By Tim Seymour
Opportunity or trap? The news of Alibaba buying 18% of Sina (SINA), which has a core foothold in the micro-blogging space, has not only Sina but others in the Chinese Internet sector booming. The combination of blending the Sina and Weibo platform with the ability of Alibaba in e-commerce -- along with electronic payments -- presents an interesting opportunity for this China heavyweight.
In this article I provide a quick look at some of the core names in the space, along with some of my thoughts. The move today brings a breakout in the China Internet indices overall, after months of range-bound charts after the lows of December. The Chinese internet sector was under the cloud of an SEC investigation into the lack of transparency in accounting practices. The sector multiples have come down dramatically in some cases as leaders are challenged by the changing landscape toward mobile, and the power of Twitter and online video losing luster. This dynamic is a microcosm of what has and will continue to play out in the U.S. with Google (GOOG), Apple (AAPL), Microsoft (MSFT), etc.
Sina -- This company owns Weibo, which is Twitter in China. It has huge growth, is a first-mover locally, and has a cultural advantage. The $57 level is a major level for the stock and right where it shot to this morning before pulling back. I'd be cautious at these levels, and despite a 95 times P/E the integration with Alibaba is very positive for both companies. This is a powerhouse e-commerce and online payment combo player now.
Baidu (BIDU) -- There is very good support for this stock at $81-$83 level. This could be a place to buy, but with a need for a tight stop within 5% of your entry price. The shares are cheap at 15 times, but this may be a signal that the multiple is going lower after years trading around 60 times P/E, when the net was growing in line. Growth has gone from 50%-70% over a decade to 8% in Q1 and will be a continued issue for investors. Like Google, BIDU is spending a lot of money to maintain its market share in search as mobile becomes the dominant medium.
Sohu.com (SOHU) -- This is the third-largest search engine. It just announced Q1 numbers this morning and it is beating on ad sales. A 23 times P/E multiple is fair for this company.
Youku.com (YOKU) -- This is the YouTube of China. It has never made money, and it's difficult to get excited about the stock until it can monetize its position in the marketplace. This was a $67 stock in April 2011, and it now trades at $20.