JDMBA2b

My Largest Stock Holdings

2005-08-20T19:28:00.000-07:00

Attention! The following is a copy of a recent post from my new blog JDMBA. If you hope to read more posts like these in the future, do not return to JDMBA2b. Instead please visit my new blog JDMBA and update all your links and bookmarks to reflect my new blog name and address. Thank you!

Currently my 5 largest holdings are SIFY, WZEN, NTES, SOHU and SINA. Since I mainly talk about Chinese stocks on this blog, I have not spoken as much about SIFY and WZEN.

SIFY is an internet, network and ecommerce company in India. Currently most of their revenues come from corporate data and network services. Retail internet access is the next largest revenue contributor. Other areas such as online advertising, ecommerce and WVAS are still very small but growing quickly. Here is a link to their most recent quarterly report. According to Alexa, Sify is currently the 6th most popular website in India. It should be noted that Rediff, the 3rd most popular site according to Alexa, is also publicly traded on the NASDAQ under the ticker symbol REDF.

Sify is the clear leader in two areas, corporate network services and the operation of Internet Cafes or I-Ways in India. I see continued growth in both areas. In addition to further growth in their corporate networking, internet access and I-Way businesses, I am excited about Sify's potential growth in WIFI, VOIP, WVAS and Online gaming areas. Recently launched Sify Max, should be a positive for their fast growing shopping and WVAS business. The I-Way business currently has about 3000 internet cafe's (most of which are franchised). I see this as an excellent platform for a rollout of a MMORPG and Casual Games business in India. A3 licensed from Actoz is the MMORPG currently being promoted by SIFY.

Recent news for SIFY includes a ruling by the TRAI on ISP entry fees and licensing fees for offering VPN services. "VPN is a leased-line based service used by large corporate houses and retail chains to link up their offices across the country on a common network." As broadband rates continue to fall in India, broadband ISPs such as Sify Broadband will continue to benefit at the expense of (sometimes more expensive) dial up providers. Several years ago 3 companies (SAIF, SARF and Venture Tech) purchased SIFY shares at extremely low prices. All three have been selling SIFY shares over the last few years as prices have increased. Based on SEC filings I think no longer think SARF is a beneficial owner. SAIF (SOFTBANK ASIA INFRASTRUCTURE FUND) sold lots of shares over the last few days as prices increased on large volume. This heavy selling pressure from SAIF is likely one of the primary reasons why REDF outperformed SIFY by such a wide margin this week. As SAIF and Venture Tech run out of shares to sell, I believe the downward pressure on SIFY shares will lessen and SIFY will be ready for a large price run-up as it approaches profitability in the near future.

WZEN is a far less diversified business than SIFY; it is primarily a pure play MMORPG business based in Korea. Right now ALL of its revenue essentially comes from one game, MU. Earnings will likely continue to become weak until its next MMORPG is commercially released. It appears that its next game SUN will enter closed beta testing on September 27th. You can find further comments of mine about WZEN here. For anyone who is interested in investing in WZEN I HIGHLY recommend you visit their website and download trailers for their upcoming games. For my impression of which games will be successful in specific regional markets look here. I am most excited about the prospects of SUN, Huxley and APB. Since MU is rapidly aging, an investment in WZEN is largely a bet on the future success of upcoming games. Of course their huge cash position (Warning! Yahoo Finance Key Statistics are often not up to date. Always look at the most recent SEC filings and balance sheets for current data) is also very attractive!

My most recent comments on NTES can be found here. In my opinion, recent profit taking in NTES may be another good buying opportunity for those interested in initiating a long position in NTES. I think it is likely that even the highest analyst estimate for 2006 could prove to be too conservative. I felt that NTES would exceed 2Q 2005 analyst estimates and turned out to be right (actually the results were even better than I thought!). Since most Netease revenues come from online games lets hope that I am correct in forecasting Da Tang and Tian Xia Er and casual games revenues ahead of analyst estimates for 2006. I recommend reading this recent post by CoolHeadInvestor on NTES.

My most recent comments on SOHU can be found here. Recently there has been a traffic decrease for Sogou on Alexa. It is too early to know the cause for sure. Perhaps there is an error at Alexa, or perhaps Alexa corrected a previous error. Based on the recent page views per user increase, perhaps one of the more inefficient Sogou referral sources (in terms of page views per user) stopped directing traffic to Sogou. I recommend keeping an eye on Alexa data. I feel pretty good about Sohu right now after recent insider purchases.

My most recent comments on SINA can be found here. I recommend listening for an announcement on what will happen to the 1pai joint venture with Yahoo after the Yahoo China/Alibaba deal. In my mind there are three possibilities:

1. Alibaba/Yahoo will purchase the remaining 1/3 ownership of 1Pai in order to gain full control. 2. Alibaba/Yahoo will leave 1Pai as is and Sina will continue to own 1/3 of the joint venture
3. Alibaba/Yahoo will merge 1Pai with Taobao in order to better compete with Ebay/Eachnet. Sina will be given an equity stake in the new Taobao/1Pai business (likely to retain the name Taobao).

I am hoping for the third option. Contrary to some people who think eBay will be successful in China, I think Alibaba will win. Meg Whitman and her team does not understand the local market as well as Jack Ma and his team and Alipay already has a good lead on PayPal.

Disclosure: I am long SIFY, WZEN, NTES, SOHU, SINA

RSS Feeds for JDMBA

2005-08-14T02:07:00.000-07:00

If you like my blog, you can now get automatic headlines as I publish them by adding JDMBA to your RSS feeds. Just click the "Feedburner", "My Yahoo", "NewsGator", or "My MSN" links on the right side of the page. Signing up is absolutely free. It will also help me monitor approximately how many regular readers I have.

Please sign up today!

Please note that the RSS feeds will be for my new blog:
http://jdmba.blogspot.com

This blog is no longer being updated

Baidu IPO Coming Soon!

2005-07-28T19:29:00.000-07:00

Baidu (BIDU is the proposed ticker) is among the most hyped IPOs so far this year. For more information on Baidu and the upcoming IPO read my new blog:
http://jdmba.blogspot.com/2005/07/baidu-ipo-hype.html

Comments on GRVY Trading Activity Today

2005-07-28T18:22:00.000-07:00

Here is my impression of the Gravity news and resulting trading activity today: As a backdrop please note that GRVY:

Has a relatively low float (number of shares available to trade) which increases volatility.
Is not covered by many professional analysts or professional traders (I believe they are only covered by one analyst) which may imply a decreased efficiency of the market price equaling the “true value” of the shares.
Relatively low institutional ownership.
Has a high beta. Beta is the sensitivity of a stock's returns to the returns on some market index (e.g., S&P 500). For more on beta look here: http://invest-faq.com/articles/analy-beta.html

Stock price reaction to news about companies with a low float, little analyst or professional trader coverage, low institutional ownership and a high beta is often exaggerated. All of the factors listed above can increase volatility. On bad news such stocks will tend to take a short term drop more dramatic than fundamentally warranted. On good news they tend to rise in the short run more than they should. Supply/demand issues will exaggerate these gains or losses when there is a low supply (GRVY has a low float) or when trading volume is much higher than normal (such as today).

Read more on my new blog: http://jdmba.blogspot.com/2005/07/gravity-trading-activity-today.html

Please Update Your Links!

2005-07-24T17:42:00.000-07:00

If your webpage has a link to my old blog:
http://jdmba2b.blogspot.com,
please update your links to reflect my new blog address:
http://jdmba.blogspot.com

It appears that I am still getting quite a bit of traffic to my old blog that I would like to see coming to my new blog instead. Please help me out by making sure that your links to my blog contain my new web address.

For any of my readers who have a blog that may be of interest to my readers please let me know (my email address can be found in my profile) and I will be happy to link to your blog as well! Please come back and visit my new blog soon as there will be many Chinese ADRs reporting earnings in the next few weeks and I am eager to share my opinions.

Yuan Valuation Adjustment

2005-07-21T17:49:00.000-07:00

Today the Chinese government announced a change to the exchange rate of 8.11 yuan to the dollar from 8.277 yuan to the dollar where it has been fixed for many years. Here is my opinion on the news in terms of politics, international trade, outsourcing and Chinese ADRs:

Read more about this topic and much more on my new blog:
http://jdmba.blogspot.com

If your webpage has a link to my old blog, please update your links to reflect my new blog address:
http://jdmba.blogspot.com

Conflicting Reports about CHL Revenue Sharing Changes

2005-07-20T23:45:00.000-07:00

Will China Mobile (CHL) be changing the revenue split for NTES and SOHU? Currently they both get 85% and China Mobile gets 15%. The news of the revenue sharing models changing for some companies is not new:
http://tinyurl.com/8lczh

What is new are reports from iResearch that NTES and SOHU may be among those who are affected:
http://tinyurl.com/8avnk

Read more about this topic and much more on my new blog:
http://jdmba.blogspot.com

If your webpage has a link to my old blog, please update your links to reflect my new blog address:
http://jdmba.blogspot.com

SIFY Earnings Preview

2005-07-17T15:11:00.000-07:00

I am eagerly awaiting SIFY's 1Q (Yes I said first quarter. SIFY's calendar year ends March 31st) earnings release Tuesday morning:
http://biz.yahoo.com/bw/050715/155214.html?.v=1

I do not have any reason to expect that SIFY did much better or worse than current analyst expectations of a 4 cent loss per share:
http://finance.yahoo.com/q/ae?s=SIFY

I am much more interested in SIFY's future guidance. It is without question that SIFY management has made a number of large mistakes since their initial IPO during the internet boom. They overspent millions of dollars buying various Indian websites that are still worth only a fraction of the initial purchase price. Today SIFY is trading at a very reasonable valuation and has good prospects going forward assuming they can properly execute. Continued on my new blog............

Read my opinion of SIFY's prospects and what to look for on the conference call on my new blog:
http://jdmba.blogspot.com

If your webpage has a link to my old blog, please update your links to reflect my new blog address:
http://jdmba.blogspot.com

Casual Gaming Market in China

2005-07-15T23:59:00.000-07:00

SOHU just announced they will launch a new casual gaming platform next Monday, July 18th. Here is the story as reported by Pacific Epoch:
http://tinyurl.com/bkds2

Netease recently launched a casual gaming portal as well which is now in beta testing. Now most of the major publicly traded Chinese portals (SINA, SOHU, NTES, TOMO) and gaming companies (SNDA, NCTY) are offering casual games or will be soon. Shanda and Tencent are the clear leaders in casual gaming at the moment. I believe Sina is doing pretty well also. Netease is obviously doing well in MMORPG games so it is likely that they can leverage some of that success to become a major player in casual gaming soon enough. As demonstrated recently by Shanda's rapidly accelerating casual gaming revenue it is an important and growing area. Competition will increase as more players enter the market. Many WVAS players will be or already are competing in the casual gaming market as well.

More about the Chinese casual gaming business on my new blog:
http://jdmba.blogspot.com

If your webpage has a link to my old blog, please update your links to reflect my new blog address:
http://jdmba.blogspot.com

Thank you!

Upcoming Baidu IPO

2005-07-13T21:24:00.000-07:00

Goldman Sachs, Credit Suisse First Boston and Piper Jaffray are the underwriters. Baidu plans to raise up to US$80 million with the IPO. Based on recent revenue, profits and risk factors I do not think BIDU deserves a market cap greater than any of the three major Chinese portals (SINA, SOHU, NTES) right now. I will wait until after the IPO to evaluate if I am interested in buying BIDU at current market prices.

Read more about Baidu on my new blog http://jdmba.blogspot.com

If your webpage has a link to my old blog, please update your links to reflect my new blog address:
http://jdmba.blogspot.com

Thank you!

Mobile Gaming Market in China

2005-07-12T22:24:00.000-07:00

The mobile gaming market is still in its infancy, although I think it will eventually become one of the worlds largest just like online gaming in China. Of the publically traded NASDAQ firms I think SNDA, TOMO, and KONG are best positioned for future market growth as of this moment.

Continue reading on my new blog:
http://jdmba.blogspot.com/2005/07/mobile-gaming-market-in-china.html

p.s. Those of you using RSS feeds and those of you who have linked to my page, please start using my new blog address: http://jdmba.blogspot.com

Thank you!

Business Opportunities in China

2005-07-11T17:17:00.000-07:00

For my readers who have an interest in investing in China the following teleconference this Thursday at 8:30PM Eastern time should be very interesting....

To continue reading please visit my new blog:
http://jdmba.blogspot.com/2005/07/business-opportunities-in-china.html

New WVAS Revenue Sharing Model at China Mobile

2005-07-10T22:52:00.000-07:00

As reported last week, China Mobile (CHL) has made some major changes to its WVAS revenue sharing model. Historically the service providers took 85% and China Mobile took 15%. With the new changes the service providers will take 85% going forward only if they do all of the marketing and customer service related to the WVAS product. China Mobile will take 30% or 50% instead of 15% depending on the amount of marketing and customer service responsibility they take on with regard to the service provides WVAS product.

Continue reading at my new blog:
http://jdmba.blogspot.com/2005/07/new-china-mobile-wvas-revenue-sharing.html

eBay Finally Launches Paypal in China

2005-07-09T15:42:00.000-07:00

Read more about the Paypal launch on my new blog:
http://jdmba.blogspot.com

SWOT Analysis of WZEN

2005-07-06T21:45:00.000-07:00

Webzen (WZEN) is currently one of my favorite holdings in the Asian online gaming sector. While I believe others may be much better positioned in the key Chinese market and have executed much better than WZEN over the last few years (such as NTES another one of my key holdings), I think that WZEN is trading at far to low a valuation to resist.

Applying a standard SWOT analysis to WZEN:

Read more here....
http://jdmba.blogspot.com/2005/07/my-opinion-of-webzen.html

My New Blog

2005-07-01T22:50:00.000-07:00

At some point I plan on replacing http://jdmba2b.blogspot.com with http://jdmba.blogspot.com since I see the later as being a more desirable domain name. Please be patient with me as I move content onto this new site. Thank you!

My Current Asian ADR Positions

2005-06-30T19:01:00.000-07:00

Lots of people have been asking me which Asian ADR’s I currently have positions in. Although my positions may change at any time, here is the current list and a sentence or two about why I own shares in each:

NTES- Its two primary games are still growing, upcoming games and casual have high potential. Internal development leads to high margins, better game localization and reduced hacking risk.
SINA- Leading portal in China which is very attractive to advertisers who want to reach the large and growing Chinese consumer market. Huge user database that will become better monetized over time across multiple business segments.
SOHU- Multiple attractive web properties (www.sogou.com, www.sohu.com, www.chinaren.com, www.17173.com, www.focus.cn, and www.go2map.com). Sogou has a good position in the growing China paid search market.
TOMO- Strong WVAS position, strong execution. Tom/Skype and India Games acquisition both have good long term prospects.
KONG- Almost $3 per share in case. Strong position in 2.5G, and mobile gaming markets. Well positioned for 3G going forward.
SIFY- Strong market position in corporate networking and as an ISP. Clear leader in India Internet Café market. Well positioned to monetize user base with WVAS, advertising and online gaming going forward.
TLK- Leadership position in Indonesia where wireless penetration is still low. Good growth prospect and very reasonable valuation.
WZEN- Lots of cash as compared to market cap. Although its primary game MU is aging, its game pipeline looks very strong over the next few years
SNDA- Leadership position in China online gaming market. Casual gaming, mobile games, WVAS, advertising and possibly IPTV as future growth drivers.

There are of course multiple risks involved with all of these stocks. Type the ticker symbol that interests you into the Google search box in the upper right hand corner to find more detailed blog postings of mine on each of these stocks. I am not making any investment recommendations here. Please do your own research and evaluate your risk profile before investing.

New Google Search Box

2005-06-25T11:25:00.000-07:00

Many of my readers have been asking for a better way to search my prior blog postings. I have just added a Google search box to the upper right hand side of the page. Try typing in the ticker symbols of your favorite Chinese stocks to find recent relevant blog postings of mine. Or type some common keywords relating to law school, business school, finance or China, to find my recent postings on the topic.

Of course you can always select "Web" instead of "jdmba2b.blogspot.com" in the Google search box to find additional information on the internet relating to topics discussed in my blog.

Let me know what you think and please continue to email me suggestions about how to improve my blog!

AnonymousLawyer

2005-06-25T10:32:00.000-07:00

I have been reading this blog for a while:
http://www.anonymouslawyer.blogspot.com/

For quite some time many people thought it was a real blog of a big law partner. It turns out it is all fictional and written by a current Harvard Law School student. I think it is one of the funniest blogs I have ever read. While everything is made up, much of it is similar to what actually happens in big law firms across this country (perhaps just exaggerated a little at times). Here is a copy of a recent post written by AnonymousLawyer on Saturday, April 02, 2005:

"This is a terrible day. Every year it frustrates me. For no good reason, tonight at 2 A.M. we lose a billable hour. Daylight savings time is ridiculous. Individually, it's not a big deal, but think of it on a firm-wide level. That's hundreds of billable hours. Gone. Without a trace. And don't tell me we get them back in October when the clocks turn the other way, because by October everyone forgets about the debt they incur back in April, and just uses the extra hour to sleep. It's a useless waste of valuable time, and I hate having to tolerate it every single year. Definitely on the list of things I will change when I become chairman of the firm."

"Hourly billing gets a bad reputation, but I don't know why. If we charged a flat fee by project, we would have an incentive to push the work down the food chain to our most junior-level associates, or, even worse, farm it out to temps. This way, the clients get what they pay for. If I spend an hour with your file, that's one rate. If an incompetent first-year spends an hour with your file, that's a different rate. Only makes sense that way, since my time, obviously, is a lot more valuable. Everyone knows that."

If any of my readers have a blog that relates to the subjects I like to talk about please send me the link and I will be happy to add it to my blog.

Telkom Corruption Investigation

2005-06-21T17:24:00.000-07:00

I was not happy reading this Jakarta Post story as TLK is one of my major holdings and has done quite well for me lately:
http://www.thejakartapost.com/detailbusiness.asp?fileid=20050621.L01&irec=0

"The government-sponsored interdepartmental corruption eradication team is intensifying its investigation into corruption allegations at state telecommunication company PT Telkom, following initial evidence of graft allegedly committed by the company's management."

"under the new contract Telkom should pay an annual payment to MGTI within the contract period totaling US$517 million, aside from assuming full responsibility to build and finance new telecommunication facilities in the two provinces"

"All MGTI shareholders, including Telkom's rival state telecommunications firm PT Indonesian Satellite Corp. (Indosat), Widya Duta Infotel, Telstra Global Ltd, NTT Finance and Sumitomo Corporation agreed to sell their entire stake to PT Alberta Telecommunication (Alberta) for a total of $266 million in January last year"

"Aside from the MGTI deal, the anticorruption team is also probing allegations of kickbacks during the construction of network infrastructure for Telkom's latest cellular technology Telkom Flexi."

It appears that TLK has massively overpaid for MGTI. Although some financing issues were alleged to have blocked the $266 million deal last year, I am sure that TLK could have financed it in the international debt markets. TLK is profitable, growing and in a leadership position in India. Somebody would have purchased bonds at a reasonable rate of return so TLK could have financed the deal. I am concerned about the kickback allegations. I am going to hold onto my TLK shares for the moment as I still feel that they are way undervalued (assuming any possible corruption can be eliminated) but that does not mean I am happy about this. Perhaps if TLK falls back below 20 based on continued reaction to this news I will buy more shares. My future decision to remain a TLK shareholder hinges upon the elimination of any corrupt management going forward.

Disclosure: I am long TLK

Another recent TLK related story (on a more positive note):
http://jdmba2b.blogspot.com/2005/05/motorola-going-after-small-towns-to.html

Identification Theft

2005-06-20T19:07:00.000-07:00

This post does not directly relate to any of the usual topics of my blog. Nevertheless I am going to share some information with you since several of my friends have recently been a victim of ID theft. It is true that due to the amount of information that can be accessed online, nobody can ever be completely safe. Many corporations (Credit Card Companies, Public Utilities, Mortgage companies, etc) and government organizations (DMV, SSA, IRS, etc) have access to our personal information and SS#. Often this information is not completely secure. You social security number is the most important thing you want to protect. Here are some tips for people that are victims of ID theft or would like to reduce the risk of it happening to you:

Order your credit report from all three credit bureaus. There has been a recent amendment to the fair credit reporting act allowing all consumers 1 free credit report from each bureau once a year: http://tinyurl.com/cm28u Review your report for any inaccurate data and dispute any inaccuracies promptly: http://tinyurl.com/6w3tg
Send opt out letters to each credit bureau to make your personal information unavailable to be shared with others or used for promotional purposes: http://www.ftc.gov/privacy/protect.htm This is important because thieves will often raid mailboxes to pick up credit card offers, etc.
Use a P.O. Box for your mail if possible. This makes it more difficult for thieves to steal your personal financial records that can easily be removed from a mailbox on your street.
Never carry your social security card
Never use your social security card, birth date, etc as a password. Thieves will guess passwords that can be associated with you in order to gain access to your records. Always use passwords that are unique and hard to guess. Do not write them down or leave the passwords in unsecured areas. Memorize financial passwords instead.
When applying for credit, do not freely give out your SS#. Many companies will be able to find other ways to verify your creditworthiness without your SS#. This may not always be possible, but you should avoid giving out your SS# when you can. Always ask why they need it. For example many doctors will use it as an identification number for your file, etc. However they likely have no legal requirement to ask you for it and can get by without it if required
Buy a paper shredder. Thieves often will look at garbage to find data.
Never throw away credit card receipts. Instead take them home and shred them when they are no longer needed.
Purchase a credit monitoring service and not the kind with quarterly or even monthly updates. Buy a service than monitors your credit (with all tree bureaus) in real time and alerts you to any suspicious activity or opening of new account.
Be aware of your legal rights. If your report your credit card as lost or stolen before it is stolen you cannot be held liable for any loss. Under federal law you cannot be held liable for unauthorized purchases to your credit card is excess of $50. Many credit card also companies offer $0 liability fraud protection for unauthorized credit card purchases. For ATM or Debit Card Loss or Fraudulent Transfers (EFTA) transactions your liability is limited to $50 if reported within 2 business days. Note that under Federal law EFTA liability can increase to $500 after two business days and up to an unlimited amount after 60 days if unreported: http://tinyurl.com/cw38j
Try to find out quickly who has stolen you data and prosecute. The sooner you act, the better chance you have of catching the person before they post your data online or sell it to others.

TOM Online

2005-06-20T17:15:00.000-07:00

Tom Online is currently one of my larger holdings. Among the WVAS players in China with a major portal (TOMO, SINA, SINA, and NTES), TOMO seems to be the least expensive. As compared to other pure WVAS players such as KONG, LTON and HRAY, Tom Online is more diversified and has the advantage of a superior portal and content partnerships to drive traffic and WVAS usage. I also think they have done a relatively good job executing their business plan over the last year or so and expect the trend will continue.

With the expected massive increase in Mobile Gaming over the next few years in both China and India, I think the India Games Acquisition will turn out to be a big positive for TOMO. Tom Online will be able to increase WVAS advertising and gaming revenues from its increasing TOM/Skype usage, its portal that has been adding content, strong distribution network and more unique strategic partnerships such as the one reported today by China Tech News:

http://www.chinatechnews.com/index.php?action=show&type=news&id=2718

Tom Online has signed a wireless partnership with Warner Bros. Online
"The partnership includes the launch of the first official Warner Bros. Studios site in China on the back of Tom.com's website name."
"Both parties agree to partner in the creation and distribution of Warner Bros. Studios wireless content for the first time in such advanced formats as MMS, WAP, wireless gaming, Flash, as well as animation and video streaming in the run-up to 3G."
"Warner Bros. Studios' characters such as Scooby-Doo, Bugs Bunny and Tweety will be featured on the site along with sections dedicated to the Studios' movies, games, and wireless Internet products. Websites for upcoming feature films will also be available. Upcoming titles may include Batman Begins, Harry Potter and the Goblet of Fire, and Charlie and the Chocolate Factory."

I am currently long TOMO and may consider buying additional shares at any sign of weakness between now and the 2Q 2005 earnings announcement.

New Sina Search Engine

2005-06-19T18:08:00.000-07:00

Is http://isou.com the new search engine product that Sina has had in development?

I have not read any press releases yet about its launch, but it sure looks like a Sina search engine to me. I have not been able to evaluate the quality of http://isou.sina.com.cn yet, but I will be watching it closely in the weeks ahead.

Alexa.com is a good site to track the traffic growth of new internet sites:
http://tinyurl.com/9vnf6

Disclosure: I am currently long Sina

More Chinese Auction Market News

2005-06-15T21:22:00.000-07:00

This article from China Tech News really scares me as a law student with some interest in the success of the online auction business in China:
http://www.chinatechnews.com/index.php?action=show&type=news&id=2687

Essentially an online auction buyer purchased a computer from what he thought was a technology company in Changsha. After he paid for the computer but never received it he realized that no company named Changsha Fengxiang Technology Company even existed. He sued 1pai http://www.1pai.com.cn (Auction JV between Yahoo and Sina) and the court granted him a judgment for the RMB3350 cost of the computer plus legal fees. If this becomes precedent it could be disastrous for the online auction providers. In China it is much more difficult to prove your identity and credibility with online auctions due to the much less advanced online banking systems, less reliable postal services, etc.

On a more positive note, this story from China Daily as reported by iResearch talks about a new escrow and logistics service created by Alibaba (the parent company of Taobao http://www.taobao.com):
http://tinyurl.com/8zte5

"Alibaba.com's affiliate Zhejiang Zhifu Bao has entered into an alliance with China's two major logistics service providers, Zhaijisong and Tianjin Datian Group, to create the first e-commerce third-party logistics agency in China. The third-party logistics service integrates different logistics enterprises onto the online platform of Zhifubao from which the trading parties can choose. Buyers can have a specific logistics company to check and deliver goods for them and the latter will then act as an escrow agency. Zhifubao is also negotiating with the China Postal Express Corporation for possible cooperation."

Until payment systems, mail delivery and online trust can be improved for the benefit of online auction communities, it seems an escrow service (particularly with China Postal Express Corporation cooperation) could be a great thing to help foster industry growth. Lets hope Alibaba announces something like this for its Taobao division as well!

China Instant Messenger Market

2005-06-14T18:52:00.000-07:00

Here is an interesting post from China Net Investor:
http://china-netinvestor.blogspot.com/2005/06/chinese-instant-messaging-im-market.html

Essentially Tencent (ticker 0700 on the Hong Kong Stock Exchange) has a large majority of the China IM market right now and has been taking market share away from Sina and Netease. The only other competitors that have been gaining market lately have been MSN and Tom/Skype.

MSN has an advantage as Microsoft preloads MSN into Windows XP, so as users upgrade to XP from Windows 2000 it is automatically installed. Tom/Skype has an advantage in superior voice quality (Tencent followed the idea and now offers a voice product that is getting lots of usage also) and some technical advantages in being run during MMORPG play.

The other smaller players have been losing market share (Sina-UC and Netease-PoPo) for very logical reasons. First QQ offers more features than some competitors. Second if you had 3 IM products which one would you use? Most likely the same one as most of your friends. With 77% QQ market share vs. 3% for PoPo, 1% for UC and 2% for IM which do you think most of your friends use? Probably QQ! Therefore other than Tom/Skype and MSN I doubt Tencent's QQ IM product will be losing much market share to anyone else in the near future.

For those of you that would like to learn more about Tencent I highly recommend reading this Goldman Sachs research report courtesy of BillsDue: bbb.typepad.com/billsdue/files/gstencent61305.pdf

It appears that Tencent is hiring aggressively in order to ramp up efforts in a number of areas including casual games and MMORPGs, portal, advertising, and possibly online auctions. Apparently Tencent thinks that since many Chinese Auctions users use QQ to discuss possible transactions they can succeed in launching an auction site themselves. Time will tell. The auction market is extremely competitive as I have discussed on my blog previously.

On an unrelated note, I have recently changed the advertising placements on my blog. By using much a smaller text advertisement on top of my page and fewer advertisements on the right side of my page I hope that my sponsors have become less intrusive. Your feedback is always welcome! Eventually I hope that my sponsors will help support my blog. Please let me know what I can do to better appeal to you my reader!

Paypal China Launch Date

2005-06-13T22:04:00.000-07:00

According to this Forbes article (courtesy of AFX News Limited) one of the main reasons why eBay has been losing market share to Taobao (who launched Alipay in October of 2003) in China is the lack of a payment system:
http://tinyurl.com/73vcf

In my recent blog post in mentioned a payment system, localization and price to be the big 3 factors in determining success in the Chinese Auction Market:
http://tinyurl.com/c3azt

Of course the U.S. Market has taught us that a first mover advantage and high quality user friendly auction interface is also important (the site with the most buyers will attract more sellers and vise versa). I think the Chinese Internet Market is still relatively young enough that the leadership positions are not yet set in stone.

There was a very interesting comment on billsdue stating that Taobao never actually received approval for Alipay, but instead just chose to launch early and deal with any legal implication at a later date:
http://tinyurl.com/bazys

U.S. Firms are not accustomed to this type of practice. I have a feeling that the Chinese government would rather see Taobao succeed than eBay/Eachnet, so I bet Alipay will be allowed to continue operation going forward just fine. If this is the case, then and if Paypal is delayed much longer, Taobao could really build a big lead pretty fast in China.

China Search Market Update

2005-06-13T21:48:00.000-07:00

China Search Market

Based on my information the current 5 leaders in the China Search Market (along with associated Chinese web properties) are:

1. Baidu www.baidu.com (Will IPO this summer, 10% is owned by Google)
2. Google www.google.cn www.google.com.cn, www.google.hk
3. Yahoo www.yisou.com, www.3721.com, www.1pai.com.cn (Joint Venture with Sina)
4. Sohu www.sogou.com, www.sohu.com, www.chinaren.com, www.17173.com www.focus.cn, and www.go2map.com
5. Zhongzou www.zhongsou.com

Sina (the top portal in China) reportedly has a search engine of its own coming soon

This following article ranks Baidu first followed Sohu and then Yahoo:
http://tinyurl.com/ba5b5

I think they do not have google in second (as they should) since google.com.cn and google.cn are new and many Chinese have been using the google.com for quite a while instead. I doubt they used google.com in their Chinese search ranking analysis. The reason why I still rank Yahoo ahead of Sohu is that Sogou still has a much lower page views per user ranking than Yahoo. Based on their growth trend I have no doubt Sohu will clearly pass Yahoo in the near future. Google and Baidu are still far ahead.

The thestandard.com article cites CEO Charles Zhang as saying “Our [search] traffic has tripled in the last six months. In the next two months, we'll focus a lot on Sogou….I think we can pass Baidu in two years.” Zhang also said that he expected double digit quarter over quarter growth in sponsored search revenues for the rest of the year. "At that rate of growth, sponsored search revenues, which totaled US$2.73 million (HK$21.29 million) in the first quarter, could go from a current contribution of about 11.5 percent of total sales to possibly 20 percent by the end of the year, he added."

Personally I think it is a little early to make a prediction on passing Baidu or even Google. However as a Sohu shareholder I have been very pleased with the growth in Sogou traffic in recent months. Sohu has an advantage of having so many high traffic Chinese websites capable of sending search traffic to Sogou. Sina will have a similar advantage when they launch their search engine in the coming months. In addition the locals should (Baidu, Sohu, Sina and Zhongzou) have an easier time adjusting regulations including exactly what websites and terms can be allowed in China search results without alarming the government internet policing agencies.

There is no doubt that the China search market is growing quickly and will become huge in the coming decades. It is still too early to say for sure who the winners will be in the market. From an investors standpoint I just hope I am long shares of the leaders of tomorrow.

Disclosure: I am long SINA and SOHU

For more on Baidu see my new blog:
http://jdmba.blogspot.com/2005/07/baidu-ipo-hype.html

Baidu IPO Is Coming Soon!

2005-06-11T21:07:00.000-07:00

"A high-placed individual at leading Chinese search engine Baidu said the company's IPO on the NASDAQ stock exchange will take place in early July."

Here is the article from RedHerring.com:
http://www.tinyurl.com/9jgj5

Google is currently the leading search engine in China
"Baidu, which has enlisted CSFB and Goldman Sachs to underwrite the listing, is expected to list with a valuation of $800 million and will sell an estimated 25 percent of the company in its IPO."

Google currently owns about 10% of Baidu and some think that they could become interested in buying Baidu outright after an IPO.
"There has been speculation in the Chinese Internet industry that Google will make a bid to acquire Baidu shortly after its listing. The global search giant is rumored to be looking for an entry into China, but has yet to hire any staff on the mainland. A Google spokesperson declined to comment on any such moves."

Mr. Xu the co-founder of Baidu resigned last August to pursue biotechch startup opportunity:
"As I told my son, I personally believe that Baidu should be a billion-dollar company," said Mr. Xu in April. "To turn it into a multibillion-dollar company, though that requires a different skill set. I had to wonder whether I could go that route and become a professional manager, or whether I should go back to a startup in an area where I have background and domain knowledge."

If Baidu trades at a $800 million valuation after the IPO I may be a buyer. They are in a great position in the fast growing China paid search market. In addition they are a very attractive takeover candidate (although there could be some regulatory/political hurdles associated with a buyout offer from a foreign firm). Of course I would also like to see all their financials before buying.

For more on Baidu see my new blog:
http://jdmba.blogspot.com/2005/07/baidu-ipo-hype.html

Sogou Traffic Keeps Climbing!

2005-06-09T18:40:00.000-07:00

According to Alexa the traffic rank for Sogou today is 43 in the world:
http://www.alexa.com/data/details/traffic_details?&compare_sites=&y=t&q=&url=www.sogou.com

As of the last Alexa ranking Sogou is number 21 (and climbing) in China:
www.alexa.com/site/ds/top_sites?ts_mode=lang&lang=zh_gb2312

With Sohu.com, Chinaren.com, 17173.com focus.cn, and go2map.com helping drive traffic to www.Sogou.com I think it is possible the growth will continue. This is great news for SOHU who I think has a chance to pass Sina sometime in the not too distant future in terms of advertising revenue.

I am currently long SOHU shares. Please do your own due diligence before investing.

My NBA Finals Prediction

2005-06-09T18:11:00.000-07:00

I think it will be a close series. I am picking Detroit to win the series in 7 games.

San Antonio is favored to win and they have home court advantage. In the end I think the Piston defense and offensive rebounding ability will be too much for the Spurs. Remember that the Lakers beat the Spurs last year but lost to Detroit in the NBA Finals. Detroit is a better team this year than last year. You read it here first!

My Thoughts on Sina

2005-06-07T20:40:00.000-07:00

Recently several of my readers have asked me to share my thoughts on SINA one of my current holdings. As always I am not making any investment recommendations on this blog. Please determine your risk profile and do your own research before investing.

From a fundamental standpoint I do not think that SINA is the cheapest Internet related Chinese ADRs. In the WVAS market, TOMO, KONG, HRAY and others offer more compelling valuations based on cash per share, EPS forecasts for the next few years, etc.

When it comes to search SOHU seems to be doing relatively well with Sogou.com as of late and along with Baidu, Google, Yisou and others have a pretty good lead over Sina. I was pleasantly surprised recently when Sina announced that they had been working on search engine development for quite a while. Unfortunately they have a long way to catch up. One thing that Sohu/Sogou taught us is that with good technology a leading portal such as Sina (and Sohu) should be able to leverage its massive traffic to build upon its search market share fairly quickly. Let's hope that Sina can catch up soon. With the low Internet usage penetration in China nothing is impossible especially for the country's leading portal Sina.

When it comes it advertising, Sina will remain one of the top players for the foreseeable future. It is possible that SOHU will overtake SINA in advertising revenue in the short term based on the combined traffic to Go2Map, Chinaren, 17173 and Focus.cn, despite having a portal second to Sina in China. However there is no doubt that ad revenues will increase substantially for Sina, Sohu, and others as the 2008 Olympics becomes nearer, more Chinese go online, and more overseas companies attempt to reach Chinese consumer market.

In online gaming, I have not been that impressed with Sina's Lineage 2 results. While the MMORPG is bringing in some profits it has not met my expectations. Sina's IGame casual gaming portal seems to be doing okay. Hopefully the people using IGame will remain loyal, so that they will try new MMORPG's that Sina may launch in the future. Based on the success of WOW, perhaps Sina should attempt to license another high profile game in the future (assuming the licensing games are not as high as The9 is required to pay Blizzard). I would like to see Sina move more heavily into mobile games in the near future before KONG, TOMO, SNDA and others gain a large lead in the China market.

In the online auction market Sina/Yahoo 1Pai.com has attracted lots of users since its launch last year. However 1Pai.com is still a very distant third to Ebay/Eachnet and Alibaba/Taobao in the China Market. Yahoo was able to beat eBay in Japan but Yahoo is mush different. In order to succeed, 1Pai will need to better localize services to match Chinese culture, develop an acceptable payment system and market heavily while continuing not to charge any listing fees for quite a while.

There is no doubt in my mind that ad revenues will continue to grow nicely going forward. I am more concerned about gaming and WVAS revenue at Sina. I think that TOMO, and others have been better executing in the WVAS market over the last year or so and NTES has clearly been more successful at gaming. With the leading portal in China, SINA should be finding as many ways as possible to monetize the traffic. I would like to see expansion into additional e-commerce areas. I am a little confused why Sina would sell Fortune trip at this time. It seems a little early to think that they had no way of competing against CTRP or LONG (the buyer of Fortune Trip). Perhaps the Long/Sina travel partnership hinged on the sale and Sina felt the partnership was more important than retaining ownership in Fortunetrip. I would like to know the reasons for the sale. I liked the Sohu Go2Map purchase and the TOMO India Games purchase. I hope Sina starts putting its cash to good use in the near future by expanding into new areas instead of buying more small WVAS players like they did in the past.

As far as the SNDA/SINA rumors are concerned, I am not counting on the merger to occur. If it does Sina will likely appreciate slightly. It SNDA sells their SINA shares and announces they are no longer interested SINA will likely drop (as much of the last big run up in SINA shares a while back was based on the SNDA share purchase and takeover rumors). In the long run I am sure that Sina can do well on its own as can SNDA. If I were a member of SINA's board I doubt I would agree to a merger offer from SNDA involving only a small premium over current share prices.

In conclusion, I have not been overly impressed with Sina's execution in the recent past and do not think that SINA offers the most compelling valuation among China ADRs. However, I am confident that Sina will remain the top portal in China at least over the near term. The U.S. market has taught us that the industry leaders will often command a substantial valuation premium over competitors (remember Yahoo vs. Excite and Lycos). If we believe that Sina will remain the leader, which I think is very possible it may currently be a great long term investment even if others have lower PE ratios, etc right now. I am too busy right now to track every market development on daily basis, so I do not day traded much anymore. I also do not want to be caught with no SINA stock (or even worse a short position) if big news breaks (such as a RMB revaluation, SNDA merger, etc). Therefore I plan on holding my SINA shares for the long term. At this point I doubt I will sell any SINA shares before the 2008 Olympics. I am not sure how Sina will do over the short term but feel very good about where Sina will likely be 5 or 10 years from now.

My First Week As A Summer Law Clerk

2005-06-07T18:29:00.000-07:00

I have been working at the law firm for about one week now. I am really enjoying my time here so far. I feel like I have been learning quite a bit. Most of my time has been spent doing legal research and writing. I have a feeling I will learn much more about legal research and writing this summer than I did all of last year in my legal research and writing classes at school. So far I have drafted Memos, Motions for Default judgment, Interrogatories, Discovery requests and more. Some of these documents I never produced in school. I am happy that there is an extensive database maintained at the firm that has examples of all different types of legal documents for me to use for guidance.

At this point I have to say that I do not feel very efficient in doing my legal research. I think I am one of the only first year law students at the firm so most of the other clerks have more research and writing experience than me. I feel like I can eventually figure out most of the legal problems presented to me but I am taking much longer than I think should be required to answer certain questions. When real life clients are involved I feel like I need to dig pretty deep into legal issues to make sure I am uncovering everything important. Sometimes I feel like I spend too much time researching avenues that end up not being very fruitful. At times I feel bad about the amount of time I was spending on certain projects knowing that the client would be billed. Thankfully I learned that the firm will often write down the number of hours law clerks bill when something takes too long. I also am sure that I will become more efficient over time.

So far the feedback I have received has been very positive. All of the attorneys at the firm are very busy, but they still have taken time to make positive comments about my work along with tips to help guide me with my research and help me improve. We had a picnic last week that allowed me to meet some people who worked in different departments in the firm. I am really enjoying working in litigation but I am also curious about the work done in different departments. Everyone who I have had time to talk to so far has been happy to tell me exactly what they do and how they developed there legal skills over time. I will post more about my summer clerkship experience over the next few months.

President Bush Will Nominate Christopher Cox To Head The SEC

2005-06-01T21:08:00.000-07:00

According to GOP officials Bush will soon nominate House Representative Christopher Cox to head the SEC to replace Donaldson who has just resigned.

Here is the Associated Press Article:
http://tinyurl.com/9leuw

I do not know everything about California Rep. Christopher Cox, but I like this:

"Cox has been a longtime advocate of repealing the estate tax, the capital gains tax on savings and investment, and taxes on dividends. He also has supported banning taxes on Internet commerce."

Some history on Donaldson who is now resigning from the SEC:

"Bush picked Donaldson 2 1/2 years ago as SEC chairman to restore confidence in a stock market that had been shaken by corporate scandals. A Republican and Bush family friend, Donaldson was an activist who often clashed with traditional GOP business allies. They chafed over what they perceived as an excessive regulatory zeal during Donaldson's tenure. Donaldson, who turns 74 on Thursday, told the president that "the time has come for me to step down and return to the private sector and my family." He said Wednesday he would leave the agency on June 30."

Although some in the GOP disagreed with the what they considered excessive regulatory actions during his tenure, I think Donaldson did some great things while at the SEC:

"Donaldson helped put in place the Sarbanes-Oxley Act of 2002. The law tightened oversight of U.S. corporations and came in response to financial scandals at Enron Corp., WorldCom Inc and other large companies."

"Donaldson also won approval at the SEC for a number of rules designed to clean up the $7 trillion mutual fund industry."

Just an educated guess, but I bet the US financial markets will react kindly if President Bush confirms that he will nominate Rep. Cox

As always I am not making any investment recommendations on this blog. Please feel draw your own conclusions and share your feedback if you like!

Great Day For Chinese ADRs

2005-06-01T19:25:00.000-07:00

I came home today from my summer clerk position at the law firm to a pleasant surprise. Every single one of my major equity holdings was up today. Several were up a great deal and my Chinese stocks were not the only winners (although the Asian ADRs I own were up much more as a while than the rest of my portfolio today). Those of you that read my blog likely already know most of the stocks I own so I will not repeat it all now.

I am really enjoying my new job thus far. Everyone at the firm that I have spoken to so far was very friendly. Somehow the same type of legal research and writing (research memo's) I sometimes found boring at school became much more interesting when real life clients and real dollars are involved. I received my first grade from last semester (from the class I thought I did the worse in) and was pleasantly surprised by the result! If my portfolio performs this well for the next few days I will have had a truly wonderful week.

Important News For Those With Federal Student Loans

2005-05-31T19:11:00.000-07:00

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:
http://tinyurl.com/9qufq

"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."

THIS PARAGRAPH IS VERY IMPORTANT TO THOSE OF YOU WHO ARE CURRENTLY IN SCHOOL. YOU CAN CONSOLIDATE ALSO:

"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:

law.georgetown.edu/finaid/loanconsolidation

loanconsolidation.ed.gov/borrower/brights.shtml

Chinese Government To Regulate Online Gaming

2005-05-30T15:36:00.000-07:00

From Pacific Epoch:
pacificepoch.com/newsstories/30339_0_5_0_M

"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

2005-05-30T11:39:00.000-07:00

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

http://xy2.163.com/news/2005/05/5-6-20050529164332.html

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:
http://jdmba2b.blogspot.com/2005/05/another-new-pcu-record-for-netease.html
http://jdmba2b.blogspot.com/2005/04/ntes-research-reports.html
http://jdmba2b.blogspot.com/2005/04/ntes-1st-quarter-performance.html
http://jdmba2b.blogspot.com/2005/04/online-gaming-news.html
http://jdmba2b.blogspot.com/2005/04/new-pcu-record-for-netease.html

NBA Conference Finals

2005-05-29T22:21:00.000-07:00

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

http://jdmba2b.blogspot.com/2005/04/2005-nba-playoffs.html

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

2005-05-29T21:30:00.000-07:00

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.

A Chinese Silicon Valley?

2005-05-24T11:01:00.000-07:00

From MSNBC"
http://msnbc.msn.com/id/7915125/

"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 Sohu.com 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

2005-05-24T06:57:00.000-07:00

Here is as interesting article from the Jakarta Post:
http://www.thejakartapost.com/detailbusiness.asp?fileid=20050523.P04&irec=3

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.

Kong 1Q 2005 Earnings

2005-05-23T09:01:00.000-07:00

The press release is here:
biz.yahoo.com/prnews/050523/cnm010.html?.v=1

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

Another Sogou Traffic Record

2005-05-21T14:55:00.000-07:00

Taobao CEO Jack Ma Confident Taobao Will Lead China Auction Market

2005-05-20T22:25:00.000-07:00

Here are the details of a recent interview with Mr. Jack Ma: http://tinyurl.com/88ddx

"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:
http://jdmba2b.blogspot.com/2005/05/china-auction-market.html
http://jdmba2b.blogspot.com/2005/04/eachnet-cuts-listing-fees.html
http://jdmba2b.blogspot.com/2005/04/interesting-alibaba-article.html
http://jdmba2b.blogspot.com/2005/03/great-analysis-of-chinese-auction.html
http://jdmba2b.blogspot.com/2005/03/correction-to-prior-yahoo-china.html
http://jdmba2b.blogspot.com/2005/02/ntes-and-snda-to-benefit-from-ebay.html

Greenspan Comments on Effects of Potential China Currency Revaluation

2005-05-20T17:36:00.000-07:00

Here is a link to the AP story from Yahoo! Finance:
http://biz.yahoo.com/ap/050520/greenspan.html?.v=3

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."

China Auction Market

2005-05-16T17:50:00.000-07:00

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

http://tinyurl.com/9cvos

"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

2005-05-16T16:59:00.000-07:00

The press release is here:
biz.yahoo.com/prnews/050516/lnm009.html?.v=4

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: pacificepoch.com/newsstories/29049_0_5_0_M/ 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

New Traffic Record for Sogou

2005-05-15T14:14:00.000-07:00

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 http://www.sogou.com has reached a new all time traffic record:
http://www.tinyurl.com/927sq

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

Shanda 1Q 2005 Earnings Forecast

2005-05-14T22:11:00.000-07:00

From one of my favorite China related blogs billsdue (http://bbb.typepad.com/billsdue/) here is a link to Goldman Sachs forecast for Shanda:

http://tinyurl.com/74xn8

Shanda is scheduled to report earnings on Monday:
biz.yahoo.com/prnews/050428/nyth135.html?.v=7

I am currently long SNDA

Occupation, Education, Income and Wealth

2005-05-14T17:29:00.000-07:00

How do you compare to other Americans in these categories?

An interesting interactive graphic from the New York Times:
http://www.tinyurl.com/764f8

A few points of interest:

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.
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
I am not that surprised by the income statistics.
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

2005-05-14T15:02:00.000-07:00

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):
http://tinyurl.com/83rv5

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.

1L is over!

2005-05-13T13:45:00.000-07:00

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

2005-05-13T12:29:00.000-07:00

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:

pacificepoch.com/newsstories/28930_0_5_0_M/

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

My Last First Year Law School Exam!

2005-05-10T20:30:00.000-07:00

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

2005-05-10T10:40:00.000-07:00

Here is the press release:
biz.yahoo.com/prnews/050510/cntu008.html?.v=3

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

2005-05-10T10:32:00.000-07:00

Electronic Arts (ERTS) China Efforts:
https://www.pacificepoch.com/newsstories/28407_0_5_0_M/

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.

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

2005-05-08T16:28:00.000-07:00

A very interesting read from the South China Morning Post:
http://www.latitudecapitalgroup.com/en/index.php?channel=pr&section=na&page=detail&id=60

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."

Major Hacking Problems For World Of Worldcraft

2005-05-07T16:34:00.000-07:00

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:

http://www.wowchina.com/news/main/20050507_1.htm
The article

http://www.worldlingo.com/en/websites/url_translator.html
Free online language translation

2005-05-06T14:27:00.000-07:00

Here is an interesting article from the CoolHeadInvestor blog comparing GRVY to WZEN:
http://coolheadinvestor.blogspot.com/2005/03/grvy-vs-wzen-is-grvy-doomed-to-fall.html

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

2005-05-06T13:57:00.000-07:00

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.

Sina First Quarter 2005 Earnings

2005-05-05T13:42:00.000-07:00

The Press Release is here:
http://biz.yahoo.com/prnews/050505/nyth172.html?.v=6

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

Law School Final Exams

2005-05-03T16:50:00.000-07:00

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?

2005-05-03T16:44:00.000-07:00

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.

http://www.investors.com/breakingnews.asp?journalid=27333151&brk=1
http://biz.yahoo.com/prnews/050412/cntu007.html?.v=4

Another New PCU Record For Netease Games!

2005-05-03T16:31:00.000-07:00

http://xyq.163.com/news/2005/05/2-2-20050502163732.html
http://www.worldlingo.com/en/websites/url_translator.html

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:
http://jdmba2b.blogspot.com/2005/04/ntes-research-reports.html
http://jdmba2b.blogspot.com/2005/04/ntes-1st-quarter-performance.html
http://jdmba2b.blogspot.com/2005/04/online-gaming-news.html
http://jdmba2b.blogspot.com/2005/04/new-pcu-record-for-netease.html

Could Shanda Be A Takeover Candidate?

2005-05-01T13:18:00.000-07:00

An interesting read from a Paul Waide blog on Pacific Epoch:
http://www.pacificepoch.com/blog/28378_0_22_0_C/

"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.)."

500,000 Peak Concurrent Users For World Of Worldcraft?

2005-04-30T01:25:00.000-07:00

500,000 Peak Concurrent Users For World Of Worldcraft?

From billsdue quoting Sina:

http://bbb.typepad.com/billsdue/2005/04/world_of_warcra.html

http://games.sina.com.cn/o/n/2005-04-29/1058100448.shtml

http://www.worldlingo.com/en/websites/url_translator.html

If this turns out to be true it is great news for The9 and the 3d MMORPG market in General.

Disclosure: I currently have no position in NCTY, nor am I making any investment advice on this blog. Please do your own research before investing.

Cisco and Macromedia Acquire Strategic Stake in Indiagames

2005-04-29T22:23:00.000-07:00

TOM Online Announces Cisco, Macromedia Acquire Strategic Stakes in Indiagames
http://biz.yahoo.com/prnews/050429/nyf062.html?.v=6

"The strategic investments are beneficial to all parties," said Wang Lei Lei, TOM Online Chief Executive Officer and Executive Director. "I have confidence Cisco and Macromedia will bring significant value to Indiagames going forward given their strength and leading position in their respective business areas."

"I am delighted to have Cisco and Macromedia as investors in Indiagames," said Gondal, Chief Executive Officer and Director of Indiagames. "We now have Chinese, Indian and American investors, all leaders in their respective verticals. This combination is really very unique and will surely help accelerate our global growth plans, keeping us on the cutting edge of mobile, broadband and Internet technology."

"The global wireless games market is expected to grow 50% per year in the next three years, reaching US$8.4 billion in 2008, according to industry estimates. Indiagames, the owner of one of the largest wireless content development facilities in the world with more than 200 highly experienced professionals, is well placed to benefit from that growth."

I am currently long TOMO shares. I am not making any investment recommendations here. Please do your owb research.

Great 1st Quarter For Ctrip

2005-04-28T15:12:00.000-07:00

They beat guidance in what is supposed to be the weakest seasonal quarter of the year:
http://biz.yahoo.com/prnews/050428/nyth156.html?.v=6

CTRP clearly has a large lead in the China market. Their recent partnership led to great growth in airline ticketing recenue this quarter. Travel packaging also seems to be a big growth area going forward.

I am still looking closely at LONG despite CTRP being the market because of its low valuation and large cash position.

Recent eLong deal with Yahoo:
http://jdmba2b.blogspot.com/2005/04/elong-and-yahoo-china-deal.html

Disclosure: I currently have no position in either CTRP or LONG

Tom-Skype and VoIP Ambitions

2005-04-27T19:49:00.000-07:00

Two recent interesting articles:
www.thestandard.com.hk/stdn/std/Business/GD27Ae07.html

http://www.chsec.com.hk/chs_portal/trdmodule/news_p.cfm?LangId=1&LNwsId=692460

Tom-Skype seems to be growing quickly adding 50,000 news users every day. VoIP seems like a great way to attract more users to Tom Online to build traffic to help advertising revenue and consume other Tom Online products and services. I like the way TOMO has executed its business plan over the last 6 months or so. I am eager to here more about India Games during their conference call.

Disclosure: I am long TOMO

SOHU 1Q Earnings

2005-04-27T18:14:00.000-07:00

They beat average estimates both on revenue and earnings side slightly:
http://biz.yahoo.com/prnews/050427/nyw117.html?.v=6

I am listening to the conference call right now and am liking what I have heard so far:
http://biz.yahoo.com/cc/3/54213.html

It looks like advertising and Sogou.com are doing well and WVAS is back on the growth pattern. I also like the Go2Map acquisition.

Recent coverage:
http://jdmba2b.blogspot.com/2005/04/another-jump-in-sogou-traffic.html

http://jdmba2b.blogspot.com/2005/04/sohu-buys-go2map.html

http://jdmba2b.blogspot.com/2005/04/25g-services-now-available-to-prepaid.html

http://jdmba2b.blogspot.com/2005/04/e-commerce-growing-quickly-in-china.html

I am long SOHU. Please do your own research before investing

NTES Research Reports

2005-04-27T18:11:00.000-07:00

Recent research reports as reported on billsdue:

http://bbb.typepad.com/billsdue/2005/04/netease_q1.html

I am surprised that NTES did not do well today. Apparently the market is listening to the concerns of Pacific Growth Equities and others. I am still long NTES

NTES 1st Quarter Performance

2005-04-27T01:18:00.000-07:00

Great numbers for Netease across the board:
yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?duid=mtfh32044_2005-04-27_04-40-55_n26584602_newsml

Advertising: Increased 1.3% to US$5.5 million from the preceding quarters US$5.4 million. There is a seasonal slowdown in the Chinese online advertising market and Netease performed better than most expectations here.

WVAS: "Total revenues from wireless value-added and other fee-based premium services for the first quarter fell by 18.7% quarter-over-quarter to RMB20.3 million (US$2.4 million), largely as a result of a decrease in SMS and MMS revenue. SMS and MMS revenues continued to decline as traditional SMS services are becoming less popular in China and competition in this sector remains intense. While the Company did experience strong demand for its WAP services during the quarter, this growth was not sufficient to offset the decrease in SMS and MMS revenues."

WVAS is now a pretty small percentage of NTES revenue
WAP demand should continue to be strong and MMS should begin to recover

Gaming: "Revenues from online game services for the quarter showed continued strong growth, increasing by 25.9% quarter-over-quarter and 135.3% year-over-year to RMB262.1 million (US$31.7 million) driven by the success of Fantasy Westward Journey, which became one of China's most popular massively multi-player online role-playing games (MMORPG), with peak and average concurrent user numbers reaching 588,000 and 244,000, respectively, for the month of March 2005. Strong demand for the game can be attributed to a number of factors, including content enhancements through expansion packs released during the first quarter, improved stability of the game technology leading to smoother game play through better technical service quality and an increase in the overall number of users during the Chinese New Year holiday, which is traditionally a peak season for online game playing. Westward Journey Online II, another in-house developed game remained one of the top-five MMORPG games in China, and reported solid growth during the quarter, achieving record peak and average concurrent users of 389,000 and 175,000, respectively, for the month of March 2005."

389,000 + 588,000 = 977,000 PCU in March. With a recent count on 1,069,000 there has already been a 9.4% increase in PCU since March for FWJ + WJ2! http://jdmba2b.blogspot.com/2005/04/new-pcu-record-for-netease.html
Gaming is now 80% of Netease revenues
Gross margins for online games further increased from 88.3% to 89.0% in the first quarter due to increasing economies of scale
FWJ is now the most popular MMORPG in China!
Casual Game Platform is coming soon
Fly For Fun should be commercially launched later this year
2.5d and 3d games seem to be coming along as planned

Tax Rate Change: "The Company also noted that its effective tax rate increased in the first quarter because one of its subsidiaries, which was previously exempted from paying PRC income tax, became subject to a 18% tax rate (15% Enterprise Income Tax plus a local income tax of 3%) during the quarter. The Company is in the process of applying for various preferential tax treatments for its operating subsidiaries in the PRC, as well as conducting certain tax restructuring arrangements with a view to reducing the effective tax rate of the group in China. However, there is no guarantee that such preferential tax treatments can be obtained or that such restructurings will be successful."

Overall: Great earnings and forecast. 53 cents profit per diluted ADS beat 45 cent estimate by 8 cents. More importantly they forecasted $46 million to $47 revenue for Q2 compared to forecasts around $40 million. I am excited about their upcoming casual game portal.

PGE Downgraded NTES earlier Tuesday before the earnings were released based on valuation and upcoming competition from SNDA and NCTY.
http://finance.yahoo.com/q/ud?s=NTES
PGE was way off on both their revenue and profit estimates for Q1. I expect they will realize their mistake and upgrade NTES again soon (they have a history of changing their recommendations at strange times).

The only real bad news in the report has to do with the tax issues for one of their subsidiaries. I think the end result (of any attempt to get the tax rate back to zero) may be based on whether they are classified as a high technology company (software) or a entertainment company.

Disclosure: I am long NTES
I am not making any recommendations here. Please do your own research before investing.

More online gaming news:
http://jdmba2b.blogspot.com/2005/04/online-gaming-news.html

Interview with WOW Closed Beta User

2005-04-25T18:59:00.000-07:00

From Pacific Epoch:
http://www.pacificepoch.com/pecontent/27745_0_3_0_M/

Free registration with Pacific Epoch may be required. I eagerly await statistics on the number of peak and concurrent users The9 is able sign up during open beta testing starting this week.

A Positive Of New Bankruptcy Law

2005-04-25T16:24:00.000-07:00

I still do not like the new law overall for various reasons. It will become much harder for many who are laid off, have large medical bills or failed as an entrepreneur to get a fresh start.

One positive of the new law is the additional protection given to IRA's and certain types of college savings:
biz.yahoo.com/ap/050424/managing_money_bankruptcy.html

This will encourage more people to save for retirement and roll over their 401K balances to an IRA after changing jobs.

This Supreme Court Ruling will be trumped by the new bankruptcy law (which will take effect 180 days from when it was signed by the President last week):
http://jdmba2b.blogspot.com/2005/04/supreme-court-rules-on-ira-bankruptcy.html

My original post about bankruptcy reform:
http://jdmba2b.blogspot.com/2005/04/congress-passes-bankruptcy-reform-bill.html

Another Jump In Sogou Traffic

2005-04-25T14:05:00.000-07:00

There has been another jump in www.sogou.com traffic over the last few days:
http://www.alexa.com/data/details/traffic_details?q=&url=http://www.sogou.com

This is good news for SOHU. Lets hope we hear more about it on the Sohu conference call in a few days:
http://biz.yahoo.com/cc/3/54213.html

2005 NBA Playoffs

2005-04-24T12:22:00.000-07:00

I like Phoenix and Detoit to go all the way to the finals.
http://www.nba.com/playoffs2005/

Who do I think will win the first round?

In the West:
Phoenix
San Antonio
Seattle
Houston

In the East
Miami
Detroit
Boston
Chicago

That is right the only upset I see in the first round is Houston over Dallas. I would like to see Denver pull out an upset over San Antonio, but unless Tim Duncan has some major problems with his recent injury I think it will be unlikely.

Spam Threatens Tom Online

2005-04-23T15:14:00.000-07:00

Tom Online better act fact if it wants to prevent outgoing email messages from users being catergorized as spam by the Spamhaus Project.

From iResearch:
english.iresearch.com.cn/other_information/detail_news.asp?id=5407

"Tom Online (TOMO) made an announcement recently that its email users now have access to an expanded storage capacity and new anti-virus features, but the company's email system is still in danger of soon experiencing problems because of its refusal to remove spammers from its systems.

In recent weeks the world's largest anti-spam organization, Spamhaus Project, has notified both Tom.com and the Internet Society of China (ISC) that Tom.com's Internet Protocol (IP) addresses might soon be placed in Spamhaus' global blocklists. Spamhaus' blocklists are used by over 260 million Internet users around the world to stem the flow of unsolicited bulk email. Tom.com is currently hosting a number of notorious Chinese spammers, including Wang Jingjing, and Spamhaus has warned the China portal repeatedly of that spammer's actions.

With a registered email user base of almost 30 million, Tom Online is one of the largest providers of email service in China.

'Email service always has been Tom Online's strength. Since we launched the 163 e-mail service two years ago, the growth rates of tom.com's email user numbers have been consistently higher than that of the industry average. As at the end of 2004, the number of Tom email users almost topped 30 million. That is an enviable 65% increase from 2003,' said Wang Lei Lei, Tom Online Chief Executive Officer and Executive Director."

Update:

Lets hope this Press Release from Tom Online will handle the above issues:

http://biz.yahoo.com/prnews/050418/cnm006.html?.v=3

I am long TOMO and eagerly awaiting their earnings release. I am not making any investment advice here. Please do you own research before investing.

More on Shanda IPTV Efforts

2005-04-23T15:01:00.000-07:00

From iResearch:
english.iresearch.com.cn/online_entertainment/detail_news.asp?id=5418
Shanda will apparently be launching its home entertainment strategy in the near future. There are currently about 20 million online game players in China. Apparently there are about 240 million homes with televisions. Shanda believes there is a large opportunity here.

"The company has decided to move some of its entertainment branches - including games, music and literature - from the computer platform to the TV platform through a set-top box.

The set-top box is expected to use Intel's processors, Microsoft's operating system and mother boards from the Taiwanese firm Gigabyte. The boxes may be produced by the Taiwanese electronics maker Inventec."

Not everyone thinks this will be such a good business for Shanda. Here is a link to another billsdue article stating that an influential Softbank partner still feel that IPTV success is 4-5 years away:
http://bbb.typepad.com/billsdue/2005/04/softbank_cold_o.html

Eachnet Cuts Listing Fees

2005-04-23T14:43:00.000-07:00

Here in an excellent article from billsdue:
http://bbb.typepad.com/billsdue/2005/04/ebays_eachnet_c.html

He has cited a recent Forbes article which is very interesting as well:
http://www.forbes.com/global/2005/0425/030.html

"Ebay entered China in 2002 by paying $30 million for a one-third stake in Eachnet, an auction site set up three years earlier by Harvard graduate Yibo Shao and a partner. A year later Ebay bought the rest of Eachnet for $150 million, keeping on its chief, Shao. He vows that Ebay Eachnet, as the site is known, will win: "There can be only one big [consumer auction] site in China."

Ma[Jack Ma, Alibaba CEO] countered by teaming up with Masayoshi Son's Softbank to launch the Taobao consumer site for $56 million. He picked the ideal partner:Son had beaten back Ebay in Japan by taking an early lead in auctions with his Yahoo Japan joint venture. Ebay closed its Japan site in early 2002.

"We were both thinking the same thing:Son kicked Ebay out of Japan. I have the same chance in China," Ma says. "Ebay doesn't think we are a threat. China will be a worse defeat than Japan." His swagger rankles some observers. Last year Ma gave a presentation on his grand scheme to half a dozen Wall Street types, and one of them stalked out midway through the pitch, with a parting shot:"Ebay will win!""

Ebay better be careful or they will lose in China too. If I was Ebay I would try to buy Alibaba (who controls Taobao) now before the price gets higher. If they want to compete on their own they should launch PayPal ASAP, better localize their services and make listings free to better compete with Taobao.

For a detailed Review of the Chinese Auction Market read this:
http://english.iresearch.com.cn/e_commerce/detail_report.asp?id=5362
A smaller free version available upon iResearch registration

eLong and Yahoo! China Deal

2005-04-21T20:50:00.000-07:00

From The China Stock Blog:
http://www.chinastockblog.com/2005/04/elong_long_and_.html

"eLong will become Yahoo! China's exclusive travel services information provider. eLong will provide travel information, and hotel and air ticket booking services on Yahoo! China's travel channel."

Comment (from The China Stock Blog): "Finally some good news from eLong, and the company hasn't even released the information. Of course, investors would probably not pay much attention anyway. As the company discussed in its most recent conference call, it is supremely focused on the long-term strategy, and less concerned with near-term profitability. Investors have heeded that call - take a look at the company's stock performance."

I do not currently own LONG but am seriously thinking about adding a position at these current price levels. eLong has lots of cash in the bank and seems to be concentrating on gaining market share long term instead of maximizaing current profits. CTRP is clearly the market leader right now but I think there is room for multiple players in China and eLong seems to be in a good position for long term growth as well.

Online Gaming News

2005-04-21T20:36:00.000-07:00

Shanda just officially announced the licensing of Dungeons & Dragons Online from Turbine:
http://biz.yahoo.com/prnews/050421/nyth129.html?.v=5
The game is expected to launch sometime in the second half of 2005. Financial terms were not disclosed in the press release

Netease will be launching two more internally developed games this summer:
http://news.17173.com/content/2005-4-20/n813_730034.html
http://www.worldlingo.com/en/websites/url_translator.html

One game will be 2.5d and the other will be 3d. Lets hope both games can continue the success WJ2 and FWJ are having currently:
http://jdmba2b.blogspot.com/2005/04/new-pcu-record-for-netease.html

Here are two interesting reads about The9 from billsdue:
http://bbb.typepad.com/billsdue/2005/04/the9_and_object.html
http://bbb.typepad.com/billsdue/2005/04/the9_moves_up_t.html

More Shanda rumors also from billsdue:
http://bbb.typepad.com/billsdue/2005/04/shanda_buying_h.html

I am currently long both NTES and SNDA. I eagerly await the upcoming earnings release and conference call of NTES next week. I am hoping to hear more about casual games which is an area I hope to see them give more attention to going forward. As always I am not making any investment advice. Please do your own research before investing.

Supreme Court Rules On IRA Bankruptcy Issue

2005-04-18T17:15:00.000-07:00

Supreme Court rules IRAs can be shielded from creditors
http://cnn.com/2005/LAW/04/04/scotus.bankruptcy.ap/

"The unanimous decision sides with a bankrupt Arkansas couple fighting to keep more than $55,000 in retirement savings. As a result, IRAs now join pensions, 401(k)s, Social Security and other benefits tied to age, illness or disability that are afforded protection under bankruptcy law."

"IRAs should not be treated any differently because the benefits are tied to people's age, the court said."

"The case involves Richard and Betty Jo Rousey of Berryville, Arkansas, who accumulated $55,000 in company-sponsored pension and 401(k) plans at Northrop Grumman Corp. before he took early retirement in 1998. When Betty Jo Rousey was laid off a month later, they rolled the funds over to IRAs."

"The Rouseys have been unable to hold down new jobs, in part due to his chronic back pain, according to their lawyers. Richard, 60, and Betty Jo, 57, now live on $2,000 a month."

"Under bankruptcy law, the retirement savings won't be given blanket protection. A separate provision in the law shields the assets only to the extent the money is reasonably necessary for the support of the debtor and any dependent."

I am happy about this ruling.

The new bankruptcy reform bill I do not like so much however:
http://jdmba2b.blogspot.com/2005/04/congress-passes-bankruptcy-reform-bill.html
While it does have some positives it will make it much harder for people to get a fresh start and hamper entrepreneurs from starting another new business if they failed the first time and are deep in personal debt.

Please Support My Advertisers

2005-04-18T14:17:00.000-07:00

If you like my blog please support my advertisers. I think you will find that many of them offer useful products and services related to the subjects I discuss on my blog. Please bookmark my blog so you can visit again and tell your friends to do the same. Thank you for visiting!

Sincerely,

Anonymous JD/MBA Student

Update on MSO Short and Sirius News

2005-04-18T10:55:00.000-07:00

I no longer think that MSO is that great of a short. I originally talked about the possibility in early March when MSO was trading at $33.95:
http://jdmba2b.blogspot.com/2005/03/martha-stewart-released-from-prison.html

I talked about MSO again on April 1 when it was trading at $22.32:
http://jdmba2b.blogspot.com/2005/04/update-on-my-mso-post-from-last-month.html

As of right now MSO trades at $20.42 and I no longer endorse a short here. Some reasons include the short as a percentage of the float being VERY high and the Sirius radio news today:
http://biz.yahoo.com/ap/050418/sirius_martha_stewart.html

Anyone who shorted MSO last month has made a lot of money. It is time to take your profit in my opinion.

I am not making any investment advice here. Please do your own research and determine your personal risk profile before investing

SIFY Earnings and Intel WiMAX Trial

2005-04-18T10:18:00.000-07:00

Sify will announce fiscal 2005 and 4Q earnings tomomorrow. The conference call will be 9:00 ET:
http://biz.yahoo.com/bw/050418/185602.html?.v=1

Frankly I am a little disappointed they only gave investors one day notice. Short notice generally will decrease the number of investors and analysts who call in and ask questions during the conference call. I do not understand why they cold not have made this announcement several weeks ago. I am expecting a very slight loss this quarter and a forecast of a small profit next quarter. Once SIFY becomes profitable it should be able to gain more attention from investors.

On a more positive note, it appears as if SIFY will start testing Intel WiMAX technology later this year. WiMAX is an excellent method for providing wireless broadband connectivity to the last mile, particularly when traditional cable or DSL connections are not available. India seems like a GREAT market for WiMAX.
http://www.anandtech.com/news/shownews.aspx?i=24114

Disclaimer: I am long SIFY but am not making any investment recommendations here. Please do your own research and determine your risk profile before investing.

Thoughts On Chinese Internet Stocks

2005-04-17T22:26:00.000-07:00

From Paul Waide of Pacific Epoch as reported by Marketwatch.com:
http://www.marketwatch.com/news/story.asp?guid=%7BDE0B3186%2DB4DE%2D4EC6%2DBAF8%2D9E9A58B7B2FE

Some key points from the article:

Fantasy Westward Journey from Netease has passed World of Legend from Shanda and Legend of Mir III from Optisp to become the most popular MMPORG in China. http://jdmba2b.blogspot.com/2005/04/new-pcu-record-for-netease.html
Sohu is expanding content which should help them bring more traffic (and advertisers) to their website properties. (http://jdmba2b.blogspot.com/2005/04/sohu-buys-go2map.html). Sogou may also help Sohu expand its advertising base in the near future (http://jdmba2b.blogspot.com/2005/03/sogou-search-engine-from-sohu.html).
Sina is adding more servers for Lineage 2.
Shanda seems to be diversifying its revenue base in hopes of becoming an entertainment powerhouse in China.
Tom Online has hired a new CFO.

Earnings will start to come in over the next few weeks with NTES reporting first. I am looking for good earnings from Netease on the strength of FWJ and WJ2. I am currently long NTES, SOHU, SINA, SNDA and TOMO. I am not making any recommendations here. Please do your own research before investing.

Worldwide Internet Usage Statistics

2005-04-16T15:23:00.000-07:00

I want to thank one of my readers for sharing this link with me:
http://www.internetworldstats.com/stats3.htm#asia

While internet penetration is already very high in South Korea, Japan, Hong Kong, Singapore and Taiwan most of Asia has room for huge growth over the next several years. I agree with my readers comment that the rapidly growing Internet market in India should present tremendous opportunity going forward.

Worldwide statistics:
http://www.internetworldstats.com/stats.htm

Congress Passes Bankruptcy Reform Bill

2005-04-14T15:46:00.000-07:00

From the Associated Press:
http://biz.yahoo.com/ap/050414/bankruptcy.html?.v=10

Congress Passes Bill Making It Harder to Wipe Away Debt, Biggest Bankruptcy Reform in 25 Years

"Tens of thousands of people who want to wipe out their debts in bankruptcy court would have to work out repayment plans instead under legislation Congress approved Thursday."

"A 302-126 vote by the House sent the legislation to President Bush, who is eager to sign it, the biggest rewrite of the bankruptcy code in a quarter-century. It marks the second major change in law to benefit business since Republicans increased their House and Senate majorities in last fall's elections."

"Between 30,000 and 210,000 people -- from 3.5 percent to 20 percent of those who dissolve their debts in bankruptcy each year in exchange for forfeiting some assets -- would be disqualified from doing so under the legislation, according to the American Bankruptcy Institute."

"Taking effect six months from enactment, the measure would set up an income-based test for measuring a debtor's ability to repay debts. Those with insufficient assets or income could still file a Chapter 7 bankruptcy, which, if approved by a judge, erases debts entirely after certain assets are forfeited. Those with income above the state's median income who can pay at least $6,000 over five years -- $100 a month -- would be forced into Chapter 13, where a judge would then order a repayment plan."

"The legislation also would require people in bankruptcy to pay for credit counseling."

I expect the number of chapter 7 filings will rise dramatically over the next few months as people seek to file under the existing laws before the new law takes effect in 180 days. I see both positives and negatives to this legislation. It will help reduce the cost of debt to Americans as a whole as creditors will no longer have to write off as much bad debt due to bankruptcy. It will also make it harder for the wealthy to shield certain types of assets and still file chapter 7. It will help prevent some convulsive gamblers, etc from filing bankruptcy if they still meet the states median income and minimum payment ability requirement. On the down side it will hurt those who may may massive medical bills or forced into taking a much lower paying job after a layoff, but still have income enough to be forced into chapter 13.

Kingsoft Plans 2005 3Q IPO

2005-04-13T16:29:00.000-07:00

From Reuters:

http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?duid=mtfh78892_2005-04-13_07-23-52_hkg198760_newsml

"Rival Shanda Networking Co. Ltd., which last year raised US$152 million in a Nasdaq IPO, operates two of the three most popular online games in China, according to IDC. The research firm said Kingsoft's JX Online game was the sixth-most popular game in China last year.

Kingsoft plans to sell 10 percent of its share capital through the listing, which would value it at between US$1 billion and $3 billion, the source said.

Founded in 1988, Kingsoft says on its Web site that it is the largest software developer in China."

JX Online is certainly popular but I am not sure what measure Kingsoft based its "largest software developer in China" comment on. Kingsoft is definitely a major player in the China online gaming market and I like their internal development capabilities, but I would need to see the exact valuation and financial data before I can make a good judgment on it.

Air China Profit Soars

2005-04-13T16:23:00.000-07:00

From China Daily:

"Air China profit soars on traffic surge"
http://www.chinadaily.com.cn/english/doc/2005-04/13/content_433879.htm

"Air China, the country's flagship carrier, yesterday reported a jump in 2004 net profit of nearly 15 times, thanks to stronger passenger numbers fuelled by the mainland's soaring economy.

Air China, the last of the country's three large airline groups to list, is expected to benefit from improved efficiencies after it absorbed two smaller rivals under a broad consolidation of China's State-controlled airline industry.

"We expect the Chinese economy to continue to grow at a rapid pace, and demand for traffic to increase rapidly over the next three years with an annual growth rate of about 13-15 per cent," Ma Xulun, president of Air China told a news conference."

This should be good news for LONG, CTRP and the China travel market in general. I do not maintain a position in either LONG or CTRP at the moment. Please not that this news does not directly correlate to the other smaller chinese airlines such as China Eastern and China Southern who do not have the same level of International traffic and are unable to hedge their fuel costs for domestic flights.

Need For More Chinese Entrepreneurs

2005-04-13T16:14:00.000-07:00

"Student entrepreneurs a rarity"

From China Daily:
http://www.chinadaily.com.cn/english/doc/2005-04/09/content_432705.htm

"With Chinese universities turning out as many as 3 million new graduates a year, the nation is quickly discovering the need to equip its young people not with just knowledge but the courage to build their own enterprises."

"According to some recent figures from East China's Jiangsu Province, only 56 out of last year's 240,000 graduates chose to start their own businesses."

"Jiangsu is hardly unique. Nor is there a sign of change for 2005. In late 2004, a survey of 2,659 university students from Guangdong, another more industrialized province in China, showed only 2.6 per cent of them had start-up plans. While 80.9 per cent reportedly preferred grabbing a job first, moving to a better job second, and starting one's own company only in the last."

I do not have the hard statistics to support it, but I would bet that Chinese with a Western education that return home are much more likely to become entrepreneurs. Entrepreneurship while fairly common in capitalist countries is hardly natural to a nation with communist roots. Just look at all the very highly educated engineers and other professionals in Russia who became unemployed after the fall of the Soviet Union. Many of them moved to the west or took low skilled jobs instead of using their skills to start a new business. I am sure over time entrepreneurship will become more common in China and other countries as globalization continues and people there realize entrepreneurship is a viable path to success.

iResearch China Instant Messenger Report

2005-04-13T11:37:00.000-07:00

I just read the 2004 iResearch China Instant Messenger Report:

english.iresearch.com.cn/instant_messenger/detail_views.asp?id=5374

There is a smaller free version available to registered users for those that cannot afford $1600 for the full report. Tencent certainly seems to have a dominant position in this market at the moment. I would be interested in a Tencent NASDAQ IPO assuming a reasonable valuation. IM is an important market and can help bring users to related portal, online gaming SMS, MMS and other related services. Tom/Skype was late entering the market so they had very low market share (at least as of the end of 2004). However the Tom/Skype IM technology seems very good at least in the area of voice quality and it is also popular with online gamers. I am betting that they are gaining market share (from a very small base) and hope to see an update on the registered or concurrent users soon. I am not making any investment advice here. Please do your own research before investing.

Disclosure: I am currently long TOMO

Jamdat Launches New Wireless Games In China

2005-04-13T11:29:00.000-07:00

From China Tech News:

http://www.chinatechnews.com/index.php?action=show&type=news&id=2520

Global wireless entertainment publisher Jamdat Mobile (JMDT) has announced the launch of two new titles in China, "Lord of the Rings - Two Towers" and "Collapse".

The games will be played on China Unicom's network. The new titles will be the first distributed through C-Valley following Jamdat's recent investment in the company.

"The launch of these new titles in China under our C-Valley partnership demonstrates our commitment to aggressively deliver wireless content to this strategic market," said Mitch Lasky, Chairman and CEO of Jamdat Mobile Inc. "We look forward to bringing two of our most popular titles to wireless subscribers throughout China."

I think that the Chinese mobile gaming players including KONG, TOMO, SNDA, and Tencent need to hurry up and grab market share before American firms such as ERTS, JMDT, THQI, YHOO and others gain too much ground.

SOHU Buys Go2Map

2005-04-12T14:45:00.000-07:00

I am glad that Sohu has finally decided to start spending its money to acquire good content instead of the low quality sms businesses they had been buying in the past. I hope that Sohu continues along these lines with the continuation of their share buyback plan and content acquisition instead of buying more WVAS firms. I would also like to see a bigger push into online gaming. Casual gaming might be a good area to concentrate on in the short term as it is easier and cheaper to develor and or license casual games and it will help bring more traffic to Sohu until they can develop some high quality MMORPG's. Here is a link to the Go2Map.com acquisition story from the Associated Press:

http://biz.yahoo.com/ap/050412/sohu_com_acquisition.html?.v=1

I am currently long SOHU. I am not making any investment recommendations on this blog. Please do your own research before investing.

2.5g Services Now Available To Prepaid China Mobile Users In Shanghai

2005-04-11T18:06:00.000-07:00

From Safa Rashtchy and The China Analyst:

http://www.piperjaffray.com/popup.aspx?id=1034

It looks like China Mobile has begun to allow prepaid customers in Shanghai to use 2.5G services. Piper Jaffray seems to think this is good news for all the WVAS players particularly TOMO and HRAY. The article also mentions that contract renewals with China Mobile will likely lead to many of the smaller WVAS firms exiting the market. This should be good news for the larger publicly traded players. I like reading the China Analyst (I may be biased since I used to work as a Financial Advisor for Piper) and recommend my users to do the same:

http://www.piperjaffray.com/info3.aspx?id=647

However according to billsdue it looks like Piper will be losing Xiong Yuzhu who was helping Safa Ratschy with China coverage:

http://bbb.typepad.com/billsdue/2005/04/another_china_i.html

Hopefully they can hire someone else in China soon.

New PCU Record for Netease

2005-04-11T15:44:00.000-07:00

XYQ and XY2 are both doing great. According to this Netease news release a new record of 1.069 million peak concurrent users was reached this Sunday:

http://xyq.163.com/news/2005/04/2-2-20050411162248.html

For my non Chinese readers I would recommend using a free online translation service such as:

http://www.worldlingo.com/en/websites/url_translator.html

Lets hope the upward trend in peak and average concurrent users continues. I am hoping for a good 1Q earnings release in a few weeks. As a full disclosure, I am currently long NTES. I am not making any recommendations here. Please do your own research before investing.

New Links

2005-04-07T00:36:00.000-07:00

I have added links to several other blogs over the last few days. I would like to encourage my readers to check out all of the blogs I have linked to on the right side of the page. I think you will find many of them interesting.

On another note I would like to encourage my readers to email me with any ideas on topics you would like me to blog about. If you feel you have a website with relevant content I would also be happy to link to your site to help you increase traffic. Please feel free to link to my blog if you think it would be interesting to the readers of your blog or website.

Interesting Alibaba Article

2005-04-06T23:09:00.000-07:00

From Marketwatch.com:

http://www.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&guid=%7B94C55336%2D156D%2D4045%2DA29A%2DE06D75A8EA2E%7D

Alibaba is doing very well in China. I would be interested in buying some shares if they went public at a reasonable price. However it seems they already have enough cash available for building their business and have no need to IPO in the short term. If I were EBAY I would try to buy Alibaba soon. The price will surely rise as Taobao gains more market share from Eachnet. Alipay also seems to be doing relatively well and EBAY has not yet launched PayPal in China.

ROI for JD, MBA or MD

2005-04-02T21:28:00.000-08:00

From the New Yorker:

"William Weeks, a Dartmouth professor, has done a number of studies on the work life of physicians. He and his colleagues found that working hours for physicians are indeed longer than for other professions. (In 1998, the typical general surgeon worked sixty-three hours per week.) He also found that, if you view the expense of going to college and professional school as an investment, the payoff is somewhat poorer in medicine than in other professions. Tracking the fortunes of graduates of medical schools, law schools, and business schools with comparable entering grade-point averages, he found that the annual rate of return by the time they reach middle age is sixteen per cent per year in primary-care medicine, eigh-teen per cent in surgery, twenty-three per cent in law, and twenty-six per cent in business. Not bad, in any of these fields, but the differences are there. A physician’s income also tends to peak when he has been in practice between five and ten years, and then decrease in subsequent years as his willingness and ability to work the long hours wane."

I would like to see the "statistics" from this study. I also would like to see the definition of "middle age" since MD's spend more years in school and residency (with low pay) while their JD and MBA counterparts are already working. MD's likely have fewer years to work before reaching "middle age". However MBA's may be older on average (due to prior work experience) before starting grad school. I would also like to see the average number of hours worked per week for the people included in the study.

Here is a link to the full article:
http://www.newyorker.com/fact/content/articles/050404fa_fact

Update on Tom Online

2005-04-02T11:09:00.000-08:00

From China Daily:
http://www.chinadaily.com.cn/english/doc/2005-03/26/content_428326.htm

Some excerpts from the article:
"Chinese wireless Internet service provider Tom Online is seeking to improve its performance in this quarter after slow down.

"Interactive voice response (IVR), wireless application protocol, and ringback tone will be three pillars for the company this year," said company CEO Wang Leilei.

He said in an interview in Beijing on Monday the slowdown of Tom Online's businesses had stabilized in the fourth quarter over the previous quarters and the momentum is likely to continue in this quarter.

The Hong Kong Growth Enterprise Market and NASDAQ-listed company saw its revenues in the fourth quarter grow by 13 per cent to US$31.95 million over the third quarter. The quarter-on-quarter growth rates were 1.6 per cent and 17 per cent respectively in the second and third quarters.

Wang said the growth will mainly come from voice-based IVR, personalized mobile ringtone downloads, and wireless Internet surfing and downloading WAP, which contributed 65 per cent of Tom Online's revenues in the past quarter.

While many people believe the traditional text messaging service known as SMS will keep declining , Wang said it is "just a good opportunity."

"When SMS revenues of other companies are falling, ours will grow and more importantly we will use this platform to promote our new services," he said."

"Tom Online will use the resources of its newly-acquired Indiagames, an Indian mobile game developer, to develop overseas markets.

Wang said Indiagames has good co-operations with mobile carriers and distributors in Europe and the United States, so Tom Online will use that advantage to distribute picture and ringtone downloads and WAP services to Chinese users in those countries.

But overseas business will not have significant contribution to the company's financial performance this year."

I am currently long TOMO and am thinking about adding some more shares before 1Q 2005 earnings are released. I am not making any investment advice here. Please do your own research before making any investment decisions.