Three reasons to invest in the Alibaba IPO

Now that Yahoo Inc.’s freeing up 20 percent of Alibaba’s shares, the Chinese tech giant Alibaba can begin preparing for its IPO. Here are three reasons to consider investing in the Alibaba IPO.

Now that Yahoo Inc.’s (NASDAQ:YHOO) freeing up 20 percent of Alibaba’s shares, the Chinese tech giant Alibaba can begin preparing for its IPO. Expect a lot of fireworks as Alibaba’s one of the most exciting tech companies behind the Great Firewall. Here are three reasons to consider investing in the Alibaba IPO:

1) Fingers in a lot of pots. Summing up Alibaba’s internet operations is a bit like trying to describe Microsoft’s software offerings. They both do a hell of a lot. Alibaba’s most promising properties, though, are Alibaba.com (a business-to-business commerce site), Taobao.com (an eBay-like auction and Buy It Now site), eTao.com (a shopping search engine similar to Google Products), a cloud computing division, and Alipay (a PayPal-like payment processor for online transactions in China).

2) Rapid growth. One of the easiest ways to see how fast Alibaba’s growing is to look at Yahoo’s returns. In 2005, Yahoo invested $1 billion for a 40 percent stake in Alibaba. Now, they’re selling half that stake for $7.1 billion. Their full stake is worth some $14 billion, and that means they’ve made 14 times their money in seven short years.

3) The fat part of the curve. For most Westerners, buying and selling products online is second nature. That’s not the case in China. The country’s still in the fat part of the growth curve for e-commerce. Indeed, China’s online shopping industry is expected to grow by 42 percent this year (per Bloomberg). Contrast that with the U.S. where Q1 2012 e-commerce growth stood at 17 percent (per comScore). As China’s largest e-commerce provider, Alibaba stands to rake in a big part of that 42 percent growth.

Already, Alibaba’s pulling in substantial profits. The company generated $2.3 billion in the year ended Sept. 30 ($1 billion more than the previous year) and posted a profit of $268 million.

While we don’t know Alibaba’s IPO date yet, it is expected to come by the end of 2015 at the latest.

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Dangdang vs. Renren: Battle of the Chinese tech stocks

When I first started writing this post, I expected to argue that Dangdang’s the better stock. My research since then has me leaning toward Renren in the near-term. Here’s why.

I recently stumbled upon Sammy Pollack’s post at SeekingAlpha: 3 Reasons Why Renren Is A Better Buy Than Dangdang, and it got me wanting to dig deeper into the two companies to figure out which one I think is a better buy.

Pollack’s firmly entrenched in the Renren camp. Here’s why he’s like the “Chinese Facebook” better than the “Chinese Amazon” (Dangdang):

1) Facebook IPO. The Facebook IPO could drive up interest in Renren as a social networking play behind the Great Firewall.

2) Dangdang churn. The recent resignation of Dangdang’s CFO, Conor Chia-huang Yang, is a sign there could be trouble under the surface at Dangdang.

3) Cash. Renren’s in a stronger financial situation on paper. Indeed, Renren has $284.64 million in cash and equivalents compared to Dangdang’s $30.4 million, and Renren’s actually operating at a profit.

More arguments for Renren

When I first started writing this post, I expected to argue that Dangdang’s the better stock. My research since then has me leaning toward Renren. In addition to the arguments above, here’s why I like Renren over Dangdang:

1) Competition. Dangdang’s got competitors that are aiming squarely for the company’s throat. Among them? The true “Amazon of China”: Amazon.cn. Amazon acquired Joyo.com in 2004 and has been building up it’s presence in the country ever since. Even today, Amazon.cn gets slightly more internet traffic than Dangdang (per Alexa.com).

On top of that, though, both Amazon and Dangdang are overshadowed by 360Buy.com (a Chinese online retail site with backing from Walmart – NYSE:WMT). Renren’s got competition, too (namely in the form of Pengyou.com), but at least it’s neck and neck with Pengyou.com; not a distant competitor struggling to make up ground.

A Twitter-like microblogging site in China, Weibo.cn, could pose the biggest threat to social networks like Renren and Pengyou. Already Weibo gets more traffic, and it’s owned by the deep-pocketed Sina Corporation (NASDAQ:SINA). For now, though, Weibo’s operating more like Twitter and less like Facebook. If that should start to change, Renren should really get nervous.

2) Investors “like” social networks more than retailers. OK. We don’t have official numbers on what sort of market cap the public will give to Facebook, but apparently, Facebook valuations tossed around during the Instagram acquisition went as high as $104 billion (per Dealbook). That’s actually more than Amazon’s current market cap of $102.2 billion.

To sum it up

Let me make it clear that I don’t dislike Dangdang. In fact, I think the stock still has significant upside (and I’d be surprised if it isn’t being looked at by a lot of Western companies, including Amazon, as a potential takeover target).

During its most recent quarter, Dangdang generated $190 million in revenue. That was far more than Renren’s $32 million. Renren has much lower overhead and profit margins, though, so the social network was actually able to claim profitability. Dangdang, on the other hand, operates more like Amazon – forgoing profit in the short-run as it sets itself up for better returns in the future. That makes me like Dangdang in the long-term. In the near-term, though, I expect Renren to outperform Dangdang – particularly in the wake of Facebook’s IPO. Things are just too unsettled in the online retail space in China for investors to dump all of their cash in Dangdang.

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Decoding DangDang: Is China’s Amazon still a buy?

Losing money’s OK as long there’s a plan in place to start making it in the future. We’re hoping the departure of Yang isn’t a sign that Dangdang’s losing control of the ship.

E-Commerce China Dangdang Inc. (NYSE: DANG) got hammered yesterday on news CFO Conor Chia-huang Yang was departing after just 26 months in the saddle. The stock lost 15.31 percent or $1.56 a share. That wiped out $128 million in market cap in a single day of trading. Still, it’s unclear why Yang’s departing.

According to the press release, Yang is leaving for personal reasons and plans to stay on board for three months to help the company through its transition.

“Conor has made an important contribution to Dangdang since he joined in March 2010,” Peggy Yu Yu, Dangdang’s Executive Chairwoman, said in the release. “We thank him for his leadership and dedication to the company. We wish him all the best in his future endeavors.”

It could be something innocuous, but investors showed they have little tolerance for the faintest whiff of accounting problems at Chinese firms. Dangdang holders ran for the exit in droves – perhaps trying to lock in the gains they’ve gotten so far this year.

In fact, even after yesterday’s brutal sell-off, shares in Dangdang are still up 96 percent since Jan. 1. That – along with the performance of several other Chinese tech stocks – prompted us to write a recent article dubbing 2012 “The Year of the Chinese Tech Stocks.”

Late last week, Credit Suisse (NYSE: CS) downgraded Dangdang’s shares from “outperform” to “neutral.” Not a big surprise there after Dangdang’s monster run since the start of the year, though. In fact, Credit Suisse was just backing off the upgrade they gave Dangdang’s shares two months ago.

While we’re still bullish on Dangdang, we must concede this fact: the company’s last earnings report was a disappointment. Dangdang lost $0.26 per share in Q4 2011. Analysts were expecting a loss of $0.16 per share. Still, revenue was up 81.7 percent year-over-year and Dangdang is in a tooth-and-nail, knock-down, drag-out fight with several other online retailers in China (including their biggest rival 360Buy.com).

Losing money is OK as long there’s a plan in place to start making it soon. We’re hoping the departure of Yang isn’t a sign that Dangdang’s losing control of the ship. But for now, we’ll give them the benefit of the doubt.

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2012 is the year of the Chinese tech stocks

Since the start of the year, Chinese technology stocks have surged higher. That could be due, in part, to last year’s dismal returns, but if the last three quarters of 2012 look as good as the first, there’s lots of money to be made behind the Great Firewall.

Since the start of the year, Chinese technology stocks have surged higher. That could be due, in part, to last year’s dismal returns, but if the last three quarters of 2012 look as good as the first, there’s lots of money to be made behind the Great Firewall.

In fact, all Chinese stocks (not only tech) that trade on American exchanges jumped 14 percent in the first quarter (per Bloomberg). The article sites two reasons for the sudden interest in all things Chinese: an uptick in manufacturing and predictions that the Chinese government will lower reserve requirements.

Still, it’s Chinese tech stocks that have really dominated the show in China in 2012. Here’s a quick look at some of this year’s top performers:

1) E-Commerce China Dangdang Inc. (ADR) (NYSE:DANG). +126% in 2012.
Dangdang.com models itself after Amazon. The company got its start in books and has been adding new product categories ever since. They’re also moving rather aggressively into the e-reader market in mainland China. Dangdang shares got a big boost recently, though, when the company announced a partnership with Gome Electrical Appliances Holding Ltd.

Gome is China’s second-largest electronics dealer, and the company recently started selling its wares on Dangdang. Dangdang may start selling their own wares on Gome’s Web site as well.

2) Renren Inc. (NYSE:RENN). +63% in 2012.
A Chinese take on Facebook, Renren operates the PRC’s most popular real-name social network. The fact that the site requires members to use their real names could actually be a boon as China’s started cracking down on illegal online commenting. Sites like Weibo (a Twitter-like service where real-name requirements are fairly lax) were recently forced to shut down their services for 72 hours as they worked to scrub illegal comments from their servers (again per Reuters). Those service interruptions can only strengthen Renren’s user base.

3) Baidu.com, Inc. (ADR) (NASDAQ:BIDU). +25% in 2012.
China’s most-visited web site is also the country’s leading search engine: Baidu.com. Baidu is the fifth most-visited Web site in the world with a global reach of more than 11 percent (meaning 11 percent of everyone in the world visits the site on a daily basis, per Alexa). Baidu’s revenues for Q4 in 2011 rose 82.5 percent over the corresponding period in 2010.

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Why are E-Commerce China Dangdang’s shares on fire?

Something magical seems to be happening to DangDang’s shares in 2012. Over the past month, the stock has shot up 98 percent. What gives?

There’s one stock in particular that drubbed my portfolio last year, and it happens to be E-Commerce China DangDang (NYSE:DANG). Fanfare was high when DangDang made its initial public offering in December 2010. That early love affair with “China’s Amazon” wore off quickly, though, and investors dumped shares like crewmen bailing water in a leaky boat.

DangDang shed more than 80 percent of it’s value in 2011 as shares free-fell from $30 to $4 a pop. I cringed every time I checked my 401K. But something magical seems to be happening for shares in 2012. Over the past month, DangDang has shot up 98 percent. What gives?

Here’s my assessment of why DangDang shares are recovering:

1) More users, more cashflow. DangDang used money from its IPO to expand its offerings and bolster the company’s distribution system. That’s helped drive up the number of orders at the site by 32 percent over the past year (per Fool.com). The site’s also driven up its total number of users to 5.5 million, up 36% over last year.

2) Renewed interest in Chinese stocks. With the Federal Reserve’s recent announcement that it plans to keep interest rates near zero until at least 2014, investors’ risk appetite has grown quickly. That’s pushed up a lot of Chinese stocks – and DangDang’s going along for the ride. Other winners include social networking company Renren Inc. (NYSE:RENN), up 60 percent since the start of the year, and video-streaming company Youku Inc. (Public, NYSE:YOKU), up 45 percent.

3) Robust EPS growth. According to CNAnalyst, DangDang’s long-term annual EPS growth should hit 53.3 percent. That puts it ahead of just about every top small-cap stock on the market besides Indian travel company MakeMyTrip Limited (NASDAQ:MMYT).

4) A new e-book platform. DangDang launched its e-book platform in December for use on iPhones, iPads and PCs. 50,000 book titles are available and each sale should net the company 20 percent of the sale price. Writer Kevin Chen expects DangDang’s ebook sales to start manifesting themselves in the company’s earnings reports in Q2 2012.

There are warning signs, though. For one thing, DangDang’s already blown through a lot of price targets for the company. Brokerage analysts have set an average target price of $8.01 (per CNAnalyst). DangDang’s competition could IPO soon, too (see our 2012 tech IPO calendar for more).

Despite the challenges the company faces, and the fact that it controls just 2.3 percent of the of B2C ecommerce market in China, investors seem to have warmed back up to DangDang. Shares still haven’t hit my dollar-cost-averaged price, but it’s a step in the right direction.

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The unofficial tech IPO calendar for 2012

From Facebook to Twitter to Groupon, the planned tech IPOs in 2012 could be among the most exciting string of new public companies in years.


Social games maker Zynga is one of dozens of highly-anticipated planned Tech IPOs in 2012.

The tech IPO pipeline is officially clogged. Renaissance Capital claims there are 330 IPOs (across all industries) in the IPO pipeline looking to raise $180 billion. Renaissance predicts that capital raised from 2011 IPOs could fall 36 percent shy of last year’s $39 billion. Should the market recover, 2012’s IPO market will be massive, and there are lots of great tech companies eager to raise capital. Here’s our unofficial 2012 tech IPO calendar…


360Buy.com IPO (Jingdong Mall). One of the largest business-to-consumer sites in China, 360Buy.com often draws comparisons to Amazon. Revenue was expected to hit $4.4 billion in 2011. Expect that keep climbing as online sales in China rose 77 percent in China last year. See our post 3 reasons to invest in the 360Buy.com IPO (Jingdong Mall) for more.


58.com IPO. China’s largest Craigslist-like online classifieds site, 58.com filed for an IPO on June 20,2011. The site makes money by charging a small fraction of its posters for premium-placement on the site.


Angie’s List IPO ($75 million+). Angie’s List lets paying subscribers read reviews of local businesses and contractors. The company’s something of an anomaly in the fast-paced world of tech start-ups as it’s now in its 16th year of operation. During that time, Angie’s List has accumulated a database of more than 2.2 million reviews (per CNN) and has more than 800,000 paying members.


Alibaba’s HiChina IPO ($200 million+). A subsidiary of Alibaba.com Ltd., HiChina Group Ltd.’s something like GoDaddy.com. The company offers domain names, hosting accounts and website building tools for small businesses in China. An IPO will help finance expansion into new businesses including email and website design (per WSJ).


Bazaarvoice IPO ($85 million+). You’ve probably seen or used Bazaarvoice’s software without realizing it. The company sells its code to online retailers (like Best Buy and Macy’s), so those retailers can pull in online reviews of the products they sell. Bazaarvoice is expected to generate $64.5 million+ in revenue this year, and CEO Brett Hurt claims the company could stop expanding now and immediately become profitable.


Brightcove IPO ($50 million+). Brightcove offers a cloud-based video serving platform for paying customers. All told, they serve up some 700 million video streams a month (second only to YouTube) for more than 3,300 clients (per GigaOm). Unfortunately, the business doesn’t reap a huge amount of revenue. Brightcove will likely book somewhere in the neighborhood of $50 million in revenue this year.


Eloqua IPO ($100 million+). Eloqua makes it easier for large Web sites to run and analyze marketing campaigns. Specifically, the company’s analytics software allows businesses to predict how much revenue marketing campaigns will generate.


Facebook IPO. Now boasting more than 800 million registered users, Facebook’s IPO will rank among the largest IPOs of all time. The latest media reports peg Facebook’s IPO date as sometime late in 2012. Interestingly, though, SEC rules will require the company to start making public its revenue, profits and losses in April 2012 (since the company’s total number of shareholders now exceeds 500).


Gilt Groupe IPO. A flash-sales site that offers temporary discounts on luxury goods, one of Gilt Groupe’s smaller competitors (HauteLook) was recently acquired by Nordstrom, Inc. (NYSE:JWN) for $180 million. Contrast that with the much larger Gilt Groupe where revenue alone is expected to hit $500 million this year.


Groupon, Inc. IPO ($750 million+). A series of pre-IPO missteps may push Groupon’s IPO to 2012. The Chicago-based daily deals email marketing company generated $688 million in revenue during the first half of 2011. See our post 3 reasons NOT to invest in Groupon’s IPO for more.


Guidewire IPO ($100 million+). A 10-year-old company that develops technology for the insurance industry, Guidewire’s services help streamline claims by processing them online. The company generated revenue of $144.7 million in 2010. That was good for net income of $15.5 million. Guidewire will IPO under ticker symbol GWRE.


Jive Software IPO ($100 million+). Jive creates social networking software for corporations. And it counts some major companies among its clients – including Nike, Cisco and Toshiba. Revenue from each of their customers averages a whopping $7,874 a month (per OregonLive). See our post 3 reasons to buy shares in a Jive IPO (Jive Software) for more.


LivingSocial IPO ($1 billion+). In light of the recent turmoil in financial markets, LivingSocial has temporarily shelved IPO plans. The company is instead fishing around for private equity (per Bloomberg). The daily deals site faces a lot of competition in Groupon and Google, which recently purchased restaurant-review company Zagat and German daily-deals site DailyDeal.de.


MobiTV IPO ($75 million+). A video provider for mobile phones, MobiTV has contracts with all the major telecoms: AT&T, Sprint and T-Mobile. Their software gives mobile users the ability to download video or watch it on-demand via their phones. Of course, the merger between AT&T and T-Mobile could drive down revenue at the company. An IPO could help them expand internationally. See our post 3 reasons NOT to invest in the MobiTV IPO for more.


Qunar.com IPO. A China-based travel search site, Qunar’s majority-owned by China’s largest search engine, Baidu.com, Inc. (NASDAQ:BIDU). Qunar’s already a Top 100 site in China, and I expect the backing from Baidu will cement Qunar’s position as the leading travel site in China. See our post Qunar IPO: 5 reasons to invest in China’s travel site for more.


SecondMarket IPO. The rumors haven’t started flying about a SecondMarket IPO yet, but the company did start listing its own shares on its Web site. SecondMarket provides a marketplace for high-net-worth individuals and institutions to invest in private companies.


Trulia IPO. An online real estate search and marketing company akin to Zillow Inc. (NASDAQ:Z), Trulia announced IPO plans in February 2011. The site’s been doubling revenues year over year and has an estimated value of $700 million (per Inman).


Twitter IPO. Look for a Twitter IPO late in 2012 or early 2013. The ubiquitous micro-blogging site now claims 100 million active users. Questions remain about the company’s business model, but Twitter’s reach offers some tantalizing possibilities. See our post Twitter’s secret key to making money for more.


Vancl IPO ($1 billion+). An online-only clothing retailer in China, Vancl’s advertising campaigns blanket the Internet behind the Great Firewall. It seems to be working, too, as the company targets price-conscious consumers. Vancl comes from good pedigree, with the company’s founder, Chen Nian, having sold his last venture, Joyo.com, to Amazon. Joyo has since morphed into Amazon.cn.


Yelp IPO. Yelp provides local reviews for businesses and restaurants. According to CEO Jeremy Stoppelman, the company gets 63 million unique monthly visitors who add more than 1 million new reviews to the site every month. Yelp’s been particularly successful with its apps. The right partnerships could drive revenue growth for the company moving forward.


Zynga IPO ($1 billion+). Zynga, which makes social-networking games for Facebook, iPhones and Androids, is tentatively planning to IPO in November 2011. Don’t be surprised if Zynga’s IPO date gets pushed back to 2012, though. The company’s has perhaps the best financials of all the company’s on the list. As of March, the company held nearly $1 billion in cash and was generating cash flow of $104 million per quarter (per Fortune). See our post 8 facts about Zynga before the IPO for more.


Interesting 2012 non-tech IPOs: U.K. soccer team Manchester United.

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Top five fraud allegations against Silvercorp (SVM) debunked

A number of credible geologists, analysts and Silvercorp itself have come forth to debunk accusations against the company. Here are the top five fraud allegations and their refutations.

It’s been a wild two weeks for Silvercorp Metals Inc. (NYSE:SVM). On Sept. 2, the company announced it had acquired an anonymous letter accusing Silvercorp of fraud. The stock has since lost nearly 20 percent of its value as investors try to figure out what the hell’s going on.

I’ve even wavered back and forth. First, I wrote a post titled Time to buy Silvercorp Metals (SVM)? on Sept. 6. A week later, I updated the post with a note that it could be time to sell Silvercorp on the heels of more allegations against the company (this time from well-known, as-yet-unidentified finger-pointer AlfredLittle.com).

Since then, though, a number of credible geologists, analysts and Silvercorp itself have come forth to debunk accusations against the company, and I’ve decided Silvercorp has fallen prey to a “Short and Shock” campaign (the opposite of a “Pump and Dump” scheme). Here are the top five fraud allegations against Silvercorp debunked (you can read more from Silvercorp’s Chairman here):

Fraud allegation No. 1:

Ore that fell off Silvercorp’s truck didn’t have much silver in them.

There’s something comical about this claim, but here it is: AlfredLittle says their “investigator” collected ore that fell off Silvercorp trucks while traveling to and from the ferry dock and mills near the mine last month. They then sent the ore to a local lab for testing and found a mere 30 grams of silver per ton of ore.

Firstly, mining companies are notorious about protecting their goods. Many make outside visitors strip off their clothes and wear company-approved overalls while visiting mines. The notion that a mining company would let chunks of ore topple off their trucks every time they hit a pothole just doesn’t seem that likely (although Silvercorp does admit it contracts out the hauling of its ore – weighing shipments when they leave their mine and arrive at the mill). So, let’s just say that there’s ore laying on the side of the road near Silvercorp’s mine, and AlfredLittle happened to get their hands on some.

AlfredLittle admits a fallacy in their own allegation: “We acknowledge our sample size was small and unscientific. To correct this we are submitting numerous additional samples for testing and plan to publish our findings in a later report.”

Even if they get more samples tested, there won’t be much that’s scientific about their sample – particularly if it’s ore Silvercorp cares so little about that they let it fall off trucks like rotten cabbage.

“Who are you?” Silvercorp writes in response to the allegation. “Are you a geologist, a mining engineer or a QP? You are not qualified to take a sample, not to say you took a sample from rocks falling off our trucks.”

Fraud allegation No. 2:

The production, quality and resource estimates of SVM’s Ying mine are inaccurate.

AlfredLittle bases their production allegations on outdated materials, including a L&R Report that was done shortly after Silvercorp purchased the Ying mine. L&R Reports aren’t required to be regularly updated and they adhere to far less stringent standards than Canada’s 43-101 reports that much be verified by a “Qualified Person” (as recognized by the Canadian Securities Administrators).

AlfredLittle repeatedly asserts that the company has “refused” to let outsiders test the Ying Mine since 2008, but such tests aren’t required unless Silvercorp were to file to renew their mining permit, announce a change in their estimated resources or disclose a new discovery that hadn’t been previously made public.

To prove Silvercorp’s got the silver the company claims it does, they’ve went as far as releasing 12MB of bank statements from the Bank of Montreal. It doesn’t seem like the move a fraudulent company would make (especially since the statements show a closing balance of CAD$7 million).

Fraud allegation No. 3:

An SVM subsidiary’s largest customer is an undisclosed “related party.”

A “related party” relationship occurs when one company has the ability to control another company’s financial or operational decisions. It is true that a Silvercorp subsidiary (Henan Found Mining Co. Ltd.) has a 15 percent stake in a Silvercorp smelter, Luoyang Yongning Smelting Co. Ltd. But that fact was reported by Silvercorp in the company’s June 30 quarterly filing with the Canadian Securities Administrators, and it certainly doesn’t qualify as a “related party.”

“In fact, sales to the smelter, in keeping with the profitable concept of vertical integration, are
preferred as the Company obtains an interest in the smelting profit as well,” Silvercorp writes.

Fraud allegation No. 4:

SVM Acquired Yangtze Gold (the Gaocheng Project) from Chairman Rui Feng’s relative, and in the process yielded that relative a 1,500 percent gain in six months.

Silvercorp did indeed purchase rights to the Gaocheng (GC) project in 2008. However, that move was approved by the company’s board and duly reported to the TSX. It wasn’t, Silvercorp maintains, a six-month, 1,500-percent gain, though. In fact, Rui Feng’s relative spent six years exploring the site before it was acquired by Silvercorp in 2008.

Now, Silvercorp looks at the GC projcet as one of the company’s prime assets: “The GC project is currently expected to be the biggest driver for the Company’s silver production growth over the next 3 years,” Silvercorp writes. “Since acquiring the project the Company has succeeded in increasing the resource, obtaining an environmental permit, a mining permit and is now moving the project into the construction phase.”

Fraud allegation No. 5:

The truckloads of ore arriving at Silvercorp’s mills don’t add up to the amount of silver the company claims to produce.

AlfredLittle claims its investigators counted trucks arriving at Silvercorp’s mills to get an idea of just how much ore the company is processing. “Our investigators spent two weeks this summer counting the number of 30 tonne capacity trucks delivering ore to SVM’s two mills,” the AlfredLittle report states.

“We appreciate you worked hard to count 2 weeks of our truck shipments in the hot Henan
summer,” Silvercorp retorts. “We think that your count (of the number of trucks) is reasonably close except that you do not know exactly how many tonnes each truck carries.”

According to Silvercorp, those 30-tonne trucks actually carry closer to 45 tonnes of ore on each trip.

The takeaway

Both the anonymous letter and AlfredLittle’s “report” look like a smear campaign designed to make a whole lot of money for the unidentified investors who have taken up huge short positions in the company. I say, wait for the dust to clear, then go long SVM. Consider it a discount on a great mining company.

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Lashou IPO: 5 reasons avoid investing in China’s Groupon

Earlier this year, an expose aired by CCTV showed Lashou employees admitting that they’d exaggerated the number of deal participants the company touted.

It’s looking like Groupon’s going to get beat to market. Lashou.com’s IPO plans, which were announced last week, could make the Chinese company the first daily deals coupon site to go public in the U.S. Here are five reasons why I plan to steer clear of the stock:


Ge You

1) Metoric growth can’t be sustained. One of the first daily deals sites in China, it’s hard to believe Lashou was founded in March 2010. That makes it just 18 months old, and already, it’s the 74th most-visited web site in China (per Alexa). In April, a $110 million round of funding from China’s GSR Ventures valued the company $1.1 billion. That valuation was $600 million higher than a similar valuation just five months earlier. Thanks to aggressive marketing campaigns (including one starring well-known Chinese actor/comedian Ge You), the company now has more than 10 million registered users and has the widest reach of any daily deals site in China covering more than 170 cities (per Business Insider). Sales revenue in July hit RMB167 million ($26 million USD). But how long can it last?

Already research firm Analysys International is predicting a dramatic slowdown in growth for daily deals sites in China. First quarter growth of 65.7 percent, could tumble to 21.3 percent in the fourth quarter as user activity on the sites declines.

2) The demise of Gaopeng.com. Groupon operates in China at Gaopeng.com – a site that launched earlier this year and experienced rapid growth before hitting a few stumbling blocks earlier this year. Traffic has fallen off dramatically at the site:

Last month, Groupon fired a big chunk of its staff at Gaopeng, but the company insists it’s “financially viable and still hiring” (per Bloomberg). The rapid plunge in traffic at Gaopeng should give investors pause and serve as a warning that continued growth at Lashou is far from guaranteed.

3) Shady business practices = lukewarm reception from investors. Chinese firms in just about every industry from coal mining to timber, lighting and media have U.S. investors nervous about dumping dollars into Chinese companies. Any rumor of shady accounting or business practices can be enough to push a Chinese ADR down 20 percent in a day.

Earlier this year, an expose aired by CCTV (China Central Television) showed Lashou employees admitting that they’d exaggerated on the number of deal participants the company touted on its web site (per Business Insider). That could be the very last thing you want to happen when you’re planning to hit up American investors for cash. If nothing else, it’s enough to convince me to steer clear of the stock.

4) Price gouge. It’s little wonder that Lashou has garnered a lot of interest from consumers considering the fact that they offer merchandise that’s as much as 70 to 80 percent off retail price. That’s much higher than Groupon’s 30 to 50 percent discounts. Convincing groups of merchants to sell their products at 80 percent off might be easy enough if you’re tapping a new market that’s never been exposed to daily deals sites, but if you’re competing in an established market with dozens of daily deals sites trying to lure the same group of merchants, business gets tougher. Merchants will likely burn out, and that’ll leave Groupon and Lashou selling discounts to obscure products or discounting much less.

5) Copy and paste. One of the biggest reasons I’m not an advocate for investing in Groupon is the fact that the company’s business model is so easily copied (see my post 3 reasons NOT to invest in Groupon’s IPO). Lashou faces the same problem. It’ll have to add value to its service beyond just being a place to go for coupons. If it can strike a balance between innovation and top-line growth, the stock could reward investors. I’m just not prepared to take that risk.

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Qunar IPO: 5 reasons to invest in China’s travel site

Baidu did it. Now, it’s our turn. Five reasons to consider investing in the Qunar.com IPO.

We don’t have a Qunar IPO date yet, but the company has announced plans to debut on U.S. stock exchanges next year. Here are five reasons to consider investing in Qunar.com:

1) Reach. Since Qunar.com’s launch in February of 2005, the Chinese travel site has become the 84th most popular Web site in China (per Alexa). In Q3 of 2011, it surprised traffic at competitor Ctrip.com (CTRP), and growth looks like it’s still in a powerful uptrend:

The company claims 51 million unique visitors a month. And that’s while online travel bookings are still in their nascent stages in China. Qunar expects more than half of all travel bookings will take place online within three years.

2) Thumbs up from Baidu. Baidu.com (BIDU) invested $306 million in Qunar in June. That makes China’s biggest search engine a majority shareholder in the travel site, and that’s good news. Working alongside Baidu is much better than competing with it. Currently, the companies cross-promote their services and they’re working on developing new offerings together. Getting a stamp-of-approval from Baidu practically guarantees the site will be the No. 1 travel site in China for years to come.

3) Monopoly anyone? Qunar has very little direct competition in China. Ctrip.com International, Ltd. (NASDAQ:CTRP) qualifies but only loosely. Ctrip acts more like an old-school travel agent processing a large number of offline bookings via call centers. Qunar makes 80 percent of its revenue off advertisements that pop up alongside results on its travel search engine (per the Wall Street Journal). As the company expands the ability for users to actually book travel online, revenues should climb.

4) Buying binge. Part of the reason Qunar plans to go public is to raise cash to help finance future acquisitions. That should help the company consolidate it’s position at the top of the market and immediately boost revenue for the company. While we haven’t seen any numbers, Qunar claims it’s already profitable. Growing it’s profitability without bloating its staff of 800 will be key moving forward.

5) Mobile ready. Qunar’s dumping lots of that investment capital it got from Baidu into mobile apps. Currently, the site’s got the No. 3 iPhone App in China, the No. 3 Nokia Symbian App, and the No. 15 Android app. The company has said it plans to expand its mobile offerings over the next year – particularly for the iPhone, iPad and Android. That should help as the mobile Internet market in China dwarfs that of the U.S. with more than 277 million mobile Internet users accessing the web behind the Great Firewall in 2009.

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3 reasons to invest in the 360Buy.com IPO (Jingdong Mall)

The 360Buy.com IPO could be the biggest Internet IPO since Google. Competition behind the Great Firewall is fierce, but there are lots of reasons why this stock stands out.

In what’s shaping up to be the largest U.S. Internet IPO since Google, Inc. (NASDAQ:GOOG), the Amazon of China, Jingdong Mall has announced plans to go public. Jingdong publishes 360Buy.com, the 120th most-visited Web site in the world. That’s a far cry from Amazon.com (NASDAQ:AMZN), which is ranked by stats-tracking company Alexa.com as the 15th most-visited Web site in the world. 360Buy’s got momentum on its side, though, and that makes me bullish on the stock. Here are three reasons you should consider investing in 360Buy.com when the company IPOs next year:

1) Growth potential. China’s internet population (at 485 million+) exceeds the entire population of the U.S., and that number is expected to triple to 1.5 billion by 2015. That will make the leading e-commerce site in Asia an international powerhouse. Amazon.com currently gets 6.8 times as much traffic as 360Buy.com. But I wouldn’t be surprised to see 360Buy.com overtake Amazon. Not only will the China’s internet population dwarf that of the United States, but the country’s still in the early stages of e-commerce adoption. Last year, online sales in China rose 77 percent (per FT.com).

2) Not to be confused with Taobao.com. Taobao may get significantly more traffic than 360Buy.com, but it’s important to note that they have different business models. Taobao’s a consumer-to-consumer e-commerce site that’s more akin to eBay than Amazon. While eBay garnered more traffic than Amazon in the early years of the Web, that trend has since reversed itself. Expect the same pattern to unfold in China as consumers turn to the Web not just for hard-to-find items and collectibles but for everything from jackets to diapers and laptops (all of which 360Buy.com offers).

JingDong is, indisputably, the largest business-to-consumer e-commerce site. And it’s purest competition comes in the form of E-Commerce China Dangdang, Inc. (NYSE:DANG). DangDang, which IPO’d to much fanfare in December, has since lost nearly 75 percent of its share price amid a rash of accounting scandals at several Chinese firms.

3) Revenue giant. Revenue at 360Buy.com is expected to hit $4.4 billion in 2011 (per RenaissanceCapital). That’s not much when compared with Amazon’s $40 billion, but it blows away DangDang.com, which will likely do somewhere in the neighborhood of $400 million.

Already, 360Buy.com processes some 300,000 orders per day from 25 million registered users. If the site can maintain its handhold at the top of China’s retail market, it should reward investors nicely in the years to come.

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