Fixing E-Commerce: China Watch

NEW YORK (TheStreet) -- Contributor Eric Jackson details his findings regarding Chinese e-commerce and what companies need to do to fix problems they currently face.Fri 07/08/11 05:15 AM EST -- Brittany Umar & Eric JacksonStocks in this video: FDX SINA AMZN NTES SOHU YOKU UPS

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Don't Bail on China Tech Stocks

By Eric Jackson
RealMoney Contributor
6/28/2011 1:30 PM EDT
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The second quarter has not been kind to Chinese tech stocks. After flying high from January to April, big China techs such as Sina (SINA - commentary - Trade Now), Sohu (SOHU - commentary - Trade Now) andBaidu (BIDU - commentary - Trade Now) got walloped. Newbie China tech IPOs such as Youku (YOKU -commentary - Trade Now), Dangdang (DANG - commentary - Trade Now), and Qihoo 360 (QIHU -commentary - Trade Now) got hurt even more.

There were many reasons for the sharp pullback in these China tech stocks, some of which are listed below:

• the general market pullback meant that these high-beta names pulled back even more;
• more evidence of fraud in China stocks spreading from smaller reverse takeover companies to larger companies such asSino-Forest and Longtop Financial (LFT- commentary - Trade Now);
• continued worries about a China Internet bubble and concerns that this was the beginning of the end; and
• Jack Ma transferred out Alipay from Alibaba, sending Yahoo!'s (YHOO - commentary - Trade Now) shares down and worrying Americans that there is no rule of law in China.

In the midst of this wave of bad news and worry, I happened to be traveling through China, meeting with several tech companies. I was asked about if we were in a bubble more than anything else while I was there.

What I said then and what I still believe now is that this is not the beginning of the end but the end of the beginning. The Chinese Internet bubble is not bursting now, and I don't believe it will burst this year. I still think we have six to 36 months of good times ahead of us. It's hard to know more precisely than that when the party will end -- at least at this point.

Translated for investors, that means you shouldn't miss out on a second-half bounce-back for these stocks.

There is a range of quality out there, however, so you need to do a lot of research and due diligence before jumping in.

I recommend you stick with two of the biggest quality names: Baidu and Sina. They are solid companies with great management teams that will continue to be in-demand sites for a long time. Everywhere I went in China, I would hear people updating their Sina Weibo status on their iPhones. That is a growing monster service, right there.

Similar to Baidu and Sina, Hong Kong-listed Tencent should also do well in the second half of the year.

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No Panic Here in China

By Eric Jackson
RealMoney Contributor
6/9/2011 10:00 AM EDT
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I have been in China for the past week, and have had a chance to visit a number of Chinese Internet firms -- including Tencent, Perfect World(PWRD - commentary - Trade Now), NetQin (NQ- commentary - Trade Now), NetEase (NTES -commentary - Trade Now), Baidu (BIDU -commentary - Trade Now) and AirMedia (AMCN -commentary - Trade Now).

It's been a down market for the last six trading days, and Chinese stocks have been hit hard, including the former leaders such as Sina (SINA -commentary - Trade Now), Sohu (SOHU -commentary - Trade Now) and Youku (YOKU -commentary - Trade Now).

The mood amongst most of these companies, however, remains upbeat. Most now point to the recent worries about Chinese frauds as the reason for the bigger pullback in the entire sector. Most say they have received no uptick in questions from their own investors about their auditors or their own corporate governance.

One thing I couldn't help but notice, as I drove around Beijing, was the large number of advertisements being bought in the offline world (as in buses, billboards or kiosks) for new private consumer-oriented e-commerce sites such asLashou.com (the No. 1 group-buying site in China), VANCL (a clothing retailer) and Tmall.com, which is part of Taobao (of whichYahoo! (YHOO - commentary - Trade Now) is a 40% owner).

Most of these companies expect to hold initial public offerings in the next six to 18 months. They have obviously been trying to drive traffic to their sites in the last few months in order to dress themselves up for investors -- and they don't mind spending money to do it.

Earlier this week I met with a company called Letao.com, which is also private but experiencing extraordinary growth selling shoes online. Some refer to it as the Zappos of China even though there are subtle differences that, in some ways, make the company a more attractive business. Letao is probably further away from an IPO than some of those other companies I've mentioned. Even though they have money to spend on advertising, it is trying to do this wisely, through search marketing and group buying primarily. Nevertheless, Letao is aware of the feeding frenzy for buying ads of all kinds in China now, and it sees how this is leading to higher ad prices each time they renew.

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China Embraces Its Inner Tech Bubble

There will be a time when the China tech bubble pops - and it will be a severe reckoning - but that day is still likely at least two years away.

Read the full post here at Forbes.

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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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Why Would Any Investor Avoid China?

By Eric Jackson04/04/11 - 06:30 AM EDT

NEW YORK (TheStreet) -- The China bears, who include Jim Chanos and Hugh Hendry, have been wrong for two and a half years. Which is puzzling because if you are looking for a part of the world to invest in during the next five to 10 years, how could one ignore China?

If you want exposure to growth, you are going to be hard-pressed to find another place that offers as attractive a risk-reward scenario. Sure, there are other emerging markets to consider, like Brazil and India, but they aren't any more attractive than China, and they're certainly not as big a market.

Would you rather invest only in the U.S. or Europe? Sure, they are less volatile but they have also had a huge run in retracing their financial-crisis losses. I would argue that neither of those mature markets is going to be a more compelling buy than China when looking at potential risk and potential return.

The China bears' arguments have fallen flat so far. Remember when it was conventional wisdom that the Chinese property market was a bubble along the lines of "Dubai times 1,000"? Well, put a few policies into place to reduce speculation by boosting down payments and loan availability and -- guess what? -- the high-end market in coastal cities has appreciably cooled for the past six months.

Remember, more recently, when we heard China was going to have runaway inflation because the government was appreciating the yuan fast enough to the U.S. dollar? Well, the Chinese government has been hiking reserve requirements and interest rates feverishly for the past few months now. On Friday, George Chan of CLSA speculated that the next move from the Chinese government might be the last for a while. PMI numbers have shown that inflation is slowing.

I often hear American investors say: "I don't trust Chinese companies and their numbers (or their government's numbers)." The recent rash of Chinese reverse-merger frauds has demonstrated that there is a pervasive problem in that class of companies. There are major problems that persist to this day, and I have called on the Securities and Exchange Commission and the U.S. listing exchanges to clean up this mess. But for any investor who says he won't invest in China because of high-profile problems such as RINO(RINO_), China MediaExpress(CCME_), Fuqi(FUQI_) and China Agritech(CAGC_), I have a simple recommendation: avoid Chinese reverse-merger companies.

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Video: BullHorn -- China's Internet Surge

Baidu and other Chinese online stocks may still be attractive to investors in the United States. But not all are worth buying

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Video: Google's Strategy: China Watch

NEW YORK (TheStreet) - Contributor Eric Jackson details Google's actions in regards to China and how its relations with the country stands to impact the stock.

Wed 03/30/11 06:00 AM EST -- Eric Jackson & Brittany Umar

Stocks in this video: YHOO | SINA | AMZN | BIDU | SOHU | CTRP| GOOG

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Be Wary of Youku

By Eric Jackson
RealMoney Contributor
3/28/2011 11:30 AM EDT
Click here for more stories by Eric Jackson

Youku (YOKU - commentary - Trade Now) has been probably the hottest IPO of the last 12 months. But there's good reason to be wary of holding the stock from here. Some growing competitive threats within China and a looming IPO lockup expiration in a little over two months will weigh on the stock.

Youku is a leader in the exploding online video space within China. It went public last Dec. 8 and closed at $33.44 -- 160% above its offer price of $12.80.

On Friday, the stock closed a penny under $50 -- its highest close ever. That means that it now has a market capitalization of over $5 billion. This is a company that did $23 million in revenue in the fourth quarter, with a net loss of $6 million.

Youku is a great "story stock," like Tesla Motors(TSLA - commentary - Trade Now) or some pre-revenue biotech company in a hot new space. It has low to no revenue but infinite upside, so the story goes.

I've defended the company before, especially at the time of its IPO and in the following weeks. Skeptics have been saying this company was over-hyped. In its defense, it is the No. 1 online video player in China today. Great U.S.-based venture capitalists have poured money into it. And its CEO, Victor Koo, is well-spoken and very credible. Listen to the recent earnings call, and you can understand why many U.S. investors would be comfortable buying into a company under his leadership. He gives the sense of a very steady hand on the wheel.

However, I can't defend Youku at the $50 range with over a $5 billion market capitalization -- 4x its IPO offer price.

When Youku went public, the most common reference point you heard in the U.S. media was that it was the "YouTube of China." Over the last couple of months, you hear a shift, and the majority of people drawing comparisons now call it the "Netflix (NFLX - commentary - Trade Now) of China."

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Video: SINA Buyout Talk: China Watch

NEW YORK (TheStreet) - Contributor Eric Jackson details what makes Sina Corp an attractive buyout candidate.

Mon 03/28/11 06:00 AM EST -- Eric Jackson & Brittany Umar

Stocks in this video: YHOO | SINA | BIDU | SOHU | CTRP | GOOG

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Earthquake Won't Shake Tech Stocks

By Eric Jackson
RealMoney Contributor
3/14/2011 8:00 AM EDT
Click here for more stories by Eric Jackson

With the frantic headlines and devastating imagery over the weekend of the Japanese earthquake and tsunami, what are the implications to your portfolio of tech stocks and Chinese stocks?

I believe we are nearing the end of the uncertainty weighing on the markets over the current nuclear concerns. If we were focused on rebuilding, the markets would be having an easier time moving forward. As it is, we are still not sure of the situation with the nuclear reactors. Every time the word "nuclear meltdown" is used in describing the event unfolding, the market jitters.

But this is not the '80s in Chernobyl. This is modern-day Japan. The fears are outpacing the reality of the situation. By the end of the week, I suspect our fears will have subsided and our full attention will be focused on the improving American economy, not Japan.

I listened in on a conference call of BAML Capital Partners' top Japan and Asian analysts last night. One of their key messages was that the Japan crisis would have little if any impact on the rest of Asia. Yes, China exports a lot to Japan, and the Japanese consumer is going to be in hunker-down mode for a while. Yet this headwind will likely be more than offset by Japan's need for stuff in order to rebuild.

Electronics, basic materials, food, energy. Japan needs them. China will sell them a lot.

It's been interesting to watch over the past week (especially Friday) how a number of Chinese tech names have been performing well. On Friday, there were big gains in Baidu (BIDU - commentary - Trade Now),Sohu (SOHU - commentary - Trade Now), Sina (SINA - commentary - Trade Now), Shanda Interactive(SNDA - commentary - Trade Now), Perfect World (PWRD - commentary - Trade Now), Changyou.com(CYOU - commentary - Trade Now), SouFun (SFUN - commentary - Trade Now), and Shanda Games(GAME - commentary - Trade Now).

NetEase.com (NTES - commentary - Trade Now) was down on Friday but has had a strong couple of weeks since its earnings came out.

Why have these Chinese Web and gaming companies been doing so well, even after the massive earthquake hit at midnight last Thursday night? Despite the jitters about energy in North Africa in the last month, most investors are seeing the strength in all these names with rising advertising revenues and increased game usage from a confident Chinese consumer. Those local factors will trump tragic events next door in Japan.

These companies will continue to see their stock prices rise and fall solely on their own performance and the continued strength of the Chinese economy.

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Video: SINA is an Attractive Buyout Candidate

Contributor Eric Jackson says Sina's Weibo growth hasn't yet fully been reflected in its stock price given its potential. Tencent or Baidu (BIDU) would be interested buyers. And there's not a founder CEO to block a deal. Eric owns SINA and YHOO.

Wed 03/09/11 12:11 PM EST -- Eric Jackson

Stocks in this video: YHOO | SINA | AMZN | NTES | BIDU | EBAY |TCEHY | SOHU | GOOG

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Why Sina Might Be Bought Out

By Eric Jackson, Senior Contributor03/09/11 - 08:30 AM EST

Stock quotes in this article:SINA, AAPL, SOHU, NTES, BIDU, YHOO, GOOG

NEW YORK (TheStreet) - Sina(SINA_) would be an attractive buy-out candidate.

In 18 months, it has created from scratch a Twitter-like service called Sina Weibo that -- as of last month -- surpassed 100 million users. That's something that took Twitter twice the amount of time.

To call Weibo a Twitter clone does it a disservice. It's actually much more functional than Twitter with a superior Apple(AAPL_) iPhone application, commenting and forwarding system, along with instant messaging and location-based services. It is more of a combination of Twitter and Facebook that a pure copycat of Twitter.

Since the start of last July, Sina's stock is up 146%, and its market capitalization stands at more than $5 billion. Remember that it was worth $2 billion when it was just known for its traditional advertising-supported portal business (which has also been on fire since last summer - just ask its competitors Sohu(SOHU_) andNetEase.com(NTES_). Sina also has almost $1 billion in cash.

Keep in mind that, since July 1, Sohu's stock has increased almost 100% on its own -- just on its ad-supported business. Although it has a Twitter-like microblogging service, it is far less popular than Sina's.

Therefore, even though Sina has seen its stock price soar since July, it is reasonable to argue that the "extra" value created in market capitalization for Sina relative to Sohu directly attributable to Weibo is only an extra $1.1 billion.

Yet, Weibo is a powerful platform to drive future growth for the company. We all understand this intuitively when we think about Facebook and Twitter. Twitter was recently valued in asecondary market stock sale (which has surprisingly turned out to be very accurate indicators of actual values later award by private sophisticated investors) at $7.7 billion. Yet, Twitter's revenues were reportedly only $45 million last year . Twitter is supposed to have 160 million users at the moment. Sina Weibo might surpass them in users by September.

Facebook was recently valued by General Atlantic Partners at $65 billion. Its revenues were$1.2 billion to $2 billion in 2010 . Facebook now has 500 million users worldwide.

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