<< Part I: Baidu, Sina, Sohu
<< Part II: Youku, Tudou, Ctrip
<<Part III: Renren, Focus Media
Dangdang (DANG): Year of continued investment
China's ecommerce market is expected to grow at a CAGR of 48% from 2010 to 2013, according to Bain and Company. Within the space, B2C market is growing faster than C2C due to shoppers' growing emphasis on quality, delivery, and after-sales service. While the overall industry trend is supporting ecommerce growth, China's weak infrastructure in logistics and transportation presents a major bottleneck. In order to capitalize on the industry trend, ecommerce companies have to invest heavily on logistics such as fulfillment centers and delivery to ensure product and service quality, and a satisfactory shopping experience.
Over the past quarter, Dangdang has been promoting its brand in Tier 1 cities, such as Beijing, Shanghai, Shenzhen, and Guangzhou, improving customer experience with faster delivery and improved packaging. In the second half of 2011, the company opened three fulfillment centers in Wuxi, Jinan and Fuzhou, and I expect more 4 - 5 additional fulfillment centers to open in 2012 to expand its same-day delivery service, which is currently available in 17 cities.
Dangdang might also follow rival 360Buy's path to control its own delivery process to ensure timely delivery. In early December of last year, Liu Qiangdong, CEO of 360Buy, announced that the company will purchase approximately 300 trucks to enter the logistics and transportation distribution market because 60 logistics partners failed to meet 360Buy's standard on speed, timeliness, cost, and service quality. In my view, poor service from logistic partners is an industry-wide issue that is not experienced by 360Buy alone. Dangdang could be facing similar challenges and that the company will likely invest in its own logistics and transportation infrastructure to better compete with rivals.
NetEase (NTES): Robust in-house pipeline; Diablo 3 Debut
In the last quarter, NetEase pointed out that its in-house developed games such as Westward Journey Online II [WJ2], Tianxian II [TX2] and Ghost contributed to most of the revenue growth along with World of Warcraft [WoW]. In 2012, I expect the company to continue to execute on its robust in-house pipelines.
Tianxia III was released in late October of last year and I believe that the expansion will become a successful the sequel to TX2 because it caters to both hardcore and casual gamers due to its higher level of customization that allows gamers to freely modify their in-game environment such as temples, roads and nature. In addition, TX3 also features improved graphics, actions sequence, and a robust portfolio of in-game items that will attract users and improve user stickiness.
Besides to Tianxia III, Ghost Online will also be a hit, having attracted over 12 million gamers and 9,000 gamer unions since its closed beta testing last April. An expansion pack is expected to launch in 1H12. The company also hired actress Crystal Liu as the game's spokesperson, which I believe will help the title to gain additional awareness. I would like investors to note that Crystal Liu was previously featured in the hit TV series, Tian Long Ba Bu, which is also the top MMORPG franchise in Changyou's (CYOU) gaming portfolio.
By the middle of this year, NetEase is expected to release three more in-house titles: the 2D side-scrolling shooting game "Dong Fang Zhan Ji", the 3D side-scrolling shooting game "Gu Zhen Zhi", and the 3D MMORPG "X5".
On a final note, NetEase will likely license the upcoming Diablo 3 from Blizzard. Diablo 3 features an improved graphics that supports a stunning destructible environment and an enhanced playing experience that will attract the Chinese gaming community.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
