Global Sources (NASDAQ:GSOL) delivered very strong Q1 results. Revenue and Net Income increased by 16.4% and 48.1% respectively, mainly due to significant increases in exhibition revenue from a semiconductor show in China.
We can also see from the numbers below that the increase in opex was 9.1%, which was much slower than the 16.4% Revenue growth; strong operating leverage resulted in an impressive 48.1% net income growth.
For the first half of 2007 GSOL has revised revenue guidance upward, representing an increase of about 16% compared to 1H 06.
In my last story on GSOL I said that the coming listing of Alibaba will give a strong push to GSOL's share price due to a revaluation of GSOL’s online business. I would now like to do a further comparison of the two companies.
Since Alibaba is a private company, information about its business is very limited. However, we can still do our analysis using some unconventional approaches.
First of all, a very effective method in understanding a company’s new business direction is to check out its recruitment advertisement to see what sort of people it is hiring. I found that Alibaba is currentlyhiring the following Hong Kong based positions:
Manager, Buyer Services & Development
Based in Hong Kong, he/she will be responsible for the acquiring, planning and managing the relationship for Big Buyer's account.
Acquire active International Buyers to Alibaba.com marketplace Increase Alibaba.com mindshare and brand presence in International markets through the establishment or partnership & alliances
Senior Copy Writer
Based in Hong Kong, he/she will be responsible for creating all English-language content in all buyer programs for Alibaba.com. The individual have to work closely with the other business units to ensure that any buyer facing materials will be adhering to the branding and strategy of the company.
From the positions it is hiring I would interpret that Alibaba is trying to expand its international buyer user base.
As I mentioned last time, Alibaba is the largest B (domestic)-To- B(domestic) trading site in China. However, I would expect that the service fee Alibaba is charging must be much lower than that of Global Sources because GSOL is doing B (domestic)-To- B(international) and it is intuitive that you can charge more if your site can attract international buyers.
To attractive a truly international mix of buyers, English language is an obvious requirement, and hence Alibaba is also hiring a Senior English Copywriter!
Given the above information, I would say that Alibaba is planning to increase its service fee by improving the quality of those buyers who are sourcing products from its site.
As both Global Sources and Alibaba are providing services through the internet, another trick to verify my interpretation above is to check out the visitor sources to their sites. Alexa.com can provide very good web site visitor profile information and I’ve extracted related reports for both Alibaba.com and Globalsources.com below:
As we can see from GSOL’s web visitor profile above, 72.6% of its visitors are coming from outside of China. This confirms that GSOL's business model focuses on international buyers who procure from Chinese manufacturers.
On the other hand, 61.6% of Alibaba's web site visitors come from within China, confirming that Alibaba is currently mainly linking up Chinese buyers with Chinese manufacturers.
So is Alibaba’s new business initiative a threat to GSOL?
My view is that it will take Alibaba a considerably long period of time to develop such business:
1. GSOL has been doing B (domestic)-To- B(international) for 35 years; it would take a long time for Alibaba to build up such a user base and it is not easy to switch buyers from one service to other.
2. GSOL provides a truly integrated service in addition to an online catalogue. As we can see from its income sources above, it is also a famous trade show organizer in the region. One significant barrier in the exhibition business is the ability to secure popular exhibition venue. For example, GSOL has already entered into a long term lease with the Asia World Expo that gives it a very strong competitive advantage.
3. We all heard about the recent toxic toothpastes which were manufactured in China. What buyers care about is the creditability of suppliers. To ensure information provided by those suppliers are correct, GSOL would send its sales rep to physically visit all of its clients before their product information are posted to GSOL’s online catalog. According to GSOL company information they visit over 40,000 clients every month.
I will maintain my long position in GSOL and anticipate a revaluation of GSOL that will likely happen when Alibaba officially launches its IPO.
Disclosure: I have a long position in GSOL
GSOL 1-yr chart