Monday, November 08, 2010

The Biggest China Stock You Don't Know

By Eric Jackson
RealMoney Contributor

11/8/2010 5:04 PM EST
Click here for more stories by Eric Jackson

Quick, what's the biggest Chinese Internet stock in the world today? If you said Baidu (BIDU - commentary- Trade Now), you're wrong. That's just the biggest U.S.-listed Chinese stock, at $38 billion in market capitalization.

No, the biggest Chinese Internet stock is Tencent Holdings, at over $40 billion in market capitalization. What is Tencent, you ask, and why have most U.S. investors never heard of it? The biggest reason is that the company is not listed here. It's listed on the Hong Kong exchange under the ticker 0700. Its shares also trade on the pink sheets in the U.S. under the ticker symbol TCEHY.

In the U.S., we only hear about the U.S.-listed Chinese internet stocks, such as the portals Sina(SINA - commentary - Trade Now) and Sohu(SOHU - commentary - Trade Now), or the bigger gaming stocks like Shanda (SNDA -commentary - Trade Now) or its gaming spinoff,Shanda Games (GAME - commentary - Trade Now). We're not nearly as plugged into what's going on in the rest of the space over there -- especially with the non-U.S. listed companies and the private companies.

On my recent trip to China, I was intrigued to read about the current battle between Tencent and Qihoo 360. This controversy is epic within China, and yet there has been next to no coverage here in the U.S. (with the exception of one Techcrunch article I spotted over the weekend). This is because Tencent is not listed here, and 360 is a private company.

It's a shame we haven't heard more about Tencent. It listed in Hong Kong in late 2005 for under HK$9. It recently touched an all-time high of HK$193 for a nice 2,000%-plus gain. (The stock is now down to HK$178.)

The crown jewel for Tencent is its QQ messaging platform. It started in 1999 and now has over 400 million users. The company makes most of its money from the services and ads it sells around the messaging. Most meaningfully, it makes significant money from online gaming (competing with the pioneer in the space, Shanda), but also from virtual goods and ads. It also has a search engine that it is likely to continue to improve, to provide Baidu with some more meaningful competition.


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