Friday, April 29, 2011

What I Would Ask Jim Balsillie of RIM This Morning

Here are some questions for Jim Balsillie, after last night's cut earnings for Research in Motion.

Read my post on Forbes here.

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Thursday, April 28, 2011

Baidu Keeps Rolling

By Eric Jackson
RealMoney Contributor

4/28/2011 12:15 PM EDT
Click here for more stories by Eric Jackson

Last night's report from Baidu (BIDU - commentary - Trade Now) didn't disappoint the bulls. The company beat earnings expectations by $0.03 a share and beat top-line revenue estimates.

More important, Baidu raised its guidance for the second quarter above $500 million, on the high end of the range. This was beyond any prior high-end estimates for the second quarter. Quite simply, Baidu is continuing to perform with continued staggering growth.

The company's trailing 12 months of revenue prior to last night was $1 billion. Last night's quarter annualized is up to over $1.3 billion in revenue. Next quarter's guidance puts it up to $2 billion annualized. Its last quarter-on-quarter earnings growth compared with the prior year is 171%. That compares to the "mature" growth of Apple (AAPL - commentary - Trade Now) at 95% and Google (GOOG - commentary -Trade Now) of 20%.

But Baidu is still relatively small compared with Google. We're talking $1 billion or so in revenue a year vs. $30 billion. Can Baidu continue to justify a high multiple in the coming years? It now has almost one-third the market capitalization of Google.

To hear Robin Li, the founder and CEO of Baidu, talking about it on last night's call, Baidu still has a lot of growth areas ahead of it, including:

  • Further penetration within China, where only 30% of its population is connected to the Internet today.
  • Further increase in wealth and ad rates within China as the standard of living increases.
  • Growth in mobile use. Last night, Baidu management confirmed that 80% of the Android handsets shipping in China have Baidu as the default search engine. Ironically, Google's open platform has allowed handset manufacturers to insist that Baidu be the default search engine, as it is preferred in China.
  • Social. Robin Li made the point last night that Baidu has been competing against social platforms in China for many years, via Tencent's QQ service. Therefore, it has responded by trying to integrate social search into its search for a while. No one confuses Baidu with a social platform yet, although it has had its own version of Yahoo! (YHOO - commentary - Trade Now) Answers for years, and it has become very popular. Baidu can do a lot more to monetize search. And although the company didn't mention it all last night, there is the possibility of partnering with Facebook to bring the universal social service to China in the future.
  • Local. Today, this remains very under-monetized, according to Li's comments last night. In an increasingly mobile connected world, this search ability will become more important. A couple of days ago, the CEO of Sina (SINA - commentary - Trade Now), Charles Chao, said that over half of the users of his popular Weibo service connect via a mobile device.
  • Video. Baidu has 150 users for its Qiyi video service in less than a year. Youku (YOKU) has 230 million users. Baidu is rumored to be looking to spin-off Qiyi in 2012.
  • Robin Li discussed last night how apps are becoming more popular. Today, there are tens of thousands of apps, and the Chinese are showing a lot of interest in downloading them and experimenting with them. In a few years, however, he said, there will be hundreds of thousands and then millions of apps. At some point, users get overwhelmed with the choices. When that happens, they need to fall back to their familiar choices. Search, and Baidu, will be a key necessity for them. (Other big Chinese Internet companies such as Tencent, Taobao and Sina should also benefit from this trend.)

This morning, there are some increased price targets out from analysts. The stock is up.

Baidu is a solid Chinese company. It might not grow 143% in the next 12 months as it has in the last 12 months, but it will do very well.

At the time of publication, Jackson had long positions in BIDU, SINA, YHOO and AAPL.and short YOKU

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Part III of Interview with Chrystia Freeland on the Global Elites

Part III of an interview with Chrystia Freeland on The Rise of the New Global Elite and the rapid disappearance of the Middle Class in America.

Read the full post here at Forbes.

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Part II of Interview with Chrystia Freeland on the Global Elites

Part II of an interview with Chrystia Freeland on The Rise of the New Global Elite and the rapid disappearance of the Middle Class in America.

Read the full post on Forbes here.

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Part I of Interview with Chrystia Freeland on the Global Elites

Part I of an interview with Chrystia Freeland on The Rise of the New Global Elite and the rapid disappearance of the Middle Class in America.

Read my full Forbes post here.

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Wednesday, April 27, 2011

How Do You Fix the Hollowing Out of America's Middle Class?

It's time stop pretending the decline of the middle class isn't happening and propose solutions. It will take fair trade with China, embracing our own elites instead of castigating them, and a more (not less) directive government.

Read my full post at Forbes here.

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Dear Larry: A Letter From Wall Street

By Eric Jackson, Senior Contributor04/27/11 - 08:00 AM EDT

NEW YORK (TheStreet) --

Dear Larry:

What happened?

There was a time -- just before you IPO'ed in 2004 -- when we really thought Google(GOOG_) was a kooky company. You put that strange letter to shareholders in your S-1. You said you wouldn't pay attention to the short-term demands of Wall Street. You set up a dual-class share structure so that none of our activist hedge fund brothers could throw you out if you did a terrible job. You said you were going to be a different kind of company.

We don't like different. It's hard to figure out. It's random. Worst of all, it suggests your margins are going to suck.

Google CEO Larry Page

Luckily, Eric Schmidt won us over. He was very articulate, if not a little professorial. He seemed to listen to our concerns and communicate back to us in a way that conveyed understanding and serious intent. In short, we liked him and our confidence was bolstered by your results since IPO.

However, since you pushed Eric out so that you could retake the CEO title, we're a little freaked out.

All those early fears of ours about a bunch of kids running this company in some haphazard way came back to us. The day you made the announcement that you were taking over for Eric, you released a picture of you, Sergey and Eric sticking your heads out of a Prius that drives itself around the Google parking lot. Driverless cars? That's in the Google R&D budget?

More recently, we've read that you're investing in wind farms in Oregon. Hundreds of millions of dollars in wind farms. Your recent quarter's results showed operating expenses up 40% because you gave everybody one-time 10% pay hikes across the board.

In short, we're seeing lots of spending and it's not at all clear how this is going to benefit us -- the shareholders.

We know you call us Wall Street people and you look down on us. You think because we're not engineers or Rhodes Scholars that we're not as smart as you. You think we're slick guys in flashy suits who don't deserve what we're paid. You put us down in private -- until you need our money.


[** This post is an excerpt of the full article, which is available on by clicking here. Free Site.**]

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Tuesday, April 26, 2011

What Will It Take To Move Apple's Stock Price Again?

95% earnings growth is apparently not enough to move Apple's stock price. Here is what will.

Read the full post here at Forbes.

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Wall Street Journal China Opinion:中国科技股正面临泡沫危机吗?

My latest opinion piece from the WSJ China on why Chinese Internet stocks are still not in a bubble.

Read the whole post here.

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Monday, April 25, 2011

Yahoo! Wears a Target Once Again

By Eric Jackson
RealMoney Contributor

4/25/2011 1:00 PM EDT
Click here for more stories by Eric Jackson

Kara Swisher's Good Friday post in The Wall Street Journal about several potential acquirers taking another look at Yahoo! (YHOO - commentary - Trade Now) was very interesting in a number of respects, and it should reignite the shares, which have languished since last fall, which was when Yahoo! was most recently the subject of buyout chatter.

  • The story suggests that there is renewed interest among potential buyers of the core Yahoo! business.
  • It suggests that the board of Yahoo! has changed its tune in terms of doing a deal for the company.
  • It sounds to me that there is increased seriousness on all sides about doing a deal now.

Swisher is not someone who publishes for the sake of link-baiting. She takes her craft of journalism very seriously, and that is why she's the best at her beat.

According to Swisher, the current potential suitors for Yahoo! are the same as the old ones: News Corp.(NWS - commentary - Trade Now), Microsoft (MSFT - commentary - Trade Now), AOL (AOL - commentary- Trade Now), Disney (DIS - commentary - Trade Now), Providence Equity Partners and even Morgan Stanley (MS - commentary - Trade Now). And another player, former News Corp. president Peter Chernin, is also reported to be interested in doing a deal. What a deal might look like and what roles these various partners might play are topics that are still being bandied about privately.

The biggest open question from all the new information discussed in the post is, what will happen to Yahoo!'s stake in Alibaba Group? For example, if Providence and News Corp. and Microsoft all joined forces and bought Yahoo!'s core business, doesn't Alibaba (and Softbank for that matter) have a veto on this deal? This question came up at the time of the Microsoft bid, but to my knowledge it has never been answered.

Presumably, Alibaba would love to buy back Yahoo!'s 40% stake in Alibaba at a cheap valuation. If Alibaba did offer to do so at a low-ball valuation -- and if Yahoo!'s board accepted -- it would be offensive to Yahoo! shareholders.

As a Yahoo! shareholder, I have a hard time seeing how I'm better off with these assets under the care of News Corp., or Microsoft or Providence Equity or Peter Chernin. Are any of them going to pay me $60 for my shares? That's going to be a tough number to sell to any board. But Yahoo!'s shares are going to be worth that by 2015 -- by my estimates -- even if Yahoo! CEO Carol Bartz utterly fails to turn around the core business. That's simply from the expected growth of the private assets of Alibaba.


[*** This post is an excerpt of the full article, available by clicking here to go to Note: subscription required. ***]

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Will You Shut Up About This Being Another Internet Bubble Already?

Another Internet Bubble is not about to collapse. We have a few more years still. So party like it's 1996.

Read my full post at Forbes here.

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Thursday, April 21, 2011

The Biggest Takeaways from Apple's Call

By Eric Jackson
RealMoney Contributor

4/21/2011 11:30 AM EDT
Click here for more stories by Eric Jackson

It was another strong quarter from Apple (AAPL - commentary - Trade Now), which reported its results yesterday after the close.

The company beat on most of its numbers (as it usually does) and missed on some others. However, people seemed to pay little attention to the misses and gravitated toward the strengths of the quarter. This morning, there are already four upgrades out on the stock, which are helping to move the stock.

Taking a step back, here's what I thought were the most important details from the earnings release and conference call:

  • People liked the comments from Chief Operating Officer Tim Cook. He and CFO Peter Oppenheimer turned in another solid performance. They emphasized the wins, explained how they were dealing with some of the difficulties, and generally reassured everyone that the future remains very bright for Apple. The contrast between Cook's performance and Larry Page's from Google (GOOG -commentary - Trade Now) last week could not have been more striking. Expect investors to continue to notice and to comment on this difference in the months and quarters to come.
  • Japan doesn't appear to be a big deal on the demand or supply side. Before the call, there was intense speculation that Apple would be hamstrung in meeting intense demand for the iPad 2 because of the earthquake's effect on its suppliers. Cook denied this, citing "hundreds of suppliers" from many geographies. From a demand perspective, Cook said that the company had taken down its revenue estimates for the current quarter by $200 million in anticipation of disruption to Japanese consumers. After that, it doesn't appear there will be anything else.


[*** This post is an excerpt of the full article, available by clicking here to go to Note: subscription required. ***]

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Wednesday, April 20, 2011

Proof Apple's Post-PC Strategy Is Working

Apple is using its lead in with the iPad to convert Android and BlackBerry users to the iOS platform. New data suggest this shift is happening faster than anyone predicted.

Read my full Forbes post here.

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To Unlock Yahoo!’s Value, Bartz Should Take a Hike

Yahoo! shareholders are likelier to see a $30 stock price sooner if they vote "against" Carol Bartz' and Roy Bostock's re-election at this June's shareholder meeting.

Please read the full post at Forbes here.

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If China Stocks Are Being Revalued, Why Not Yahoo!?

By Eric Jackson04/20/11 - 08:00 AM EDT

NEW YORK (TheStreet) -- China Internet stocks are on fire. The unstoppable SINA(SINA_) is now up 106% year-to-date. SOHU(SOHU_) is up 56%. Baidu(BIDU_) is up 53%. Even new IPO Youku (YOKU_) is up 94% year-to-date.

We are now starting to see new Chinese companies rushing to list their stocks on the U.S. exchanges.Dangdang(DANG_) has managed to hold a price at a big premium to its December IPO. Qihoo 360(QIHU_) is another high-flying IPO from last month. RenRen(RENN), the "Facebook of China," is planning to list next month.

The more these relatively smaller stocks go up, the more it seems that the bigger Chinese portal names keep going up. Look at Sina's performance in the last two weeks alone for evidence of that.

China observer and investor Bill Bishop said on Tuesday that he thinks there is a revaluation going on in the Chinese Internet sector:

Most U.S.-Listed Chinese Internet stocks are soaring, with some up 10%+ Monday, and some up 30% or more in a matter of weeks. Many of these firms, like Baidu and Sina, have great businesses and massive growth prospects, but the surge seems to be about more than just fundamentals.

Are investors in relative valuation mode, believing that because immature firms like Youku (6.7B market cap), Qihoo (3.7B) and RenRen (planned IPO valuation is $4B+) are so richly valued, then Sina, Baidu, Sohu, Shanda et al are dramatically undervalued on a relative basis?

There is logic to that argument, and it can sustain high valuations for a while, especially given the great wall of money that is both being reallocated to China by Western funds and is sitting in Chinese hands looking for speculative opportunities.

I agree with his logic. I think this revaluation is going on.

And I agree with him that this is not a bubble. It could grow into one -- but we have a long way to go. In "dot com" era terms, I would characterize the current Chinese tech sector as being in the equivalent of the fall of 1995. Netscape went public that year in August. As its price held up for the first few weeks after, it made people reconceptualize the value of tech.Yahoo!(YHOO_) went public in April 1996. And, after that, the race was on for tech billions.

But it would not be for another 3.5 years after Yahoo!'s IPO that the "dot com" bubble burst.

I think we still have another four years of growth ahead of us in the Chinese tech world. Buckle up: it's going to be a fun ride.

But, here's a question for you: If there is a revaluation going on in the Chinese Internet world, it has so far eluded the biggest Chinese Web company in the world (at least, as I see the Chinese Web world playing out over the next five years).

Tencent and Baidu may be the big dogs today with $50 billion market capitalization each. And they will likely triple in size over the next five years, as the wealth of Chinese people increases and Internet penetration doubles or triples from its current levels.


[** This post is an excerpt of the full article, which is available on by clicking here. Free Site.**]

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Tuesday, April 19, 2011

Wall Street Journal China Opinion: 为什么人人网不是中国版的Facebook?

My take on the upcoming RenRen ($RENN) IPO and why Americans love calling it the "Facebook of China" even though it's not.

Read the full opinion in WSJ China here.

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Sina Flashback: What I Said About $SINA in December at $71.50

I've owned SINA since November and talked about it since December. Here's why I liked it back then and still hold it.

Read my full post in Forbes.

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Monday, April 18, 2011

RenRen Is Set to Ride the Chinese IPO Train

By Eric Jackson
RealMoney Contributor

4/18/2011 1:40 PM EDT
Click here for more stories by Eric Jackson

If all goes as planned, RenRen, the "Facebook" of China, will go public in the U.S. in early May under the ticker "RENN." It hopes to raise nearly $600 million and be valued at over $11 billion.

On the surface, the company has all the makings of another mega-Chinese initial public offering. It has two of the more prestigious investment banks managing the IPO: Morgan Stanley (MS -commentary - Trade Now) and Credit Suisse (CS- commentary - Trade Now). And, most important, it is a Chinese company involved in the Internet.

That's pretty much all it takes these days. It's not unreasonable to expect its valuation to easily double or triple when it goes public, just as it did with (YOKU - commentary - Trade Now) and Dangdang (DANG - commentary -Trade Now) in December, and Qihoo 360 (QIHU -commentary - Trade Now) last month.

It will actually be interesting to see whether -- expecting another hot placement from investors -- the RenRen investment bankers will try to up the offer pricing to capture more value for the listing company, rather than pad the bank accounts of the investment banks' institutional clients. Remember how Dangdang's CEO got into a Twitter-style scuffle on Sina's(SINA - commentary - Trade Now) Weibo, supposedly with one of the Morgan Stanley bankers, after their IPO a few months ago? The CEO complained -- among other things -- that the bank hadn't priced the offering high enough to benefit the company's coffers.

With Sina riding sky high these days and new private valuations for Facebook and Twitter seemingly every week, it's hard to see how RenRen doesn't have a great initial pop next week.

The company booked $77 million in revenue last year with an operating profit of $8 million. Though it still had a net loss for the year, revenue grew 64% from the prior year. RenRen describes itself as the leading real-name social networking Internet platform in China, as measured by total page views and total user time spent on social networking websites. RenRen stated in its initial filing with the Securities and Commission that it had 117 million "activated" users at the end of March. It also said that, according to consulting firmiResearch, monthly total page views are 2.3 times higher than those of its closest competitor.


[*** This post is an excerpt of the full article, available by clicking here to go to Note: subscription required. ***]

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The Next Great Chinese Stock - And it's Not an IPO

Chinese gaming company Perfect World has had a disappointing last 12 months, but some new games are about to change its luck. Expect a $47 stock by the end of the year.

Read the whole post over at Forbes.

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Friday, April 15, 2011

What Was Larry Page Thinking on Yesterday’s Earnings Call?

Larry Page's first earnings call last night was a disaster. If you want to be CEO, you have to lead.

Read my full post on Forbes.

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Video: Facebook's New Chapter: China Watch

NEW YORK (TheStreet) -- Contributor Eric Jackson details Facebook's new deal with Baidu to create a social network in China, challenges that may lie ahead and how this affects his outlook on playing Baidu.
Fri 04/15/11 06:00 AM EST -- Eric Jackson & Brittany Umar
Stocks in this video: YHOO | SINA | BIDU | AOL | SOHU | MSN |GOOG

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Thursday, April 14, 2011

Yahoo! Needs New Leadership ... Again

By Eric Jackson
RealMoney Contributor

4/14/2011 1:45 PM EDT
Click here for more stories by Eric Jackson

Many investors have either totally forgotten about Yahoo! (YHOO - commentary - Trade Now) or think that the only play is to wait on a turnaround of its historical business.

I have a long position in Yahoo!, but it has nothing to do with its "core" business. Although I wish the company well, and it seems that Ross Levinsohn and Black Irving seem to be doing a better job overseeing that business than anyone else probably for the past decade, the potential for this business is dwarfed by the potential for Yahoo!'s 40% stakes in Taobao and Alipay.

Kara Swisher of All Things Digital is right that the "core" business has an amazing brand with enviable traffic. It's not so much that I'm bearish on the chances of turning this around, it's just that I'm so super-bullish on Taobao and Alipay.

As I've said here before, Yahoo! is trading at about half of where it should be today based on some research I've done into how well Alipay and Taobao are doing. Yet that value is not being reflected in the Yahoo! stock price because they remain private -- so no one truly knows how well they are doing.

Yet it is undeniable that Taobao and Alipay are setting themselves up as a combination of the Amazon(AMZN - commentary - Trade Now), eBay (EBAY - commentary - Trade Now) and Paypal of China. And they're doing it at an even bigger scale than the American giants. Industry consultants estimate that Taobao has a 70%-85% market share of the e-commerce market in China. That's truly astounding.

And, every quarter that goes by, we seem to get another moon-shot Chinese IPO. A couple of weeks ago it was Qihoo 360 (QIHU - commentary - Trade Now). Last quarter, it was Youku (YOKU - commentary - Trade Now) and Dangdang (DANG - commentary - Trade Now). All these Chinese IPOs are minuscule compared to Taobao. Dangdang, for example, is estimated by consultants to have only 3% of the Chinese e-commerce market. And remember that Chinese e-commerce is expected to grow 5x by 2015. Taobao will see its large size grow even larger in the next few years -- and Yahoo! shareholders will be along for the ride.

So, what is the catalyst for people to recognize the value of Yahoo!? Obviously, an IPO of Taobao and/or Alipay would force transparency on their financials and force the market to reflect that value in Yahoo!'s shares. Yet, there is no sign of anything like that being imminent.


[*** This post is an excerpt of the full article, available by clicking here to go to Note: subscription required. ***]

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