12/22/10 - 08:12 AM EST[** This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.**]
For example, over the last week, Dangdang has been attacked by two companies that want to enter into a price war with it. It's not surprising. After all, Dangdang is in the middle of its first quarter as a public company. All newly public companies like to come out of the gate strong during their first earnings call. Their competitors know that this success can start to feed on itself with investors and consumers alike. Therefore, why not try to short-circuit that positive feedback loop with a negative one?
In other words, by entering in to a price war, competitors can make it appear that the new IPO is stumbling in its first earnings call, which can seed fear and doubt among investors and consumers. This, in turn, might position the competitors as "more successful."
At the moment, Dangdang is being attacked by private Chinese company 360buy and American juggernaut Amazon (AMZN - commentary - Trade Now). 360buy (also known as Jingdong Mall) recently announced that it would spend RMB 80 million (approximately $12 million) on discounting prices prior to the peak holiday shopping season. This came after 360buy said a week ago that it would drop prices on its books by 20% in order to win business.
With Dangdang (pronounced "Dong Dong"), the obvious comparison was Amazon (AMZN -commentary - Trade Now), hence it became the "Amazon of China."
Of course, none of these comparisons are completely accurate. One difference is that the newly public Chinese companies face different competitive dynamics in China than their counterparts faced in the U.S. when they were at similar stages of development. There are also differences in the growth rates and potential market sizes. Regardless, investors clearly wanted in on the action.
Other Chinese IPOs last week that weren't instantly compared to U.S. firms, including Bona Film Group(BONA - commentary - Trade Now) (BONA) and Ski-Mobi (MOBI - commentary - Trade Now) quickly saw their stocks fall (though I believe Bona has a great business).
So what's the next big IPO we'll see out of China? Get ready for Renren, the new "Facebook/Groupon of China." Renren, a subsidiary of Beijing-based Oak Pacific Interactive, is China's leading social-networking services (SNS) provider. The company currently has 150 million registered users, 480 million page views a day and 4.1 billion user interactions per day.
To put that into context, Facebook has 500 million active registered users, and its valuation as a private company has recently been estimated to be between $30 billion and $50 billion. Tencent has over 650 million users of its QQ instant messaging service (which is obviously a different type of social service than Facebook), and its market capitalization in Hong Kong is $41 billion (14% bigger than Baidu (BIDU -commentary - Trade Now).)
12/15/10 - 06:00 AM EST[** This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.**]
However, the inevitable backlash started to come against both companies. Most of the critics of both companies are Bill Miller-esque raging value fundamentalists.
Speaking about Youku, you often hear the complaint, "How can a company that had $35 million in revenue in the first nine months of the year and lost money be worth $5 billion?" (That was Friday. It's worth less today, but you get the point.)
I consider myself a value investor at heart. How can you not like the idea of picking up something for 50 cents when all indications are that it's worth a buck? And I certainly believe that the market is not always efficient or rational, thereby giving investors many opportunities to pick up something that has been temporarily thrown into the discount bin.
At the same time, I've never been good at investing on the basis of momentum or trading the technicals of a chart. Many people do it every day and swear by it. But that's just not me.
However, speaking as a "value guy," I get a little sick at the self-righteousness of some value investors and their criticisms of these Chinese IPOs. The simple truth is that any pure value investor missed Amazon.com(AMZN - commentary - Trade Now) after its IPO and for the last 13 years since.
I don't think there's ever been a time during that stretch -- even post-Lehman -- when a value investor would have been said to get into Amazon. Yet it's been a great investment over that period.
Dangdang ended its first day of trading up 87%. Youku ended up 161% for the day. It feels like 1999 all over again.
However, any time you see moves like that, you will get the chorus of worriers. "These price-to-sales ratios are crazy!" is one comment I heard during yesterday's market action. "This is going to end in tears!" One more: "I'm going to short the hell out of these two stocks."
I wrote about Youku being the monster China IPO two weeks ago, though I'm not some Pollyanna cheerleader. Still, even I was surprised by the giant move the stock made yesterday.
The critics of Youku point out that the company has raised more than $100 million from venture capitalists to date, and that it has yet to turn a profit. In fact, Youku's losses have only grown along with the company itself. It has faced increasing costs of acquiring proprietary content (think Hulu), keeping up with intense competition, paying for more servers to stream video and large pirating risks. Even if the company can supplement its advertising-based revenue with subscription revenue, critics wonder how will it will convince the Chinese to pay for content when bootleg DVDs can be bought for pennies on the street.
Yet, what Youku has going for it -- as I've said before -- is that it's the leader in the online video space at the moment. China's No. 2 online-video company, Tudou, filed to go public first, but Youku is actually the first one out. If it didn't have name recognition in the U.S. before yesterday, it does now. That will be important for Youku's continued access to the capital markets in order to fund its growth -- assuming its price holds up.
12/08/10 - 07:28 AM ESTThat's exactly what has happened. Macau has only continued to explode since the spring. Most of the market (including me) was also surprised at how successful the opening of Marina Bay Sands has been in Singapore. It seems that folks in that part of Asia are just as excited to gamble at a top resort as the Mainland Chinese are in Macau.
Since the spring, Las Vegas Sands' stock has gone from $20 to around $50 today.
The question now, of course, is, where does the stock go from here? I'm still as bullish as ever on Las Vegas Sands' stock and think it could double again over the next 12 months.
Yet, on Thursday last week, the stock suddenly dropped in the middle of the day from nearly $52 to $47. The reason for the move was that the Macau government refused Las Vegas Sands' request to proceed with developing Lots 7 and 8 on the Cotai Strip.
Las Vegas Sands can and most likely will appeal. The company has 15 days to do this and another 15 days after that, if the company can take it to a court procedure. I expect it will.
In the last few days, there has been lots of analyst speculation about why the Macau government rejected the land premise without disclosing any reason. The market likely fears that:
Most people I talk to about the book have been drawn to it because of the money Paulson made -- several billions personally -- and they are amazed that he was able to see in advance what everyone now sees as obvious after the fact: Housing's explosive growth was illusory, built on a sand foundation of easy credit.
As an investor, you can't help but be impressed by the returns that Paulson scored. However, the pearls of the book are the little things you notice about his process of approaching and then executing the trade. These actions are replicable, even though the trade itself is not.
Here are my key takeaways from the book:
1. Don't let others label you, and more importantly, don't label yourself.
John Paulson had been a moderately successful merger arbitrage guy. He raised money from investors with that as his mandate. People expected him to keep using that strategy. Most hedge-fund managers at that stage of their careers would be on auto-pilot. After all, he could have kept making good money doing just that. Even though he had no housing experience, he wasn't afraid to jump in when he saw the opportunity. Many of his longtime investors weren't happy. This wasn't what they signed up for when they gave him their money. Paulson didn't care. He saw the opportunity and didn't let others, or his own reservations, get in the way.
2. The biggest trades require planning and a refutation of conventional wisdom.
I have never been drawn to momentum trading or studying charts. I know lots of people who do it and are fantastically successful.
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11/30/10 - 06:00 AM EST