Igor Greenwald, Breakthrough Tech Profits
The Chinese internet sector is hotter than the sun. It is the belle of the latest global carry-trade ball, which shows few signs of flagging.
YY is China’s leading social live-streaming platform, the closest equivalent toYouTube in the world’s biggest market.
It’s growing like an internet powerhouse should, with revenue up 32% year-over-year to $385 million in the most recent quarter, and making out like a bandit with a 40% gross margin.
And while the share price has doubled year-to-date YY remains surprisingly inexpensive at 13 times this year’s estimated earnings and just 11 times next year’s. Market cap net of cash on the books is a bit shy of $4.5 billion.
The company’s principal source of revenue is the virtual currency it sells to viewers who then use it to reward their favorite performers or to secure an edge in YY’s online games. The 10 million amateur channels on its platform attract 117 million monthly average users.
All the usual risk warnings about a Chinese momentum stock apply in spades. Additionally, the company depends on grassroots creativity and sharing in a society ruled by a totalitarian dictatorship.
The government is currently cracking down on online message groups. And there’s no knowing if and when someone on YY’s platform might trigger the authorities or how bad the blowback might get.
But don’t let any of that stop you from taking a flyer on a reasonably priced Chinese internet player of note with lots of fundamental momentum and a decent likelihood of becoming a strategic prize for someone larger.
SINA Corp. scored a major win with its development of the Weibomicroblogging service, which has become the highest profile social media group in China. Weibo is like a combination of Twitter TWTR -0.93%
As of 10/18/2017, 01:47pm EDT
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China’s Best Social Media And Internet Stocks
, FacebookFB +0.05%, Pinterest and Reddit.
Sina spun Weibo off as an independent company three years ago. And since Sina retained a 46% stake in Weibo (plus a solid voting majority), what’s good for Weibo is very good for Sina Corp.
The company is always vulnerable to sanctions from the Chinese government if it allows controversial, subversive or offensive material to be posted.
Analysts predict earnings growth of 109% for 2017 and 35% in 2018. We are recommending SINA rather than Weibo because of its broader base, and also because Sina carries a relatively tamer 49 P/E compared to Weibo’s 84.
Leo Fasciocco, Ticker Tape Digest
Alibaba BABA +1.55% provides online and mobile commerce through products that enable merchants, brands and other businesses to market their products in China and internationally.
The company provides retail and wholesale marketplaces available through both personal computer and mobile interfaces.
These marketplaces include the China online shopping destination (Taobao Marketplace), the China brands and retail platform (Tmall) and the China group buying site that offers products by aggregating demand from consumers through limited time discounted sales (Juhuasuan).
The stock came public in 2014 at $88.70. It climbed to a peak of $120 in late 2014 and fell back to $57.20 in 2015. It then formed a bottom and has since been driving sharply higher.
The stock has broken out from a five-week, cup-and-handle base; the move carries the stock to a new all-time high. The breakout comes with a pick up in volume. That is also bullish.
Profits for the fiscal third quarter ending in December should be up 27% to $1.65 a share. The firm is expected to show a 45% surge in net for the fiscal year ending in March 2018. The Street looks for $4.95 a share, up from $3.41 the year before.
We see chances for an upside earnings surprise. Alibaba beat the Street estimates three out of the past four quarters. We are targeting the stock for a move to $220.
Monty Guild, Guild Investment Management
The flowering of mobile internet technology is making China an excellent example of “leapfrogging,” which occurs when an emerging market economy skips the technological steps that the developed world had to work through.
China’s e-commerce leapfrog has created some of the world’s most innovative e-commerce firms— companies such as Alibaba, JD.com JD +2.54%, BaiduBIDU -1%, Tencent, YY.com and others.
What these firms have in common is their fierce ambition to build holistic experiential ecosystems in which their users can meet all their economic, commercial and social needs.
They blend e-commerce, social media and entertainment, including video games and live streaming. Increasingly, they are adding financial services to this mix— and these may prove to be the most disruptive and lucrative elements of their strategy.
Meanwhile, mobile payments have become ubiquitous in urban China. In China’s first-tier cities, almost everyone pays for almost everything using a smartphone— not using cash or a credit card.
The dominant leader in mobile payments is Alibaba, with Tencent coming in second. Alibaba’s Alipay was a natural development of its online marketplaces, and Tencent developed WeChat Pay as an extension of its mobile communication platform.
With $170 billion in assets under management in the first quarter of 2017, and 300 million users, Alibaba’s money-market fund, Yuebao, is the largest in the world.
The company can triangulate data from consumers across its entire sprawling platform, with unprecedented insight into spending and social habits— giving them tremendous leverage in developing, selling and delivering new services for consumers and businesses.
What are the investment implications? You would have to roll together Amazon, Facebook, PayPal PYPL +0.83% and a few other U.S. firms in order to arrive at the total commercial presence that Alibaba and its competitors are creating in China, and to us, the theme of these burgeoning internet conglomerates looks likely to endure for years to come.
Investors may consider all of the companies mentioned above, although Alibaba and Tencent are our favorites. Investors may also approach the theme through an ETF; one option is the KraneShares CSI China Internet ETF.
Roger Conrad, Conrad’s Utility Investor
With 867 million wireless subscribers, China Mobile is the top dog in China’s telecom market and boasts the Mainland’s best network.
Over the past 12 months, the migration to 4G spurred a 107.5% increase in the company’s data traffic. China Mobile also expanded its customer base by 41.3%, poaching many of these new subscribers from rivals.
The company slashed its data tariff for wireless phones by 36% and still managed to grow its average revenue per user by a robust 4.5 percent.
This performance in a highly competitive market is impressive enough, but prospective investors should consider the upside from the rollout of its 5G network in coming years and a potential explosion in machine-to-machine communications.
Integrating wireline broadband with the wireless network will be critical to meeting the coming surge in human and machine-based data traffic. China Mobile controls about one-third of China’s wireline broadband network, with a customer base of almost 100 million.
During China Mobile’s second-quarter earnings call, management highlighted the telecom firm’s ambitious plans for the Internet of Things.
This strategy includes application development with more than 70 different industries and plans to start commercial use of these products in “certain key cities” by the end of 2017.
Although impressive second-quarter results testify to the company’s dominance of the wireless market, the stock remains 25 percent below its April 2015 high and trades at a discounted valuation of 13 times earnings.