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  • 21Vianet Group: Lynchpin Of China's Internet Industry [View article]
    CDNs (e.g. CCIH) are virtual network operators. They don't own any fiber under the ground and most also do not own data center infrastructure. They could be customers of VNET, which does own the physical technology capital associated with running its network, which is comprised of both physical assets as well as virtual (software and network layer) assets.

    As we already noted, VNET owns a top CDN provider, Fastweb, which it acquired.

    We don't get your last question. Fastweb is already one of VNET's fastest-growing businesses and is growing significantly faster than CCIH. The demand for CDN is not as high as the demand for data center infrastructure and services in China. FastWeb is growing faster because it's starting off a much smaller revenue base.
    Mar 6, 2014. 11:02 AM | Likes Like |Link to Comment
  • Phoenix New Media Remains An Outlier In Chinese Online Media [View article]
    For such a high-quality asset that leads a vertical category, the discount to comps like ATHM is just egregious. Significant more upside.
    Mar 5, 2014. 12:10 PM | Likes Like |Link to Comment
  • Buy The NQ Mobile Dip And Prepare For Blastoff [View article]
    "MDM" is like "SaaS", just an acronym. It's just a buzzword, and frankly, kind of annoying because it doesn't describe much (at least SaaS describes a business model, albeit very generally). Do a feature by feature and service by service comp of all the names you listed with NS. You might be surprised as to who does what and how well. (By the way, you missed Citrix, MobileIron, and others, but who's counting.)

    It's not a winner-takes-all market. For that matter, it won't be in any part of the world, but it will likely be a winner-takes-most market, and we believe NS will take most. A couple of other players might too, but who cares? It's either going to be a monopoly or an oligopoly, and in either scenario, NS alone should generate large returns to NQ shareholders.

    It's going to be a massive market and yes, it is growing quickly though not inflecting yet (that's on the come).

    NS is big by China standards and on a revenue basis catching up to the "big" American players.

    There is substantial differentiation between "MDM" products and services, no different than in any software and service industry. There's a reason why the government and SOEs like large banks have chosen NS... and NQ too for that matter.) So how many "competitors" there are is not that interesting a figure (the US market has over a dozen MDM providers, since it's hip to say you are MDM these days, but only two or three are really winning).

    Aside from MDM that's focused on executive users (i.e. most of the players in China's nascent market), NS also offers turnkey soup-to-nuts solutions in partnership with the carriers (including reselling their data and voice), Samsung (KNOX container), and various third party software/app developers. NS also has custom app/software for larger customers (e.g. Chinese census bureau, a massive account). No other player has this broad a suite of services.

    Etc.
    Mar 4, 2014. 04:34 AM | 1 Like Like |Link to Comment
  • Buy The NQ Mobile Dip And Prepare For Blastoff [View article]
    We'll leave detailed analysis for another time. For now, let's just say that China is really big, and China's use of mobile even on a population size-adjusted/per capita basis ranks very highly (with significant room to grow), and the security sector in China is very regulated in favor of local companies, and NS's business model is idiosyncratic to the way Chinese enterprises are beginning to create the world's largest market for MDM, and Blackberry (the dominant player) is exiting the Chinese market in 2014, leaving NS as the only currently viable solution (an assessment Samsung agrees with), and NS's recent enormous deals (with the government itself and with government-owned entities) foreshadow a very large pipeline of business, and the current business model is front-loaded with hardware-related "customer on-boarding" revenue that fades after ~12-18 months in favor of very high margin software and service revenue.

    We expect NS will grow like a proverbial weed over the next few years.

    What do you think a unique and strategic asset like that would go for in today's red-hot market for all things mobile?

    Oh, and we look forward to the MobileIron IPO.
    Mar 3, 2014. 03:47 PM | Likes Like |Link to Comment
  • Buy The NQ Mobile Dip And Prepare For Blastoff [View article]
    How are we supposed to know?

    One would think that something along the lines of what Benzinga reported recently would happen: http://bit.ly/1mQynqU

    "The Street has not heard much from Muddy Waters since the NY Times reported the firm had sent a letter to NQ’s auditor, Pricewaterhousecoopers, on January 24. Perhaps the firm shorted the issue ahead of its announcement and collected a nice profit as the NQ’s shares swooned following its initial announcement. If so, the regulators may be paying a visit to the company’s headquarters in the not so distant future to investigate their trading practices."

    Mabye they and the HFs they collaborate with will have some interesting questions to answer soon.
    Mar 3, 2014. 03:23 PM | 5 Likes Like |Link to Comment
  • Buy The NQ Mobile Dip And Prepare For Blastoff [View article]
    Thanks for your interest, but again, we are not going to tell you when we might publish something for obvious reasons.

    As we said in our concluding remarks, it won't be long before the focus is back on the fundamentals (as opposed to matters we consider irrelevant to our views, such as the timing of the audit conclusion, etc.) at which point we might have a lot to say.
    Mar 3, 2014. 02:19 PM | 3 Likes Like |Link to Comment
  • Double Your Money With Phoenix New Media, China's Online Content King [View article]
    Today's earnings were indeed a "good thing."

    The company beat top-line, beat bottom-line, beat on margins, and raised Q1 guidance... thereby making FENG even cheaper than we originally suggested in this article.
    Feb 25, 2014. 11:14 PM | 1 Like Like |Link to Comment
  • Phoenix New Media Remains An Outlier In Chinese Online Media [View article]
    We maintain our bullish view on the company and have actually added to our position since writing this update.

    As for earnings, we'll comment on them once they're out, but we're holding our position into the print expecting solid results.

    One noteworthy piece of news that was out recently is that the CEO of FENG is now also the COO of parent company Phoenix Satellite TV. We think there is a big opportunity to increase sales and pricing by offering multi-channel media but one major challenge to do it optimally has been the management of different sales teams. If this new management appointment translates to better integrated sales, there could be significant sales upside to expectations over the coming quarters.
    Feb 18, 2014. 05:00 PM | Likes Like |Link to Comment
  • The Muddy Waters NQ Mobile Report Card [View article]
    Correct. That is why.

    The borrow on shares is under 5%. That means the shares are trading literally every day and are thus available every day in size. If shorts had conviction, they'd hold their positions.

    We are rooting for a very high short interest. We think that's a positive for the stock price and continue to lend out our shares. We expect to see a short squeeze to remember... any day now....
    Feb 12, 2014. 04:53 PM | 9 Likes Like |Link to Comment
  • The Muddy Waters NQ Mobile Report Card [View article]
    We suppose they were waiting for a bad report out of Deloitte and Shearman, then covered and got squeezed upon the news that Morgan Stanley had joined us in becoming a top holder, then covered and got squeezed again upon the news that Sprint is going to be the US deployment partner for NQ Live, then came back in full force on the news that China and the US are feuding over accounting disclosure laws. The SEC vs. the Big 4 issue is a total red herring at this point. It will get resolved over the course of years, not months, and this move by an overzealous and frustrated judge was way over his pay grade: it is inconsequential. The issue will get resolved by much higher powers than a puny pawn in the legal system.

    Cooperation between China and the US is slow, but steady, as it has been now for about two years. Yesterday, we saw another sign that things are progressing as expected: .http://reut.rs/1i6IEKa

    Anyone betting against Chinese ADRs due to this long-dated dispute between two governments that is slowly but surely getting resolved is also betting against large US multinationals that would get affected by any fallout: MacDonalds, Nike, Yum Brands, Microsoft, etc. In other words, absolutely nothing will happen to the Big 4's ability to audit ADR issuers this year and likely next, and by the time the dispute gets resolved, which could be years, nobody will even remember it's an issue because equity prices won't be reflecting it at all.

    As for NQ, we expect a surge of good news once the internal investigation is completed, which we expect to happen in a matter of weeks (sometime in February seems likely given our past experience with these types of full financial audits). We believe (but don't know, of course) that the company is either unable (since they may be in possession of non-public information at this point in the investigation) or unwilling (since they may want to wait for a more opportune time, i.e. post-audit) to announce shareholder-friendly news until after the audit. The buyback, for example, has not been completed despite having been started post-MW, and a new one has not been announced. That's curious, and it indicates to us that something (likely some new information) got in the way of its completion. The founders, who have now been granted the ability to pledge their shares to take out cash loans, have not done anything personally, despite now having the ability to deploy their own capital. We wonder for what reason they wanted to pledge their shares for cash loans in the first place, and for which uses any reasonable lender would issue share-backed loans to the founders of a company accused of wrongdoing, unless, of course, the use is to buy back shares (this is not rocket science, though we are, of course speculating now).

    We also wonder why there are so many rumors in Beijing about strategic interest in NQ right after the MW hit, some documented by the local media (here: http://bit.ly/1cHFI2L and here: http://bit.ly/12oUwy4), that have been affirmed by credible sources (such as heads of top private equity or venture capital firms, corp dev/strategy execs at top Internet companies, etc.). NQ itself has affirmed strategic interest in past conference calls. And in an environment where mobile assets are the new battleground for China's Big 4 Internet companies, with lesser companies, such as GOMO, have taken investments from the Chinese "Big 4" Internet platform companies very recently (QIHU was the strategic investor in GOMO)... we wonder if NQ can continue to demur all the confirmed interest given its desire to regain full credibility with investors and the fact that so much of the "weak money" in the stock has fled and is willing to sell. We would not be surprised at all if a large strategic disclosed a large stake in NQ sometime soon.

    That's a long-winded way of saying that we can only speculate why the shorts are still clinging on, but we are very confident that they are in for the same fate of the copycat shorts of the past seven or so MW hits: sudden, sharp losses.
    Jan 28, 2014. 08:04 AM | 10 Likes Like |Link to Comment
  • 21Vianet Group: Lynchpin Of China's Internet Industry [View article]
    There is very little exclusivity in the industry. Think about it. Companies want redundancy, even if they prefer one vendor over another.

    AWS is a major player in the US, but in China, they still need to rely on a local infrastructure provider to power their services. That is literally the law in China, and there's nothing AWS can do to avoid it. So AWS is only as good as their infrastructure partner. I'm sure the partnership with CNC will result in significantly more cloud revenue to them off of an insignificantly low base, but so what? The entire industry is growing quickly and VNET is taking share because it has a unique, high-moat technological and service-based competitive advantage. That's all we care about. In fact, demand is growing so quickly that there is not enough supply in the industry. We view the possibility of AWS servicing that unmet demand as a driver for overall market growth and therefore a net positive.

    There's also the reality that the market will segment as it develops. VNET provides a premium offering as its core product. AWS is focused on the lower-end (they're forced to because their partner cannot service a premium offering). But now we're getting ahead of ourselves by at least a year or longer.
    Jan 4, 2014. 05:56 PM | Likes Like |Link to Comment
  • 21Vianet Group: Lynchpin Of China's Internet Industry [View article]
    The IBM deal is very positive incremental news. We are revisiting our model to account for it. We don't know how much will hit in 2014, but private cloud in China is going to be a big positive for VNET, in our opinion. Also, there are other material changes to consider since we wrote our original report, such as the likelihood of bandwidth pricing coming down (a net positive to margins).

    We're still doing work on what 2014 might look like, and we might publish a follow-up to summarize all the "new news" when we're done.

    The price competition happened last year as well. It was a mix of bandwidth pricing coming down a bit and smaller A-share listed or private companies trying to meet top-line budget numbers into year-end. We don't think the impact is material, and the upside factors announced since we wrote the report far outweigh any downside to networked services revenue (which is a minority of total revenue and the lowest in margin to begin with).
    Jan 4, 2014. 05:50 PM | 1 Like Like |Link to Comment
  • Phoenix New Media Remains An Outlier In Chinese Online Media [View article]
    We have looked at it but have not spent enough time on it to have a strong view. We have not visited the company or its competitors, something we do before we take a position, so these comments aren't worth much, but... we like the space generally, have questions about the competitive environment and how differentiated KNDI really is, and the valuation is not extremely attractive to us at this point. Again, no real view long or short since we have not done much work.
    Jan 2, 2014. 01:21 PM | Likes Like |Link to Comment
  • Phoenix New Media Remains An Outlier In Chinese Online Media [View article]
    We think it is entirely correlated to the Chinese Web portal industry.

    See the charts for yourself: http://bit.ly/1dQh2Wq

    As we mentioned, we believe there has been a significant rotation out of "old" Chinese Internet into "new" (i.e. recently IPO'd) Chinese Internet, and some have expressed this thesis by going long the new and short the old.

    The irony of this is that FENG isn't "old" and is in fact leading the "new" in its industry in some of the most important areas. That's the big arbitrage available in FENG.
    Dec 31, 2013. 12:17 AM | Likes Like |Link to Comment
  • Phoenix New Media Remains An Outlier In Chinese Online Media [View article]
    Of course, nobody knows with certainty. We have no idea why the stock has sold off, since the fundamentals would predict the opposite.

    Some theories:

    1. The market is not appreciating that a heavier revenue weighting towards the growth businesses (at the expense of the legacy 2G business) is a very positive dynamic

    2. The stock has ripped since we originally wrote about it, with volume increasing several times in very short order. That always means there was some institutional accumulation but also a lot of trader volume. As the momentum stalled, the fast money punched out

    3. The rash of new Chinese IPOs that hit the market in recent weeks and months triggered a rotation out of more established Chinese Internet names into the new momentum stocks (e.g. QUNR, ATHM, GOMO, WUBA, WBAI, etc. all of which IPO'd after the big runup in FENG). It's not just FENG that has stalled, but also much larger companies such as QIHU, SOHU, SINA, YY, VIPS, etc. There are a few outliers such as SFUN, but by and large, the Chinese Internet industry as a group has traded flat to down since these new IPOs hit the market. Obviously, the less liquid names will be more impacted by such a rotation.

    4. The two largest portals, SOHU and SINA, have followed a similar price trajectory to FENG, SOHU in particular. Even though we think FENG is a meaningfully different company that is enjoying share gains at the expense of larger portals such as SOHU and SINA (as we've shown in our analysis), short-term, there is meaningful correlation between FENG and its portal peers, so FENG may have simply moved in sympathy and for no fundamental reason.

    5. People could be locking in gains or selling for tax reasons into year end, since FENG and several other Chinese Internet names have done very well this year. Again, the less liquid names such as FENG will be disproportionately impacted by that.
    Dec 17, 2013. 07:08 PM | Likes Like |Link to Comment
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