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Four Promising Names in China’s Internet Space

Joel on December 16, 2008 - 7:47 am in Archive, Companies to Observe

The following is an article I recently published on SeekingAlpha.com. It is a bit more investor oriented than most posts, but it provides a great summary of four Chinese Internet firms worth observing. To view the original article on SeekingAlpha.com please click on this link.

Last month Alibaba.com announced its Q3 figures reporting EPS up 57% and Net Profit up 49% year-on-year. David Wei, CEO of Alibaba.com, was quoted saying: “While the global economy is facing extraordinary challenges, our business continues to grow at a steady pace.” Maybe for this past quarter David, but Alibaba.com, a leading e-commerce company that connects domestic small to mid-sized manufacturers with foreign exporters, will without a doubt feel the effects of the current financial crisis. Just look at the economic figures released by the General Administration of Customs this past week. China’s imports were down 17.9% and exports declined by 2.2%, marking the first export decline for China in seven years. If Alibaba.com thinks it is immune to China’s economic contraction they are not fooling anyone.

Alibaba.com may be hit hard, but there are a number of online companies in China innovating and capturing the attention of its domestic market participants. Now let’s bring them to your attention. These are four names you need to know:

Qifang
Qifang aims to make a name for itself as the leading peer-to-peer lending platform in China, connecting Chinese students in need with investors. The demand is there: for the millions of Chinese college students who cannot afford tuition and the difficulties associated with obtaining student loans from Chinese banks, Qifang is there to meet their needs. The company just received international recognition for its selection by the World Economic Forum as a 2009 Technology Pioneer because its business model has the potential to positively impact the lives of all those in the global economy. With international support and a market millions strong and growing, Qifang is certainly a company to keep an eye on.

ChinaQ
ChinaQ is China Telecom’s (NYSE:CHA) answer to Linden Lab’s Second Life virtual world. China’s largest fixed service telecommunications provider has teamed up with Shenzhou Henji Network to work on this project. In 2007 China’s online gaming market reached 1.66 billion dollars, growing more than 60% from the previous year.  While virtual worlds have yet to reach the same levels of penetration as online games like those created by Netease (NASDAQ:NETS) and Perfect World (NASDAQ:PWRD), China Telecom is betting things will pick up. If this turns out to be the case, the possibilities for in-game advertising and combined online-offline services are huge.


Kaixin001

Kaixin001 is one of the latest social networks to appear in the Chinese online space, and after only 5 months of operation in September the website already had 7.5 million users. Unlike other Facebook clones, Kaixin001 targets the Chinese white-collar market. It accomplishes this goal by releasing simple yet addictive games that are a perfect escape for workers looking for a break from their day. The games focus on objects desirable to young white collar workers such as real estate and cars. Social networks across the world face the problem of in-site advertising as users often find it intrusive. To solve this dilemma, Kaixin001 incorporates advertising into the games itself. For example in its “parking war” game players can select several virtual cars based on real-life models, like a Buick Regal. Don’t be surprised to hear about Kaixin001 becoming one of the leading Chinese social networks in the not too distant future.

Youa
At the end of October Baidu (NASDAQ:BIDU) entered the consumer-to-consumer marketplace arena with its new online marketplace Youa. Youa’s largest competitor will be the existing market leader Alibaba Group’s online marketplace Taobao. With local manufacturers losing export channels to reach those outside of China one alternative is to target domestic consumers. Taobao is currently the largest retail channel in all of China. However, the online shopping penetration rate is only 26% among China’s Internet users versus 80% in the US. If Baidu can recover from recent bad publicity then the current search leader may be able to leverage its brand and build up Youa into a true competitor with Taobao. Either way online shopping penetration in China is set to climb from the current 26%  and online shopping will boom in China; it is just a matter of who will be the market leader.

The current global economic crisis is putting the squeeze on China’s import-export market, but China’s tech companies may experience better growth because of it. China is currently the world’s largest Internet market, with over 253 million Internet users compared with 223 million in the second ranked US. Internet penetration is still relatively low at 19.1% compared with 71% in the US. These are four names in China’s online space that you need to know now, but I assure there will be more to come. The editor of a prominent tech publication recently wrote the following after a Web2.0 tour of China: “I had plenty of pre-conceived ideas. But almost all of these were blown away, especially after encountering a tech sector with an astonishing amount of sophistication, ‘in-built innovation’ and a people far more qualified and nimble than I had previously imagined. It was pretty clear that when they operate within the envelope set by this society, then the sky is pretty much the limit.”

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  • October 26, 2009

    China is expected to dominate the e-economy soon!

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