuaidi, the homegrown Chinese equivalent of private car services giant Uber, on the cusp of new a funding deal worth $3 billion. The second has the actual Uber also near a deal to raise $1.2 billion for its Chinese business, as it prepares to spin off the unit into a separate company.
Meantime, the smallest of the deals has e-commerce leader Alibaba ‘s(NYSE: BABA) Cainiao logistics unit also on the verge of a deal to provide hundreds of millions of yuan for a small logistics company. In this case the move appears aimed at helping Cainiao to build up its stable of partners providing logistics service. The addition of such outsiders would also help to validate Alibaba’s 2-year-old program to plow 100 billion yuan into its logistics capabilities.
The following press releases and media reports about Chinese companies were carried on September 11. To view a full article or story, click on the link next to the headline.
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Dell Says to Invest $125 Bln in China Over 5 Years (English article)
Lenovo (HKEx: 992) Starts OEM Smartphone Production for Other Brands – Report (Chinese article)
Mindray (NYSE: MR) Receives Revised Proposal to Acquire Company at $27 Per ADS (PRNewswire)
Didi Kuaidi Said to Join Alibaba, Tencent in Lyft Funding Deal (English article)
Tencent (HKEx: 700) WeBank Chief Cao Tong Resigns (Chinese article)
Bottom line: Alibaba’s latest sell-off is part of an ongoing correction in the company’s value, reflecting a new era of more realistic expectations from investors.
Bloom continues to shrivel from Alibaba’s rose
After years of basking in the hype of adoring investors who briefly valued it even higher than much-older and far more global rival Amazon (Nasdaq: AMZN), Chinese e-commcerce leader Alibaba (NYSE: BABA) has entered a new phase centered on more realistic expectations for the company. That new phase has seen Alibaba’s stock tumble to a more realistic level this year on a steady series of bad news, including the latest reports that one of its key sales metrics wasn’t as strong as previously estimated last quarter.
But that wasn’t the only bad news for Alibaba in the last few days. Earlier reports this week said the company was cutting back in its college recruitment, in what looked like another sign of slowing growth. (previous post) An Alibaba official seemed to refute those initial reports, only to have a second series of reports emerge that seemed to confirm that the recruitment slowdown was indeed happening. (English article) 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…
Bottom line: Alibaba’s stock could be set for a modest rebound in the remainder of the year after a round of heavy institutional selling, while Baidu’s shares could see more downward pressure on concerns about its stagnating profits.
Alibaba shares set for rebound
Big news at the end of last week saw billionaire investor George Soros declare that he recently sold most of his shares in China’s 2 leading US-listed Internet companies, Alibaba (NYSE: BABA) and Baidu (Nasdaq: BIDU), as he decided to lock in profits on concerns the stocks were overvalued. His actual holdings in both stocks weren’t that big, but his huge influence almost certainly prompted other big fund managers to follow suit. That could explain the big downward pressure both stocks felt during the second quarter.
Of course small investors like myself and anyone reading this post are usually the last to find out about this kind of trading by influential buyers, meaning it’s already already too late to trade on this news. But the more interesting prospect is whether or not shares of one or either companies have reached a bottom and could be set for a rebound. Read Full Post…
