The Biggest China Stock You Don't Know

By Eric Jackson
RealMoney Contributor
11/8/2010 5:04 PM EST
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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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Notes From the Ground in China, Part V

By Eric Jackson
RealMoney Contributor
11/4/2010 5:34 PM EDT
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Please visit our archives to see the previous installments of this series: Part I, Part II, Part III and Part IV.

I've just returned from a two-and-a-half-week trip to China, which I've been writing about in my recent articles for TheStreet and RealMoney.

I've been trying to respond to the most common criticisms and concerns I hear U.S. investors raise about China's growth. I find that the U.S. media also tend to repeat these concerns in their articles on the subject.

Yet one gets a much different perspective when touring around China firsthand and, more importantly, talking to the entrepreneurs, bankers and other investors in China who are working on the front lines.

It would be nice if the U.S. media were able to send some journalists to do their own sniffing around, but we live in an age when media companies have cut investigative journalism budgets to the bone, if not entirely. Many financial blogs value speed over analysis. Repeating others' "news" about China is more important than trying to do original analysis that requires more time, money and homework.

But that's the way it is. In the meantime, let me provide some additional thoughts on China that are based on my own experience.

• Myth: What about all the ghost towns I keep hearing about, like Ordos?

We hear a lot about the Chinese ghost towns, including Ordos, which is located in Inner Mongolia (between Beijing and Mongolia), by reputable newspapers like The New York Times. The typical U.S. narrative is that these towns are built solely on stimulus renminbi and loans pumped into the economy in 2009 especially, without demand to support them. Since these towns sit empty, Western journalists assume that it is just a matter of time before a property bubble -- akin to what we experienced in Florida, Nevada, or Arizona recently -- busts.

Regarding Ordos, what is different about this "ghost town" relative to others in China is that although there is currently a lot of excess capacity in the town, it is surrounded by coal resources and supported by deep-pocketed entrepreneurs who are tied to this resource. If you assume the prices of coal will remain strong, along with the Chinese economy, there is every reason to assume that this area will continue to prosper and that the town of Ordos will benefit from this.

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Battling Some Myths About China

By Eric Jackson, Senior Contributor11/03/10 - 07:59 AM EDT

There are a lot of China bulls and bears out there today, but there is also a lot of misinformation. Many people have never even been to the country but have no problem prognosticating about its future.

I've been in China for the last two weeks, and based from my on-the-ground experience, I'd like to offer my reaction to some of the common myths I've heard making the rounds in the American press. (I've also posted some of my musings on China at Realmoney.com).

Myth: There is a lack of social security, health careand unemployment insurance that threatens the country's future growth.

The Chinese do have basic social support structures in place for retirement and health care. Indeed, that's part of their value-add to the populace; China is there to help them when they need it. However, it's certainly not a European cradle-to-grave type of program. It's correct that China (and Hong Kong) do not have unemployment benefits. If you get laid off, you're on your own.

The social security in China is one master account that citizens draw against. One can go online at anytime and see how much money he has to use for doctor visits or retirement. Some of workers' income is taken off to contribute to this account (similar to Social Security or FICA in the U.S.). Once the account is drawn down, it's gone, so there's an inherent incentive not to abuse it. If a citizen faces extended medical care needs, he would need to pay out of pocket very quickly.

Indeed, one of the very interesting growth areas I see in China over the next decade is private health care. As the middle-class grows in China, and as the baby boomers retire, people will need better health care. Isn't it ironic that China is speeding towards providing a much more beefed up private model of health care just as America is moving to governmentalize more of its model?

Another interesting point about benefits is that a Chinese citizen can only receive these in the Chinese province in which he was born. A person might move from Shenzhen to Beijing to take a job, which is fine to do, but if he gets sick or wants to retire he would have to return to Shenzhen to get the benefits. This discourages the type of mobility we think of as normal in the U.S.

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

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Notes From the Ground in China, Part III

By Eric Jackson
RealMoney Contributor
11/1/2010 11:15 AM EDT
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I've been in China for the last 10 days, and I've been tweeting out pictures and comments all along the way. If you're interested, please check out this Flickr group to see some.

I've been surprised at how many people have sent tweets or messages to me in response to my updates. U.S. investors are obviously very interested in China. Some are very bullish on the country and its equities, while others are very nervous and believe the country's economy is about to fall off the cliff. I want to respond to some of the criticisms I've heard and respond to them on the basis of my on-the-ground experiences in the country.

First of all, a disclosure: Anyone who has read some of my articles will know that I'm bullish for the short and long term on China. I don't consider myself a Pollyanna. I would like to think I'm a realist. There certainly are risks to the country's future growth. However, I don't think the risks I see match up with the ones most commonly expressed by Jim Chanos orThe New York Times.

• Concern No. 1: China has a housing bubble that's going to explode.

This concern has been out there for almost a year and was probably started by hedge fund manager Jim Chanos. Even he admits that this is likely only a bubble relevant to China's "coastal cities," which are experiencing the most growth (Shanghai and Shenzhen, but Beijing must be included as well, being the capital and such an important place for government and commerce). The Chinese government enacted restrictions earlier this summer to cool down speculation in the hot markets (although lower-tier cities had the freedom not to enact the new rules and haven't). There is certainly evidence that the quantity of transactions in these cities dropped immediately after the new rules were implemented, but the prices in major cities have stayed up.

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Notes From the Ground in China, Part II

By Eric Jackson

RealMoney Contributor
10/29/2010 7:30 AM EDT

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It's been a week since I arrived in China. I have spent time in Shanghai, Beijing, Harbin and each city's suburbs, and this morning I was up in the countryside of Heilongjiang Province near the Russian border. I have had the chance to meet with company executives, workers, locals and government officials. I wanted to provide some commentary on some of the China-related topics that get a lot of coverage in the U.S. press, which I believe are important to consider when thinking about investing in a public company here.

Dollar-Yuan Rhetoric

We hear endless talk about whether and when the Chinese will revalue their currency, which is currently pegged at about 6.6 yuan per dollar. U.S. politicians keep saying it needs to go higher, although they never say what rate they would ultimately prefer. I've heard fund managers Jim Chanos and Hugh Hendry suggest the yuan would sink vs. the dollar if it were allowed to float, though I personally just don't follow their logic in that.

In any case, if the yuan were allowed to float, I'm sure it would rise against the buck, but I don't expect this to happen. No matter how many U.S. politicians talk about what China should do -- including members of the House of Representatives who seems have never gone to China, but have no problem spouting off policy prescriptions -- and no matter how many G8 countries engage in these same discussions, none of it will have any bearing on what Beijing does.

Think about how long this issue has been debated. In all that time, nothing substantive has happened. Moreover, try to put yourself in the shoes of the Chinese government. Why would you want to raise the value of the yuan? How does that help you and the Chinese people? Remember, China's goal -- kind of like that of the U.S. Federal Reserve -- is social stability, which means full employment and price stability.

Given the upcoming U.S. elections, a lot of theater is going on right now, and politicians are saying a lot of things so they can tell their constituents that they said a lot things. Don't expect the yuan to move much, if at all.

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Notes From the Ground in China

Monday October 25, 5:00 pm ET

By Eric Jackson, RealMoney Contributor

I'm in Shanghai and have been traveling in China since Thursday. I will be in the country for the next two weeks on business and will be providing regular updates here at RealMoney and over on TheStreet.

What have I learned so far on the visit?

1. China is still growing like a weed. The latest GDP numbers last week said the country was still growing at a 9.6% pace. Some observers in the West are concerned that the number wasn't above 10%. On the ground over here, I see massive growth in infrastructure, commercial and residential real estate, and the country appears to be in the early stages of a secular surge in middle-class spending.
2. Worries about a housing bubble are overblown. Last spring, Jim Chanos and other hedge fund managers claimed that China's property market was in a massive bubble, calling it Dubai times 1000. Since then, the country has introduced measures to cool speculation in Shanghai, Beijing and Shenzhen. Last week, the Chinese central bank raised rates by a quarter point and is expected to raise it five more times in the next months, taking it back to pre-crisis levels. Prices remain firm in Shanghai and have stayed strong in the smaller cities. People are borrowing very little to buy their homes compared to their counterparts in the West. The same is true for the speculators -- many in China still see a home as a desirable and safe asset to own.
3. The "middle classification" of China will be the country's next Great Leap Forward. China is pursuing a policy of increased internal consumption in order to better insulate itself from financial problems occurring outside the country. This policy is very wise, as most Chinese I've seen in the last few days appear to like spending money and will be happy to abide by the government policy to spend more in the future. Once this starts to happen, the power of China's large population will start to show itself.

As I see them, the big risks remaining for China are:

1. A trade war spilling over and threatening the global economy: Currency tensions are running high these days, with China in a central position. On the one hand, Beijing wants to protect its own interests and not increase the value of the yuan just because the U.S. and others want it to. On the other hand, it can't be inflexible and risk protectionism and other retaliation that would end up greatly hurting the world economy.
2. Increase in commodity prices: China is in desperate need for resources (aside from the rare-earth variety) to power its growth. As such, it can't have runaway commodity prices again as we saw in 2008.
3. Income inequality sparking social unrest: There is great concern among government officials and businesspeople in China about potential future fighting between the haves and the have nots -- or urban vs. rural. This looming discord drives much of Chinese policy today: how to promote harmony over jealousy.

The Chinese government has a big dry mop it can use to soak up a lot on nonperforming loans if need be. While there are risks facing the country, they aren't the ones which get the most attention from Western observers.

From where I sit, the future still looks very bright in China.

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Bettting on Shanda Interactive

By Eric Jackson10/27/10 - 07:00 AM EDT

SHANGHAI (TheStreet) -- I have been in China for the last week visiting with different companies. Throughout the trip, I'm going to be reporting on it in regular updates in TheStreetas well as RealMoney.

On Monday, I met with Shanda Interactive Entertainment (SNDA_) in Shanghai. Going into the meeting, I had no idea that Chinese gaming and Internet stocks were going to have such a strong week. What sent the entire sector rocketing higher was Sohu.com's (SOHU_) positive earnings results which showed advertising revenue strongly ahead of analysts' expectations. This sent other Chinese portals like Sina(SINA_) and online gaming companies like Changyou(CYOU_) rocketing higher. Changyou is the publicly-traded online gaming company owned by Sohu.

The good news of Sohu showed that China's economy is still hot and growing, bringing more and more advertising revenue and usage to Web companies there.

Which brings us back to Shanda. The company is as old as other first-generation Chinese Internet companies like Sohu and Sina, yet they haven't been as high-flying of late -- especially after missing their second-quarter earnings' estimates by 12 cents a share. The key questions are why have they lost their mojo and can they get it back?

There are two Shanda-related companies which trade in the U.S.: Shanda Interactive, which is the original parent company with whom I met, and Shanda Gaming(GAME_), which is the online gaming business subsidiary of Shanda Interactive.

Shanda Gaming was spun-out from Shanda last year to better let investors assign its value as a stand-alone from the parent. However, investors have tended to ignore both the online gaming company and the parent since that spin-out. The enterprise value to EBITDA ratios of Shanda and Shanda Gaming are 3.6x and 5.2x respectively. Contrast that to Sohu's and its online gaming subsidiary Changyou's of 10x and 8.6x. It's clear that Shanda has been lost in the shuffle.

The parent Shanda relies on its online gaming group as its cash cow to bring users back. It has done a great job over the last 10 years of producing a number of hit games. It's also established its platform as a popular enough forum for developers to build and show their games on. The company is relying on the belief that its open and popular platform will continue to attract gamers. Most of their games are played online on computers, but they are working to allow more and more games to be available to play on mobile phones, including the very popular iPhone 4 and iPad from Apple(AAPL_).

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

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Time to End Proxy Vote Monopoly: Opinion

By Eric Jackson, Senior Contributor10/20/10 - 06:10 AM EDT


The Securities and Exchange Commission has been very busy over the last few months with concept releases and new proposed rules. So, lost amidst this activity, you might not have realized that today is the deadline for comments about proposed changes to proxy system.

Before your eyes glaze over, let me say that it's actually a very good thing. And, unlike most situations, there is one proposed change under consideration on which both investors and public companies are in complete agreement: ending the monopoly enjoyed byBroadridge(BR_) for counting proxy votes.

Typically, shareholders and general counsels are at loggerheads on how best to reform the voting process for director elections each year. The lawyers protecting the interests of the managers who pay them seek to keep shareholders at bay as best they can. This is why the whole "proxy access" issue generated so much heat earlier this year.

In "proxy access," shareholders wanted to be able to nominate their own representatives to stand for election to a corporate board -- without paying millions of dollars to run a full-blown "proxy contest." The lawyers for management lashed out against "proxy access" stating that such a process would be "hijacked" by nefarious "special interest groups" who would dangerously promote non-business related ideas on corporate boards if elected.

Shareholders countered that director nominees wouldn't get elected without the majority consent of the company's owners, so why would they elect someone who wouldn't best represent their interests?

Even still, by the time the lawyers and corporate "special interests" got through lobbying politicians, the SEC's passed rule on proxy access stated that investors had to own 3% of a company for at least three years before they could even make the nomination. So much for PETA and Amnesty International being able to hijack the process.

But the corporate paid lobbyists didn't stop there. The US Chamber of Commerce and Business Roundtable have recently sued the SEC to stop the newly passed proxy access rule from being implemented.

So, how is it possible that investors and management can come together on the issue of Broadridge holding a monopoly on counting votes? Easy. Both companies and shareholders aren't being well-served by the status quo.

On the company side, they are held hostage to whatever prices Broadridge wants to charge for their services. As the Shareholder Communication Coalition recently argued to the SEC: "The prices for proxy distribution and communications services should be established by open competition among service providers handling these functions, based on value to end users, and not through a fee schedule established by regulators."

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

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Google's Turning Point

By Eric Jackson
RealMoney Contributor
10/18/2010 5:30 PM EDT
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Google (GOOG - commentary - Trade Now) earnings last Thursday were a turning point for the company. Even after Friday's big 10% bump up in price, the stock is still down 3% for the year. Negativity has surrounded the company for most of the year -- some of it deserved, in my view, because of missteps (like Google's awkward and ill-advised withdrawal from China in the spring), and some of it not.

The concern for investors for much of the year -- aside from the whole China kerfuffle -- has been whether Google is just a one-trick pony.

Sure, it's been a hell of a pony, but investors have been wondering if Google could leverage its dominance in text ads for search into other areas. The company has thrown a lot of pasta against the wall over the years -- everything from Google Wave to Orkut to its $1.6 billion acquisition of YouTube a few years back - but not a lot has stuck in terms of meaningful profits... at least, not yet.

So, what was so eye-catching about Thursday's earnings call was that Google decided to give some specific data on its key new areas of growth.

The key stats revealed by the company were that:

The mobile business is contributing more than $1 billion annually in revenue (calculated by taking the last quarter's revenues and annualizing them)

Display advertising (as a result of the Double-Click acquisition a couple of years ago and the YouTube display ads) is contributing more than $2.5 billion annually in revenue (calculated using the same methodology as mobile)

More than 2 billion YouTube videos are viewed each week

What also seemed to surprise analysts on the upside was a drop in Google's TAC (traffic acquisition costs) in the quarter. Google is no longer paying News Corp's (NWS - commentary - Trade Now) MySpace for traffic under a very lucrative (for MySpace) agreement, struck a number of years ago when MySpace was still the big dog of the social-networking space.

So, the market is starting to sit up and take notice of Google again in the last two days. And why not? These metrics are important indicators of the company's future success.

The area that intrigues me most -- as a long holder of GOOG -- is mobile. This $1 billion in revenue is all from mobile ads. Google is still in a land-grab mode with Android. It continues to give away the operating system for free to carriers in order to drive adoption. And that is certainly working, as Android has grown from nothing to major mobile player in the last year. Many expect it to surpass Apple (AAPL - commentary- Trade Now) in terms of mobile market share soon, as it is now part of so many devices.

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Rosenberg on the Economic Crisis, Part 3

By Eric Jackson10/16/10 - 02:55 PM EDT

Editor's note: Following is the third installment in a three-part interview. Here is Part 1, and here is Part 2.

NEW YORK (TheStreet) -- Economic and market bears don't get more notable than David Rosenberg, the chief economist and strategist at Canadian investment firm Gluskin Sheff.

Rosenberg generated headlines this August when he advised clients that the "current economic malaise" is a "depression," and not "some garden-variety recession."

The former Merrill Lynch chief economist also was ahead of the pack when he raised alarms about the housing bubble in 2005 and warned of a coming recession in 2007.

In the following, final installment of my interview with him, he discusses why the dollar is about to rally and why a global currency war is such a serious problem.

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Eric Jackson: Do you see a rally ahead for the U.S. dollar? It seems to be as hated now as the euro was earlier in the year when people were calling for parity.

Rosenberg: Yeah, the U.S. dollar is hugely oversold. It's ripe for a significant countertrend rally. It's probably as oversold now as the euro was 6 months ago.

Right now, Ireland's deficit-to-GDP ratio is the same as Canada's debt-to-GDP ratio. But the reality is that no one cares because people know the ECB will ride to the rescue of all these Club Med countries. At the margin, there are people who think the euro is not going to survive, but they figure, "If we buy German bonds, and the euro fails, we're getting exposure to future deutsche marks, so what the heck?" The ECB is the only major central bank that's not cutting rates or getting into quantitative easing.

So what you have in the rest of the world is a dysfunctional foreign exchange market. What history shows is that this will ultimately spill over into other asset classes. You've got China as the poster boy for these great problems in the foreign exchange market, but we know that the yuan is undervalued and China is going to march to its own drummer. And the one mistake they're not going to make with their own economy is to follow the footsteps of Japan and the aftermath of the Plaza accord and allow their currency to appreciate with all the unknown deflationary consequences down the road. So, as far as China's concerned, the most important thing is social stability, so it's unlikely that they're going to do anything radical in the foreign exchange market.

In the meantime, we've got the Fed embarking on what could be another round of quantitative easing, which is fascinating because the Bank of Japan just went two rounds of easing ... to no avail. The Swiss authorities did the same for the Swiss franc with the same result. The Fed is now pursuing a policy that is aimed at weakening the dollar in the name of economic stimulus. At the same time, we have other countries, who have seen their currencies surge like Brazil and Thailand, who have raised their income tax on bond income for foreigners. Capital controls probably come next. So, you've got a very unsettling situation in the foreign exchange market right now.

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

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Rosenberg on the Economic Crisis, Part 2

y Eric Jackson10/15/10 - 09:24 AM EDT

Editor's note: Following is the second installment in a three-part interview. Here is Part 1. Part 3 will be published Saturday.

NEW YORK (TheStreet) -- Economic and market bears don't get more notable than David Rosenberg, the chief economist and strategist at Canadian investment firm Gluskin Sheff.

Rosenberg generated headlines this August when he advised clients that the "current economic malaise" is a "depression," and not "some garden-variety recession."

The former Merrill Lynch chief economist also was ahead of the pack when he raised alarms about the housing bubble in 2005 and warned of a coming recession in 2007.

In the following installment of my interview with him, he discusses why inflation is still years away, what the government should do to get the economy rolling again and whom the president should pick as jobs czar.

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Eric Jackson: When do we see real inflation in North America?

Rosenberg: A decade from now for sustained inflation. We know right now that corn, energy and cotton are experiencing price inflation, but I don't think it will be sustained. We're still in a deflationary environment. There's still far too much excess capacity in the U.S. -- for plant,commercial real estate or labor for that matter.

I think we're in year two of a six- to seven-year transition to the next bull market in the U.S. So it's going to take some time to create some meaningful inflation pressure.

Where are we in the debt deleveraging cycle?

There are two ways to delever: Pay down your debt, or stiff your lender. The fact that so many people have stiffed their lenders doesn't change the fact that we're still in this deflationary world where we're extinguishing excess debt. We've probably delevered 1 trillion dollars in household debt to assets, but we've got another 5 to 6 trillion dollars to go.

So, in terms of where are we with the whole deleveraging process, we're not at the national anthem, but, at best, we're just past the 3rd inning. We've still got a ways to go, and it's tough.

People say to me, "Where are the soup lines and bread lines if things are so bad?" I tell them, "They're in the mail, in the form of 99-week unemployment insurance checks." The U.S. government has managed to turn unemployment insurance into a quasi-welfare scheme.

When you take a look at organic real personal income, which is personal income in constant dollar terms excluding government transfers, it's still down almost 6% from where it was in 2007, so you tell me what kind of recovery we're in? That creates such a big problem. Consumers have upped their savings rate, but it's not enough to compensate.

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

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Yahoo! Buzz Will Lead to a Hangover

By Eric Jackson
RealMoney Contributor
10/14/2010 3:15 PM EDT
Click here for more stories by Eric Jackson

Yahoo! (YHOO - commentary - Trade Now) once again found itself in the headlines on rumors of a possible buyout deal. The stock got as high as $18 this morning before the open on the hopes and dreams of long investors that a buyout of the company by AOL(AOL - commentary - Trade Now), News Corp.(NWS.a - commentary - Trade Now) and a combination of private equity firms such asBlackstone (BX - commentary - Trade Now) orSilver Lake was imminent.

This news was broken last night by Kara Swisher at The Wall Street Journal's "All Things Digital" and then followed up by aJournal article. Swisher made it clear in her reporting that any deal wasn't imminent.

This morning, one Yahoo! shareholder said thatMicrosoft (MSFT - commentary - Trade Now) was the best acquirer for Yahoo! and should step up to buy the company in order to keep it from falling into the hands of AOL or News Corp. This line of thought goes: 1.) the burgeoning search deal between Microsoft's "Bing" and Yahoo! is too strategic for Microsoft to let Yahoo! fall into unfriendly hands, and 2.) taking out Yahoo! at its current $22 billion market capitalization is pocket change for Microsoft.

The problem is that such a deal is going to be very complex to pull off and -- in my view -- unlikely to happen anytime soon. As such, I believe Yahoo!'s stock price is headed lower in the short term, rather than higher. Indeed, Yahoo!'s price action this morning suggests that most investors are staring at the possibility of a deal in the cold light of day.

Haven't Yahoo! investors been here before?

Here's the big problem with a Yahoo! buyout in the short term: There are too many moving parts. If you're expecting Yahoo!'s board, Alibaba.com, AOL, News Corp., Microsoft, and multiple private-equity bidders to get on the same page in the next month, I suggest you go organize world peace at the United Nations as your next task. Everyone has competing desires and price targets in mind.

The main driver of a Yahoo! shake-up is the company's stake in Chinese e-commerce site Alibaba. Most people know that Yahoo! did a deal to buy a 40% stake in Alibaba five years ago, probably Jerry Yang's biggest contribution to the company during his tenure. (It might go down as strategically even more important than his co-founding of the company. Think about that.) Alibaba has tremendous assets in China that are only going to become more valuable over time.

Most people also know that Yahoo! wants to wait to sell its Alibaba stake until after that company takes its remaining private assets public in an IPO. Alibaba, not surprisingly, would like to buy back Yahoo!'s stake pre-IPO.

What many people aren't aware of is that, under the terms of the 2005 investment, Yahoo!'s stake in Alibaba just increased to 39% from 35%. Alibaba CEO Jack Ma and his management team saw their stake drop to 32% from 36%. (Softbank Corp. retains its 29% stake.)

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