Why Tudou is on the wrong track - Shaun Rein

Shaun Rein

China's second largest video sharing firm Tudou launched last week successfully at Nasdaq, and business analyst Shaun Rein discovered they want "buy things". Wrong, he argues in CNBC: Tudou should focus on its sustainability and become profitable. Shaun Rein:

I expected after the IPO, Tudou’s investors and management would talk about how Tudou would use its war chest to develop profits. Instead David Orfao, a Tudou board member and managing director of venture capital firm General Catalyst, focused on what Tudou would buy in an interview with the Wall Street Journal. He said Tudou “ need(s) to continue to buy quality video content. They need to scale their infrastructure. Delivering these videos in a quality manner with minimal delay is key." The founder of Tudou, Gary Wang, told the blogger Gang Lu after the IPO that the proceeds raised would be used mainly for content, bandwidth and platform upgrades. Orfao and Wang barely touched upon how Tudou would actually start to generate more revenues and profits, but on how they would buy stuff. That is deeply concerning for a company losing tens of millions a year. If Tudou can figure out a way to develop a sustainable business model and lower bandwidth and other costs investors might want to take a look especially if the price drops further as they might become a takeover target for well capitalized firms like Baidu.

More in Shaun Rein's column at CNBC. Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.

Related articles

• Sharing the stage at Tudo's IPO - Marc van der Chijs (chinaherald.net)
• Most-sought speakers August 2011 (chinaspeakersbureau.info)
• Buying Prada suits, not shares - Shaun Rein (chinaspeakersbureau.info)
• China tied by debt and inflation - Shaun Rein (chinaherald.net)
• On phantom facts and China bears - Shaun Rein (chinaherald.net)

Sentiment against internet stocks - Shaun Rein

Shaun Rein

China's Internet companies are delaying listings in the US and for good reason, business analyst Shaun Rein explains in the US-edition of the China Daily. Negative sentiments rule even among the often too optimistic US investors when they look at China.

 "It makes sense for Xunlei to postpone their IPO because it is doubtful they would have received a warm welcome," said Shaun Rein, founder and managing director of the China Market Research Group, a strategic market intelligence firm in Shanghai.

Rein added it is "a terrible time" for Chinese companies to list on the US stock market after a number of accounting scandals have damaged the credibility of US-listed Chinese companies.

Xunlei, which booked $47 million in sales over the last 12 months, planned to list on the Nasdaq under the symbol XNET and has JPMorgan and Deutsche Securities as the lead underwriters on the deal.

Xunlei hoped to raise $114 million by offering 7.6 million American Depositary Shares (ADS) in a price range between $14 and $16...

Short sellers such as Muddy Waters Research have accused Chinese companies such as US-listed Sino-Forest, the Hong Kong-based operator of tree plantations, and Spreadtrum, the Shanghai-based chip designer, of fraud, although both companies' shares have rebounded from their lows in recent weeks.

Last week, rating agency Moody's Investor Service raised warnings about accounting and corporate governance risks at more than 40 China-based companies. "Sentiment is against Chinese Internet stocks right now. Aside from fears about reverse mergers, there are fears of volatility," Rein said.

More in the China Daily

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.

Related articles

• How to treat women, China's super spenders? - Shaun Rein (chinaherald.net)
• Furniture scandal hits consumers' nerve - Shaun Rein (chinaherald.net)
• Buying Prada suits, not shares - Shaun Rein (chinaspeakersbureau.info)
• One-off revaluation needed to fight inflation - Shaun Rein (chinaherald.net)
• Not _all_ listed Chinese companies are bad - Shaun Rein (chinaherald.net)
• Taiwan can catch China's luxury market - Shaun Rein (chinaherald.net)

The pros and cons of Renren's IPO - Jeremy Goldkorn

Jeremy Goldkorn by Fantake via Flickr

The valuation of China's leading social network Renren has done up dramatically just ahead of its IPO on Wednesday. Jeremy Goldkorn explains in Seeking Alpha why both excitement and caution should lead the investors.
On the pros: It is probably the closest a Chinese internet firm can come to Facebook. Renren has a highly competitive management with much experience in social networks. It has build up a close relationship with (potential) advertisers and is making some money.
On the cons: Renren is not China's equivalent of Facebook and is facing at home a brutal competitive landscape. And while it might make money in the future, is does not do it yet.

More in Seeking Alpha.

Jeremy Goldkorn is one of the leading voices on China's internet scene. He is also a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.

Related articles

• Why Renren is NOT "The Facebook of China" (techrice.com)
• Google is not in charge in China - Shaun Rein (chinaherald.net)
• The booming value of online game firms - Marc van der Chijs (chinaherald.net)
• If I were Groupon - Marc van der Chijs (chinaherald.net)

The booming value of online game firms - Marc van der Chijs

Marc van der Chijs

Online gaming has developed in the past five years from a niche market into a booming industry, writes former Spil Games Asia CEO Marc van der Chijs in his weblog. Valuation for gaming companies like Zynga and Playdom have gone up dramatically and valuations will continue to rise.

Times have changed though, nowadays online games are everywhere. Especially social games like Farmville managed to get a lot of new people to start playing games. In the early days social networks helped the growth as well: if your friends invite you to play a game the chance that you will try out the game is a lot higher...

Companies like Zynga (7bn USD) and Playdom (750ml USD) are exceptions, but others see their value also go up:

But for non-social game companies valuations so far where a bit lower. It seems that may be changing though and that investors are starting to realize the potential of these companies. This week it was announced that Bigpoint raised a USD 350 million round at a USD 600 million valuation. The company is not a social game company but focuses on browser based MMO (=massive multiplayer online) games, that are free to play. Bigpoint earns its money with virtual items as well, just like Zynga and Playdom. The big difference is that Bigpoint owns most of its users and is not dependent on a site like Facebook.
I expect that valuations for many other online game properties will go up in the near future, especially for those companies that get a large part of their revenues from virtual goods and that are not dependent on Facebook for their traffic. It will be interesting to see at which valuation these companies are able to raise rounds – or are snapped up by players like Zynga looking to have their own traffic! Based on what I am hearing in the market the revenues of many of these players are doubling every year because of virtual items (just like Bigpoint) and I won’t be surprised to see a billion dollar IPO for one of them within the next 18 months.

Marc van der Chijs is a speaker at the China Speakers Bureau. When you need him at your meeting or conference, do get in touch.

Related articles

• Bigpoint In $350 million Deal (blogs.wsj.com)

Is Groupon conquering China? No way - Paul Denlinger

Paul Denlinger

"From the perspective of those who have experience with the brutally competitive Chinese market where virtually no non-Chinese companies have succeeded, Groupon's management seemed to make all the wrong moves." Paul Denlinger tells in the Business Insider why Groupon is on the wrong track in China.

Instead of hiring local Chinese who had rich experience in the local Chinese market, it instead went to Harvard recruiting MBA graduates. From what everyone had seen, Groupon was setting itself up for a fall in China. 

But then, Groupon announced that it would partner with Tencent to develop the social buying market. Tencent, based in Shenzhen, has long been the instant messaging and virtual currency leader in China, with more than 600M registered users in China.

The not-yet closed deal is an effort to let Groupon look nice for a possible IPO, focuses on the US market, rather than on a good China strategy. Tencent is a huge company, but has a bad reputation on e-commerce.

Another unmentioned player is Alibaba/Taobao, led by Jack Ma, which is the undisputed leader in e-commerce in China. For many in China, Jack Ma is a marketing genius, regularly inviting former US presidents and business leaders to major marketing events in China at the company's headquarters in Hangzhou. In addition, he has a close and cordial relationship with China's premier Wen Jiabao. For the Chinese government, Taobao's business platform has the advantage of being able to provide important leading information about the state of China's exports, in a way which is even more accurate and reliable than the government's own Bureau of Statistics. Without a doubt, Taobao/Alibaba would take a dim view of Groupon and Tencent's attempt to elbow in on their e-commerce space. Jack Ma has a famously long memory, and while he may not seek to hit back at Tencent and Groupon immediately, he may well wait for the right opportunity.

More in Business Insider.

Commercial
Paul Denlinger is a speaker at the China Speakers Bureau. When you need him at your meeting or conference, do get in touch.

Related articles

• Groupon Is Going To Partner With China's Facebook (businessinsider.com)
• Groupon Heads to China While Trying To Fix Japan (piercemattiepublicrelations.com)
• Groupon Poised to Strike Partnership With China's Tencent, in Key Global Expansion Move (kara.allthingsd.com)

Pin the nail on the donkey investment decisons - Amy Sommers

Amy Sommers by Fantake via Flickr

China stocks are hot at the US markets, whether they go IPO or through merging a shell, while class action law suits against Chinese companies go up. Shanghai-based lawyer Amy Sommers looks in Forbes at the risks for investors.

Are US investors in China companies intrigued by the China brand and playing ‘pin the tail on the donkey’ in their investment decisions? From where I sit in Shanghai, that’s my general impression. 

For those interested in investing in China companies, I would recommend viewing a company’s reverse-merger history as a potential red flag deserving of further scrutiny of business fundamentals before proceeding. An IPO led by a reputable investment bank may be somewhat less risky. 

Also, bear in mind that the listing standards for the Shanghai exchange are very high – China’s capital markets are still relatively undeveloped and so the CSRC limits listings to companies they deem mature. Consequently, the Chinese companies that are pursuing listings on exchanges outside of China generally are doing so because they can’t qualify to list in China, perhaps in part because they are more volatile/immature. As a result, generally speaking such companies have a higher risk profile. If investors recognize this and allocate their capital accordingly, then they are consciously assuming risk and can plan accordingly.

More in Forbes.

Commercial
Amy Sommers is a speaker at the China Speakers Bureau. When you need her at your meeting or conference, do get in touch.
The China Speakers Bureau will be live on air at the American Entrepreneur Radio tonight. Check here for more details. 

Related articles

• A superpower needs better education - Shaun Rein (chinaherald.net)
• Business Leadership in China - review (chinaherald.net)
• Take care when investing in China - Shaun Rein (chinaherald.net)
• Foreign brands struggle as Chinese retailers rise - Paul French (chinaherald.net)

When a China bull becomes a bear - Shaun Rein

Shaun Rein by Fantake via Flickr

Derided as the eternal bull on China, Shaun Rein now warns US investors (and others) in Forbes against a dangerous bubble emerging from China: the IPO hype from anything coming from China, including video hosting companies Youku and Tudou.

A mania about China has gripped too many investors. Anything with China in its name gets hot in the way dot-com got people's blood pulsing in the 1990s. Many of America's biggest-gaining initial public offerings this year have been of Chinese firms. Many of those companies deserve high valuations, but not all of them.

Soon two Chinese online video companies, Tudou and Youku, will be going public. Both are run by intelligent, savvy and aggressive management teams that have raised more than $100 million in private equity money. I have friends involved with both companies who will probably be very angry at me for writing this, so I do not say it lightly, but investors need to be very cautious about investing in these companies and understand the risks.

Shaun Rein has serious misgivings about the business models of both loss making companies who pin their hopes on the 420 million internet users in China.

Searching for profits, both Tudou and Youkou have moved into generating more content rather than relying on user-generated content, and they have clamped down on pirated shows. A Hulu-style site might make money more easily than one with user-created content, but the cost of creating content is huge. Tudou and Youkou are not television stations; Hulu's backers, like Newscorp and ABC, can simply broadcast their television content online. Creating content and developing a cool website take totally different management skills. Content, like the movie business, is a risky bet, because it is dependent on one-hit wonders.

More arguments in Forbes.

Commercial
Shaun Rein is a speaker at the China Speakers Bureau. When you need him at your meeting or conference, do get in touch.

Related articles

• How I fought the financial crisis - Shaun Rein (chinaherald.net)
• Food price controls temporary - Shaun Rein (chinaherald.net)
• Aung San Suu Kyi: economic sanctions do not help - Shaun Rein (chinaherald.net)