Most Competitive Spaces in Chinese Internet

By Eric Jackson05/04/11 - 07:00 AM EDT

NEW YORK (TheStreet) -- China is a hot investment theme -- and, more specifically, China Internet. Stocks like Sina(SINA_), Baidu(BIDU_), Sohu(SOHU_) and Youku(YOKU_)have had great runs this year.

I often see investors talking about relative valuation of Chinese Internet stocks on Twitter: "I think Dangdang(DANG_) is poised to pop here to close the gap with Youku."

However, not all Chinese Internet stocks are created equal. Two sectors within the Chinese Internet space are particularly competitive: group buying and online video. I'm bearish on both sectors for the next year.

What's not to like?

The group buying space in China has existed for years.Groupon is certainly in the space. It recently bought a Chinese company called Groupon.cn that set up shop the moment it became clear that Groupon in Chicago was on to something. More interestingly, Groupon.cn was much more popular in China than Groupon had been.

It looks like Groupon made the acquisition to strengthen its position in China and look more put together for its likely end of year Nasdaq IPO. Groupon might end up being successful in China, with a lot of help from its partner there, Tencent. However, I wouldn't bet on it.

There are literally dozens of group-buying clones in China. Some more popular than Groupon, some less. The big daddy of them all is Taobao (ju.taobao.com) with more than 75 million unique visitors in January. Taobao is the mega-ecommerce site owned by Alibaba Groupprivately (which is 40% owned in turn by Yahoo! (YHOO_)). Taobao has never been shy to compete on price. Ask eBay(EBAY_) about their experience competing against Taobao -- they were driven out of the market.

Lashou.com is the next most popular company with 45 million unique visitors in January. Groupon.cn had 19 million visitors (which presumably Groupon Chicago will take over). Groupon itself (with its Gaopeng.com site which it had been using in China) didn't make the top 10 list of group buying sites in January in China.

There is money pouring into the sector. Lashou just received a Series C round of $110 million. This brings its total capital raised to date to $166 million.

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