Code JDMBA2b: May 2005

Tuesday, May 31, 2005

Important News For Those With Federal Student Loans

I have already sent in my consolidation paperwork. My readers have until the end of June to do the same before Federal Stafford loan rate rise by 1.93%. From CNN:

"Come July, the rock-bottom rates on your federally guaranteed, variable-rate student loans will be going up. The Federal Stafford loan rate will rise 1.93 percentage points to 5.3 percent, while the Federal PLUS loans for parents will also rise 1.93 percentage points to 6.1 percent."

"When you consolidate in a low-rate environment, you roll all your loans into one and lock in a single rate on the money you owe. That rate is a weighted average of all your loans rounded up to the nearest eighth of a percentage point."

"Right now, if all your loans are Stafford loans obtained after June 1998, the consolidated rate is 2.88 percent if you're still in school and 3.38 percent if you've graduated and have started repaying them. Come July 1, however, those rates will jump to 4.75 percent and 5.38 percent, respectively."

If you decide to consolidate: "If all your loans are with one lender, you have to consolidate with that lender. Bush has proposed eliminating the single-holder rule, but for now it's still in place."

"If you have loans with more than one lender, ask your school's financial aid office which lenders offer the best consolidation deals in terms of discounts and customer service."


"Department of Education recently indicated that if you're a current student you may choose to consolidate your loans before graduation. To do so, you would need to request early repayment status from your lender and ask for an in-school deferment. One potential drawback to consolidating while in school is that you would need to begin repaying your loan as soon as you graduate, forfeiting the 6-month grace period."

The main points here are:
  • Consolidation needs to be done by the end of June to take advantage of the current rates
  • If all of your loans are with one lender you must try to consolidate with that lender first
  • If you include your Perkins loans in your consolidation you may lose certain loan forgiveness provisions
  • Current students can now consolidate under a new Department of Education rule! However you will lose your 6 month grace period
  • Many of my readers could save thousands of dollars by consolidating now (depending on your balance and repayment period)!
  • I am not making any legal advice here. Please contact your lender and do your own due diligence before consolidating

My advertiser links will lead you to more information on loan consolidation. I am not recommending any specific loan consolidation company. Please do your own research before consolidating.

A few more informative sources on the issue can be found here:

Monday, May 30, 2005

Chinese Government To Regulate Online Gaming

From Pacific Epoch:

"Ministry of Culture, Ministry of Information Industry (MII), State Administration of Public Security, State Administration of Industry and Commerce and the WenMing Office launched a campaign to monitor online game content in mid April, reports Nan Guo City Daily. The campaign will last until September 1. Ministry of Culture is currently drafting standards for game content."

The part that worries me the most is:
"MII and Ministry of Culture will require online gaming companies to revise their games if they are found to be addictive."

The positive point of the news is:
"Games that the government deems suitable for the youth will be recommended and promoted during the summer holiday."

Lets hope the Chinese government does not go overboard in regulating the online gaming market. China will be the largest online gaming market in the world and hopefully government officials will not hamper industry growth. The problem with online gaming by nature is that is is hard to control who is using the service. In the US certain industries require a credit card authorization or something similar to make sure users are at least 18. Most Chinese people do not have access to credit cards like Americans. If China passes a law saying that certain games can only be played by adults how can the age be verified? Anyone can lie about their age.

Besides content/age restrictions for certain games I am worried about the addictive aspect. China can tell internet cafe's to close after a certain hour or limit the amount of ame play per person each day. However as more people access the internet from home how can they control this? Will they force the gaming companies to limit the amount of weekly usage per account? By doing this the government would only encourage the use of pirate servers by unscrupulous companies that will not abide by the usage rules. I hope this does not happen for the sake of the industry.

1.18 Million Peak Concurrent Users For Netease

Between XY2 and XYQ it looks like Netease has set another PCU record:

At this point I believe NTES is on pace to exceed their own upwardly revised revenue estimates for the second quarter! Lets hope that their new casual games portal and upcoming 2.5d and 3d game can be as successful as their existing games!

Disclosure: I am long NTES

Recent posts on NTES:

Sunday, May 29, 2005

NBA Conference Finals

Okay I admit I have lost some credibility after my previous NBA playoffs prediction:

In the East:
In the first round I was right about Phoenix, San Antonio and Seattle advancing but wrong about my prediction Houston would beat Dallas

In the West:
I was right in feeling both Miami and Detroit would advance to the conference finals. I was wrong however about Boston and Chicago winning in the first round.

I also predicted that Phoenix and Detroit would advance all the way to the finals. It appears I was wrong about Phoenix. The first two games were very close. Perhaps is the Suns had Joe Johnson healthy for the whole series things would have been different. My logic in picking Detroit to beat Miami was based on my belief that Detroit is just as good as they were last year when they beat LA in the finals. I do not feel that Miami of this year is better than LA was last year. Right now Detroit is down two games to one. I may be proved wrong again.

1L Summer Clerkship

I have not posted much this week as I have been in the process of moving. I am starting my summer clerkship on Tuesday. I am a little nervous about what to expect particularly since I will likely be one of the only first year law student's (1L's) clerking at the law firm. I am excited to be working again. Gaining some more real world legal experience will be a nice change from studying for law school exams. Somehow I think I will enjoy working on real world cases, doing research and writing for real world clients will be more interesting than my law school experience thus far. I am looking forward to it. I will continue posting on my blog this summer to let my readers know how I am doing.

On another note I am thinking a lot about my class schedule for next fall. I am excited about being a rising 2L and having more options in my course selection. However I think I may have gone overboard on both the number of credits and business electives I registered for. I now am thinking I should drop a few business electives and add another core class instead. Somehow I think 18 credits may be too much when I will be dealing with a busy fall interview schedule.

Tuesday, May 24, 2005

A Chinese Silicon Valley?


"Zhongguancun doesn't roll off the Western tongue easily, but it will soon be an address that technology investors must learn. For 25 years, locales from Singapore to the south of France have tried to create their own Silicon Valleys, but the originals remarkable spirit has never been duplicated. China, however, is putting the finishing touches on its own Silicon Valley and this time, they may have found the recipe."

"Unlike Silicon Valley, however, Tsinghua is starting with another strong advantage: 'sea turtles.' That is the local nickname for the native-born Chinese who receive educations in the United States and return to start companies in China. Ahmad Bahai, chief technologist for National Semiconductor and also a professor at Stanford and Berkeley, says: 'Recently I have had some very good Chinese students whom I offer jobs at National. But instead they want to return home.' One reason is that its much cheaper to start a company in China than in Silicon Valley. The classic sea-turtle is Charles Zhang, who graduated from MIT in 1994 and returned to China to launch with a few hundred thousand dollars; the Internet portal is now worth half a billion dollars. I met one sea-turtle at last months Asian Technology Roundtable in Beijing who explained his departure from Silicon Valley very simply: Chinese engineers work harder for less."

Hundreds of thousands of engineers graduate college each year in China, but only about 50,000 new engineers are created each year in the United States. China also offers very attractive tax benefits to high technology companies not available in the United States. In addition in major high tech Chinese companies like Huawei have been able to work on projects 24/7 by having engineers work in shifts to get products to market faster. I doubt very many U.S. engineers are willing to work a 3rd shift schedule. Absent some major tax incentives and other changes to support more innovation at home, I would not be surprised if Zhongguancun or some other Chinese high tech district surpasses silicon valley on the innovation front sometime this century.

Motorola Going After Small Towns To Increase Sales

Here is as interesting article from the Jakarta Post:

There should be some positive implications for Both IIT and TLK here.

"He said that Motorola's strategy was to "connect the unconnected" with new low-cost but high quality cell phones. The firm targets the small towns because only around 8.5 million of Indonesia's 220 million population (about 3.9 percent) have access to fixed-line phones, which are mostly in urban areas"

"Therefore, Motorola aims to double its cell phone sales this year by introducing products priced below Rp 400,000, or less than its international standard of US$40, to rural areas."

"Motorola sells low-cost cell phones to migrant workers and their families to enable them keep in contact at least through SMS. Moreover, the company has been working closely with cellular phone operators, by following their moves in establishing infrastructure in new areas where they provide services. The growth of cellular and fixed wireless services has been quite remarkable over the course of the year, with the number of cellular subscribers increasing faster and recording 25 million by last October, up by about six million from the end of 2003. Giants PT Telkomsel and Indosat dominated the sector with a combined market share of 83 percent, followed by PT Excelcomindo Pratama (XL) and a few new players like PT Bakrie Telecom and PT Mobile-8 Telecom."

"A whopping $1 billion was invested this year by cellular operators to build new infrastructure and upgrade services, including launching new products and brands. 'Indonesia is among two or maybe three left untapped markets. Together with India and Bangladesh, Indonesia has a huge population with low penetration,' Van Tilburg said. He went on to say that this year Motorola aimed to sell over one million cell phones -- double last year's sales -- with about two-thirds of them being units priced below Rp 1.5 million. If Motorola achieves this, it may be able to achieve its ambition of taking second place after Nokia in holding the biggest cell-phone market share in the country."

Disclosure: I am long TLK. I do not own IIT now but have owned it in the past. I may be buying more IIT shares (assuming the right price point) in the near future.

Monday, May 23, 2005

Kong 1Q 2005 Earnings

The press release is here:

  • Revenue for the quarter grew 138% year-over-year and 3% sequentially (versus a guidance of 1-5% growth) to a record $17 million
  • 2.5G revenue grew 161% year over year but declined 7% sequentially to $13.68 million
  • 2G revenue grew 71% year over year and 89% sequentially to $3.25 million.
  • Net income for the quarter increased 87% year over year but declined 11% sequentially to $5.88 million. Diluted earnings per ADS was $0.17, up from $0.11 in 1Q04 but down from $0.19 in 4Q04.
  • operating expenses include $0.86 million in legal expenses related to the issues raised in the class-action litigation commenced in August 2004. Without these legal expenses, the diluted earnings per ADS would have been $0.19 for the quarter
  • Kong believes it remains the China leader in 2.5G services
  • The Company signed agreements with: IN-FUSIO to license its Die Hard and Midtown Madness mobile games; Gameloft to license its famous Asphalt mobile game; Famous actor and comedian Ge You to exclusively use his voice for Color Ring Back Tone and Ring Tone products in China.
  • On May 12, 2005 completed a definite agreement to purchase Tianjin Mammoth Technology Company, a well known mobile game developer in China.
  • 2Q05 guidance for revenues was $17-17.5 million
  • WAP revenue decline will likely continue in 2Q due to new China Mobile revenue recognition policy. This decline will likely be offset by growth in other services.
  • Kong may consider using their cash for a share buyback in the future

Overall I do not have a strong opinion about the results. 3% revenue growth was in line with their 1-5% growth forcast. 2Q05 forecasts looks reasonable considering the new WAP revenue recognition policy but nothing to get excited about. Next quarter I hope to hear more about mobile games, any possible share buybacks and a better idea of long0term growth rates. Kong stated they feel well prepared to capture future growth in the 2.5g and 3g markets. Time will tell. At these prices I think the downside risk to KONG is limited assuming no major additional government intervention, revenue sharing changes, or regulatory bans.

Disclosure: I currently maintain no position in KONG

Saturday, May 21, 2005

Another Sogou Traffic Record

According to Alexa the traffic rank for Sogou today is 63 in the world today

With,,, and to help drive traffic to Sogou I think it is possible the growth will continue. This is great news for SOHU who still is far behind and others in the China searh market.

Disclosure: I am long SOHU

Recent Posts on SOHU, Sogou and China Search Market:

Friday, May 20, 2005

Taobao CEO Jack Ma Confident Taobao Will Lead China Auction Market

Here are the details of a recent interview with Mr. Jack Ma:

"The market is so big and so complicated, so probably we'll have at least two big players... I think Taobao in the future will get 70 pct (of the market) and EBay definitely will get 20 or 30 pct."

"As a sign of the firm's commitment to China, EBay previously announced that it plans to spend 100 mln usd boosting their presence in world's most populous country. But Ma is not worried about EBay's spending power. 'I encourage them to put more money in (China), I'm worried that if they do not pour money into China, we'll have to pour money in China to educate the market,' Ma said."

"One notable failure for eBay was Japan. EBay was slow to enter the Japanese market, and eventually exited it in 2002 with dismal sales. Ma believes EBay's failure in Japan was due to an inability to build what he calls the 'community effect' in the country. For Ma, the community effect begins with customer satisfaction."

"In addition, EBay China must adhere to EBay's global platform, Ma said. This means that any China-specific adjustments to the site must be cleared with EBay in the US, which hinders the company's ability to produce a business truly tailored for the Chinese market."

"Alibaba's payment system, AliPay, also gives the firm an advantage over its US rival, which has yet to release a version of its own payment system, PayPal, in China."

"A unified, convenient payment system remains one of the bottlenecks to e-commerce in China, according to experts. China has low credit card penetration and the majority of Chinese online shoppers pay for goods cash-on-delivery."

Some previous posts on the Chinese Auction Market:

Greenspan Comments on Effects of Potential China Currency Revaluation

Here is a link to the AP story from Yahoo! Finance:

Some key quotes from the article:

  • "America's bloated trade deficits probably wouldn't be helped by China revamping its currency system as the Bush administration has been pressing Beijing to do, Federal Reserve Chairman Alan Greenspan said Friday."
  • "That's because companies are likely to turn to other countries, such as Thailand or Malaysia for goods, rather than U.S. producers. 'So essentially what we will find is we're importing from a different area, but we will be importing the same goods,' Greenspan said."
  • "Letting the yuan move higher against the dollar would increase prices American shoppers pay for Chinese goods in the United States, Greenspan said. "The effect will be a rise in domestic price in the United States," he said."
  • "Greenspan said that at some point China will let the yuan rise against the U.S. dollar because its current system represents an increasing threat, including higher inflation, to the Chinese economy. In pushing for China to make a change, the administration has laid out a similar case."
  • "The Chinese, who have bristled at pressure from Washington, say they are making progress on changing their currency system. They say they need more time to shore up their banking system so it can withstand the volatility resulting from a flexible currency."
  • "On Friday, China announced new tariffs on its surging textile exports, a concession aimed at easing a clash with the United States and Europe over a flood of Chinese goods pouring into their markets."

Monday, May 16, 2005

China Auction Market

Here is a Forbes article with some interesting comments from eBay president Meg Whitman and Terry Semel, chairman of online rival Yahoo! Inc:

"At a Beijing financial forum, Whitman said if the company executes its strategy properly, 'China could be eBay's largest local market in a five-to-10 year period'. The online auction market in China is booming, with industry experts forecasting the volume of transactions to surge 75 pct to 3.37 bln yuan this year from last year and to reach 8.06 bln yuan by 2006."

"She said the company's online purchasing system PayPal could also help address problems of credit risk and security problems that constrain online transactions."

Eachnet (Ebay), Taobao (Alibaba) and 1Pai (Yahoo/Sina) are the three major players in the market

  • Yahoo/Sina is currently in third place
  • Eachnet and Taobao both claim to be the current market leader (based on different metrics)
  • Payment systems, localization and trust among users seem to me to be the three most important factors for success. Promotion may be a close forth place.

Shanda 1Q 2005 Earnings

The press release is here:

  • Net revenues grew 118.3% year over year and 15.3% quarter over quarter to $60.0 million. Shanda plans to discuss net revenues instead of gross revenues for now on.
  • Online games revenues increased 96.7% year over year and 13.2% quarter-over- quarter to $53.3 million accounting for 88.9% of total revenues
  • MMORPG revenues grew 10.3% quarter over quarter to $40.0 million
  • Casual game revenues grew 22.7% quarter over quarter to $13.3 million
  • Other revenues for the first quarter, which primarily include revenues from online advertising, and other value-added services and products, increased 36.2% quarter over quarter to US $6.7 accounting for 11.1% of total revenues
  • Gross profit margin increased to 71.0% in the first quarter compared to 67.1% in the fourth quarter of 2004, while operating margin increased to 51.1% in the first quarter compared to 43.5% in the fourth quarter of 2004
  • Net income for the first quarter of 2005 was $26.6 million, and diluted earnings per ADS were $0.36
  • The currency conversion rate is currently RMB8.2765 to US$1.00

I am happy about:

  • $0.36 EPS which is $0.03 better than analyst estimates
  • The gross profit margin increasing quarter over quarter.
  • Net revenue of $60 million was much stronger than the expected $53.61 million
  • Advertising revenues are growing quickly (eBay/Eachnet contract was very helpful)
  • Casual gaming is doing VERY well
  • Licensing of Dungeons & Dragons
  • PCU of Magical Land during beta testing reaching 100,000

I am concerned about:

  • Slowing growth for MMORPG (some of the revenue gains were based on an increase of ARPU instead of additional new users)
  • Recent reports of hacking problems for Magical Land
  • Tax rates increasing for some Shanda subsidiaries (perhaps they can fight this as Netease discussed on their conference call)

On the conference call I would like to hear more about:

  • Internal game development efforts (MMORPG and casual games)
  • What they are doing to slow down or prevent additional MMORPG hacking
  • Any new licensing in the pipeline
  • Intentions with Sina stake
  • Comments on validity of HRAY rumor
  • Forecasts for potential Dungeons & Dragons demand
  • What they can do to minimize tax liability
  • More of IPTV efforts. A very interesting article from Pacific Epoch on the topic can be found here: It appears as if Shanda's potential IPTV partners could include Intel and Changhong on hardware, Alibaba, Taobao and Sina on content, and China Telecom and SARFT on infrastructure.

Disclosure: I am long SNDA

Sunday, May 15, 2005

New Traffic Record for Sogou

Sohu seems like a good value to me at $16.65. Their WVAS prospects have already been severely discounted by the market over the last year or so. Today it looks like has reached a new all time traffic record:

Sogou is now the 76th most popular website in the world up from a recent top 200 or so per Alexa. Sogou version 2 seems to be growing in popularity in China. Baidu, Yahoo! China and Google still have a nice lead in the China search market. Sina recently announced the will soon be launching their own search engine as well. Time will tell what happens.

Disclosure: I am long SOHU

Saturday, May 14, 2005

Shanda 1Q 2005 Earnings Forecast

From one of my favorite China related blogs billsdue ( here is a link to Goldman Sachs forecast for Shanda:

Shanda is scheduled to report earnings on Monday:

I am currently long SNDA

Occupation, Education, Income and Wealth

How do you compare to other Americans in these categories?

An interesting interactive graphic from the New York Times:

A few points of interest:
  1. Doctors prestige was measured to be 99th percentile, and CEO's only 69th percentile. I thought CEO's would at least be above lawyers (84th percentile in prestige). But according to US census surveys this is not the case.
  2. I am surprised to learn that a High School diploma is 48th percentile and a bachelor's degree was 91st percentile. I see this changing in the coming decades
  3. I am not that surprised by the income statistics.
  4. The wealth statistics are scary. $50,000 - $100,000 seems to be in the middle. How do young today people expect to retire if they do not save? Social Security should not be the sole retirement plan for anyone and may not be around (at least in its present form) for many young people today when they reach retirement anyway. Other countries have much higher savings rates. Perhaps Americans are just too materialistic (at the expense of their long-term financial well being).

Advantages of JD/MBA for Lawyers

Recently a number of people have emailed me asking about salary statistics for JD/MBA graduates. This is very hard to quantify as there is no such thing as a "JD/MBA position". JD/MBA graduates work as attorneys or in business and their salaries will correlate strongly (at least in the short term) with their JD or MBA counterparts depending on the route they choose. Many large law firms are now offering recent JD/MBA graduates a bonus and or 2nd year associate status.

Here is a very interesting link (but a few years old):

Some drawbacks of a JD/MBA:
Clearly the bonus itself will not pay for the extra year (the Northwestern 3 year JD/MBA program is an exception) of school and opportunity cost of giving up another years income.

Some law firms may be scared that JD/MBA graduates will be more likely to leave in a few years for jobs in finance or business. These firms need to be convinced of your passion to practice law or they will be hesitant to hire you.

Unlike top law schools, most top MBA programs will not admit people without significant full time work experience. For those with limited work experience it may become slightly easier to gain admission to business school after already being admitted to law school. Many JD/MBA programs will allow law students to apply to the business school during their first year at the law school.

Some advantages of a JD/MBA:

Increased flexibility: It will be much easier to leave a law firm job to go in house at a corporation, investment bank, venture capital firm, etc later in your career.

More credibility: As a lawyer your clients (business people) will respect you more if they feel you can understand their business and financial statements, etc. An MBA may help here. This may help you with rainmaking (bringing in clients) or making partner at a law firm (which is a business itself) down the road. This does not imply that without an MBA you cannot be credible. Most attorneys learn what they need to about business on the job and do just fine.

Of course you do not need to practice law at all. A JD will help you make better decisions in the business world if you decide to go the business route right away after a JD/MBA program. Investment Banking is a common option here. However if you are sure you do not want to ever practice law you should think carefully about going to law school at all. Just about any business (non legal job) is accessible without a JD and a MBA may suffice by itself.

If you are an entrepreneur at heart like me you may also find that having a JD may make it easier to raise capital for new businesses, etc as it will increase your credibility. My goal is to ultimately start my own hedge fund and or venture capital firm with an emerging market (China) focus. For finance related jobs a CFA is perhaps just as good or even better (depending on your MBA program) as an MBA. I recommend that as well.

Friday, May 13, 2005

1L is over!

I am happy the first year is over and I have a few weeks to relax (besides doing my law review packet) before starting my summer law clerk position. I slept in late today after partying too hard and drinking too much the last two nights. I plan on going out once more tonight for some 3L graduation parties before I have to get busy on my law review packet tomorrow.

500,000 PCU's for World of Worldcraft

This is very positive for NCTY. I thought that hardware would be a major problem for potential users. It looks like many internet cafe's and other may be upgrading their computers for this game:

Based on server data it appears NTES games XYQ and XY2 are still doing well. Who is WOW taking market share from? A3, Lineage 2 or Mir 2 perhaps? Time will tell.

I currently have no position in NCTY

Tuesday, May 10, 2005

My Last First Year Law School Exam!

My last law school exam of the year is tomorrow morning (Constitutional Law). The first two semesters went by so fast I can hardly believe it! I will likely take a few days off from posting on my Blog so I can celebrate the end of the year. I need to get back to work in a few days. My law review write-on packet needs to be finished this month before I move away for the summer to start working as a summer law clerk at a law firm in my hometown.

Tom Online 1Q 2005 Earnings

Here is the press release:

Some excerpts:
  • Total revenues grew 36% from the same period in 2004 to $35.3 million for the quarter and up 2% from the previous quarter.
  • Net income grew 10% from the same period in 2004 to $9.2 million and up 12% from the previous quarter.
  • Wireless internet revenue increased by 40% to $33.4 million from the same period last year and was up 5% compared to the previous quarter
  • Revenue from Voice-based services, including Interactive Voice Response (IVR) and Ringback Tone (RBT), increased 93% to $11 million from the same period last year and was up 22% from the fourth quarter of 2004.

Earnings per ADS of $0.19 per share in Q1 2005, were in-line with the Reuters consensus of $0.19 revenues rose 36.0% year over year to $35.3 million vs the $36 million consensus. Tom Online issued an in-line guidance for Q2, sees revenues of $37-38.8 million vs. $38.60 million consensus.

Looking forward:

  • WAP, IVR and RBT should be near term WVAS drivers
  • The MISC billing platform problems with SMS appear to be over and some stability has returned to SMS revenue
  • Tom Online has sold part of its India Games stake to Cisco and Macromedia for strategic reasons
  • Tom Online is now the #WVAS player in China based on revenue and it expects that this will become a strategic advantage in gaining key partnerships, contracts and economies of scale going forward
  • TOMO will be actively promoting a new casual gaming portal this quarter
  • TOMO will be upgrading the Tom/Skype product which continues to gain market share

Disclosure: I am long TOMO. I am not making any investment advice here. Please do your own research before investing.

Electronic Arts Will Launch 15 Mobile Games in China

Electronic Arts (ERTS) China Efforts:

By the end of 2005 EA plans to have 100 people in their Shanghai development office and launch 15 mobile games. EA was quoted as stating mobile gaming is one way to avoid the rampant piracy in the China software market.

Sunday, May 08, 2005

More Difficult Registration Process Makes China Mainland Firms Less Attractive for Foreign Investors

A very interesting read from the South China Morning Post:

Venture Capital and Private Equity Groups looking to increase investment in China need to understand the new State Administration of Foreign Exchange (SAFE) rules. Basically the new rules make it more difficult to set up the financing, incentive and ownership structures preferred by venture capitalists.

Here are some excerpts from the story:
"New regulations issued by the mainland's State Administration of Foreign Exchange (SAFE) could limit the ability of Chinese individuals to set up offshore holding companies used to list mainland assets on overseas capital markets, according to a law firm."

"O'Melveny & Myers, which specialises in such transactions, warns the new rules will undermine the attractiveness of mainland firms to foreign venture and private-capital investors."

"This is a huge mistake for China," said Walker Wallace, a Shanghai lawyer for O'Melveny & Myers. "It is likely to put a crimp on the venture capital flowing into the young, promising technology companies in the mainland."

"For venture-capital firms looking to invest in mainland companies, the offshore holding structure is typically the preferred choice because invested assets would be held offshore, while the Chinese firms' mainland founders would remain majority shareholders, but through the offshore holding."

"But Mr Wallace said the new regulations would limit the ability of Chinese founders to set up the offshore company, with the result that overseas venture capitalists would need to invest in the mainland firm either through full acquisition or as majority stakeholders. Venture capitalists want management to remain incentivised, but this will be difficult to achieve under the new regulations because [venture capitalists] will be the majority owners, he said. Unless all the deals become control deals, it just means deals won't get done. The new regulation ... heavily penalises local entrepreneurs, who will now find it difficult to keep control of their companies."

Saturday, May 07, 2005

Major Hacking Problems For World Of Worldcraft

WOW seems to be very popular in China already. Unfortunately this hacking news is not good for The9. NCTY shareholders better hope they find some way to stop it fast:
The article
Free online language translation

Friday, May 06, 2005

Here is an interesting article from the CoolHeadInvestor blog comparing GRVY to WZEN:

I tend to agree with the author that GRVY may be undervalued. I also like their lead in distribution of online games in a number of markets across the globe. However much is riding on the ultimate success of R.O.S.E. and upon its release RO2.

The performance of WZEN over the past year or two has shown us what can happen to a firm that relies primarily on a hit game (MU) that is aging without launching a new hit right away to stop the revenue decline. I recently purchased WZEN however primarily as a value play (they have a huge cash position as compared to their market cap) and am hoping their new game SUN is successful as they prepare to launch the likely hit game APB in 2007.

Disclosure: I am long WZEN. I do not own GRVY but will continue to watch it closely for possible future investment.

JD/MBA Students

There are not that many JD/MBA students at my school. Recently I have been receiving a number of emails asking for more specifics on the logistics of being a JD/MBA student. I would like to clear up some confusion here. I am not technically a JD/MBA student. I completed my MBA a year before starting law school and worked in between. I have JD/MBA in the title of my blog because I would like to target readers who have an interest in both law and business (finance). Of course most of you know I am very interested in emerging markets (specifically China) so that has become a major focus for me as well.

I worked in business to business sales, then as a small business owner full time during college (which I attended part time). I was a financial advisor during part of and immediately after my my MBA studies. Finally, I worked as an on call case assistant at a large law firm the summer before law school to gain some legal experience. I am now completing my first year of law school and will be working as a summer law clerk at another law firm starting later this month after finals are over.

Thursday, May 05, 2005

Sina First Quarter 2005 Earnings

The Press Release is here:

I am not impressed with the results:

  • Net revenues for the quarter grew 11% year-over-year to $45.8 million
  • Advertising revenues for the quarter grew 27% year-over-year to $16.6 million, accounting for 36% of total revenues.
  • Non-advertising revenues for the quarter grew 3% year-over-year to $29.2 million, accounting for 64% of total revenues.
  • US GAAP net income for the quarter decreased 36% year-over-year to $10.3 million, or $0.18 diluted net income per share.
  • Non-GAAP net income for the quarter decreased 31% year-over-year to $11.5 million, or $0.20 diluted net income per share
  • Non-GAAP net income for the quarter included $728K in fees for the Company's recent adoption of a shareholder rights plan and related legal and financial advisory services.

I expected profits to take a hit due to the poison pill related costs and fortune telling advertising ban, but I am disappointed with both the gross revenue number and future guidance:

  • Average analyst guidance for 1Q and 2Q respectively was 46.26M and 50.43M. Sina reported 45.8M and guided between $44.0 million and $48.0 million for 2Q.
  • Lineage 2 had 93,000 average concurrent users in March which is less than I expected and growth for the I-Game casual portal seems to be slowing
  • On the positive side it looks like Sina has made some progress in developing its own search engine technology. Time will tell how good it is.
  • At this point I plan on holding my Sina shares solely because of their position as the top portal in China. Perhaps a SNDA/SINA merger would e a good thing as Sina clearly is not doing a very good job executing and maybe they need some help.
  • As of right now Sina is trading at $26.80 after hours. I would not be shocked if it drops even further tomorrow.

Disclosure: I am long Sina as of the time of this post

Tuesday, May 03, 2005

Law School Final Exams

I had my first final exam of the semester this morning. Property is a five credit course so most of us consider it to be our most important final exam. Overall I think it went well and I am definitely happy to be done with a five hour exam. I felt like I did a spectacular job early on in the test, but unfortunately at an expense. By the time I reached the final exam question (which was weighted the highest) I was beginning to feel some pretty heavy time pressure. Despite my strong intention to keep to schedule, I think I went into too much minute detail in the first question and spent a lot of time in the process. By the end I had to compare some legal issues to cases we covered in the text, briefly differentiate and make my recommendation about what we could try to do to help our make believe client on those issues without adding much detail. I simply ran out of time to fully elaborate on what I wanted to say late in the exam. I have two more exams coming up and law review competition to follow before summer break really starts.

Is a WVAS Rebound Coming?

Some seem to think that the worst of the WVAS correction may be behind us for the moment. Lets hope SINA has a good earnings report this week. I am currently long many stocks in the sector including Sina. I also hope we here more about the ongoing Sina/Shanda rumors during the conference call.

Another New PCU Record For Netease Games!

1.138 million PCU for XYZ and XY2 combined is the new record. This is a holiday week in China making week over week calculations less material but this is still great news in the wake of both Shanda and The9 launching new games last week that some thought would steel lots of market share from Netease.

I am long NTES

Recent posts on NTES:

Sunday, May 01, 2005

Could Shanda Be A Takeover Candidate?

An interesting read from a Paul Waide blog on Pacific Epoch:

"In July 2005, or thereabouts, China's biggest pure play online gaming company Shanda Interactive Entertainment Limited (SNDA) is set to launch a set top box onto the market in China. The box will plug into a broadband connection and a TV, allowing users to play Shanda games and access the various content Shanda has acquired with its IPO gotten gains. Rumored price: $300.

Apple Computer, Inc. (AAPL) has a product on the market that could offer all the features of Shanda's STB and more. The Mac Mini retails at $499.

Apple with its $29.68 billion market capitalization should launch a takeover bid for Shanda, which the market currently prices at $2.28 billion.

Why do it? Apple is now basking in the iPod "halo effect" and was one of the best performing stocks on the Nasdaq in 2004. Shanda also booked impressive gains in 2004 after its second quarter IPO. What next?

If there is one market where Apple has executed poorly it is China. Despite a recent surge with the iPod and iPod shuffle, Mac use is mostly limited to design and publishing professionals. Chinese cities including Shanghai, Beijing, Shenzhen and Guangzhou are obsessed with fashion - just ask Gucci or Hermes if their Shanghai stores are turning a profit - but Apple is yet to really capitalize on its geek fashion icon status anywhere in Asia except the city states and Japan.

Shanda expects to get one million of its set top boxes into Chinese homes by year end. Even blog trashing Steve would have to admit that a million extra Mac Minis sold would be a big help to prolonging the iPod halo and possibly even triggering a "China halo". There are probably only 25 to 30 million households with computers in China depending on whose numbers you believe. If they were Apple branded - two million units sold would put Apple's China market share on par with its global share."

"The upside for Apple (I am assuming any deal would not get off the ground for some time and that the million STBs I mention above will be sold regardless), a chance to get the Apple logo into the homes of China's emerging middle class. Also, a note on foreign capital transfer from the State Administration for Foreign Exchange (SAFE) back in February and then some clarification last week might make it impossible for new companies to structure like Shanda (and Sohu, Sina, Linktone et al.)."