Up 48% YTD: This is the hottest sector on the stock market in 2015

The S&P 500 is down more than 5 percent this year. Don’t bother telling that to the Internet and Catalog Retail sector. This small sub-sector of stocks is up a scorching 48 percent this year. That beats every other industry sub-sector on Wall Street. Here’s a look at the Top 10 stocks in the sector and their performance year-to-date:

Company Ticker YTD Return
Netflix NFLX 117.0%
Wayfair W 80.6%
Amazon AMZN 67.8%
Expedia EXPE 40.5%
CTRIP International CTRP 37.5%
Nutrisystem NTRI 36.9%
JD.com JD 14.5%
1-800-FLOWERS FLWS 11.8%
Petmed Express PETS 11.6%
Priceline PCLN 9.3%

Do any of the stocks above have more upside? Let’s take a look at their current share prices and compare them to the average analyst’s price targets for the stocks:

Ticker Current Price Avg. Target Potential Upside
NFLX $106.11 $119.30 +12.4%
W $36.18 $51.44 +42.2%
AMZN $532.54 $650 +22.1%
EXPE $122.62 $128.96 +5.2%
CTRP $66.77 $88.72 +32.9%
NTRI $26.10 $31.15 +19.3%
JD $28.91 $37.99 +31.4%
FLWS $9.80 $14.25 +45.0%
PETS $16.32 $13.67 -16.2%
PCLN $1,265.68 $1,480.65 +17.0%

Wayfair and 1-800-FLOWERS both pop out. What has analysts so excited about these stocks?

The bullish case for Wayfair

Wayfair runs several online ecommerce sites geared toward home decor. Specifically, they operate Wayfair.com, Joss & Main, AllModern, DwellStudio and Birch Lane. The company blew away analyst expectations in Q2. Quarterly revenue surged 66 percent year-over-year to $491.8. That bested analyst estimates by more than $50 million. On top of that, the company lost less money than analysts expected (woo-hoo!). They reported a $0.15 loss. Analysts were expected a non-GAAP loss of $0.29. Wayfair is at least growing its customer base. The number of active customers on their properties rose 53 percent year-over-year to 4 million. I’m on the fence here. The stock’s gone up so quickly, I’m wary momentum could snap the other way. I’d play it safe and buy shares in a company that’s actually profitable.

The bullish case for 1-800-FLOWERS

The online flower-delivery company, 1-800-FLOWERS also crushed earnings estimates for Q2. It beat estimates by posting a smaller loss than expected ($0.13 per share instead of $0.19 per share). That loss isn’t all bad. The company’s very seasonal and so is its latest acquisition, Harry & David’s. If it weren’t for Harry & David, the company would have posted adjusted earnings of $0.01 per share. That’s not enough to get me overly excited.

Of course, not every stock in the sector has fared so well. Here are the bottom five stocks in the Internet and Catalog Retail sector:

Company Ticker YTD Return
CNOVA CNV -61.8%
Groupon GRPN -60.6%
Light In the Box LITB -58.0%
Land’s End LE -50.2%

The overall market is down, but there are stocks out there that are out-performing. With a little homework, you can find them.

Photo Credit: Tanel Viksi

3 reasons not to invest in the ExactTarget IPO?

A highly-competitive landscape, freemium competitors and a not-so-sexy niche combine to make this stock’s IPO a questionable buy at best.

Apparently, IPOs come in threes. There’s been a rash of them in the email marketing field. On Monday, we learned that an ExactTarget Inc. IPO is next. The company plans to join the fray on the heels of a similar IPO announcement from competitor Eloqua Ltd. Both companies are following Responsys Inc. (NASDAQ:MKTG) to market.

When Responsys started trading in April, the company’s shares shot up to $15.40. They recently closed at $12.40 for a loss of nearly 20 percent. That’s not the only reason I’d be wary to invest in an ExactTarget IPO. Here are three reasons to look before you leap:

1) Competition. A quick trip to Alexa.com gives us the following traffic comparisons between competitor Constant Contact, Inc. (NASDAQ:CTCT) (in red) and ExactTarget (in blue):

While traffic to an email marketing company’s web site isn’t indicative of how many customers it has, it does nonetheless give us hints about a company’s brand power. And right now, ExactTarget, Responsys, Eloqua and VerticalResponse (which has been mum on an IPO) are fighting it out for the No. 2 slot behind Constant Contact.

The market’s actually assigned a higher value to Responsys (with a market cap of $583 million) than it has Constant Contact ($486 million). Constant Contact pulled in $1.2 million last quarter on revenue growth of 23 percent over the past year, while Responsys is yet to turn a profit. Revenue growth at Responsys has been impressive, though, shooting up more than 70 percent over the past year. In July, ExactTarget claimed revenue growth of 41 percent last year (per Bloomberg). If those trends continue, I’d lay my cash on Responsys.

2) Freemium is better. In addition to the competitors I’ve already mentioned, one terribly-named company might pose more of a threat than all the others for ExactTarget. That’s Mailchimp.com. Growth at Mailchimp has been astounding (again, here’s a comparison from Alexa):

Mailchimp offers an alternative business model that’s rapidly becoming one of the more successful models in the tech sphere: freemium. It hooks new, low-volume users with free offerings, then – as the needs of those customers grow – it starts charging for its services. Linkedin Corporation (NYSE:LNKD), Skype and Pandora Media Inc. (Public, NYSE:P) are just a handful of companies that have used freemium offerings to grow into billion dollar tech giants. And it makes sense. You can’t get much better marketing that giving away your product to millions of users for free. In a world with rapidly-falling hosting and data services costs, freemium is becoming more and more cost effective, and that could throttle pay-as-you-go companies like Constant Contact that offer limited free trials.

3) A not-so-sexy niche. Email marketing just doesn’t generate the sort of excitement that, say, cloud computing stocks do. Salesforce.com, Inc. (NYSE:CRM), for instance, is trading at a P/E ratio of 611! While Warren Buffett might argue that the last thing you should look for is how popular a sector is, I’m not sure it pays to seek out tech stocks most people don’t even understand. If there is a sell-off in stocks, you can bet companies like ExactTarget will suffer more than say Netflix, Inc. (NASDAQ:NFLX), which has an easy-to-grasp business model, promising growth and cash on hand.

It’s not all bad

Before you ditch all plans to buy shares in ExactTarget, the company does have some selling points. Revenue growth of 41 percent is far from shabby (so long as they can keep their costs down), and the company’s shown a lot of initiative in mobile-based marketing – specifically in text messaging as a marketing tool. Not only is mobile marketing costly, it’s riddled with regulations and specialized technology. That makes most companies more than happy to outsource their SMS marketing campaigns. If ExactTarget can carve out a strong niche there, it’ll go a long way toward becoming more than an email marketing company.



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


10 reasons why we’ll see gold over $2,000 an ounce


3 reasons NOT to invest in the MobiTV IPO


The unofficial tech IPO calendar for 2011


5 reasons to invest in the Imperva IPO


Top 10 new investing books for 2011

3 reasons NOT to invest in the MobiTV IPO

A successful IPO could give MobiTV the boost it needs, but its going to have to play its hand brilliantly to succeed. Sharks with names like Amazon, Apple and Netflix are circling.

First let’s talk about the good things. MobiTV hopes to raise $75 million from an IPO. That’s a decent chunk of change it can use to land new partnerships, acquire competitors, pay down debt and license new content. The company’s been in business since 1999 (which makes it ancient in the tech world), so its already proven its got some measure of staying power. If it can forge the right partnerships or develop a standalone product that’s less dependent on smartphone operators, it might be able to stay afloat.

MobiTV’s in one of the tech-world’s fastest-growing sectors. Just 10 percent of mobile users in the U.S. stream video, according to Nielsen. As more and more subscribers opt for smartphones, MobiTV doesn’t have to grab them all to make money. A decent slice of the fast-growing market should make it profitable in the years to come.

And now the not-so-good: 3 reasons NOT to invest in the MobiTV IPO

1) Heavyweight competition. MobiTV has an impressive client list – from Verizon Communications (NYSE:VZ) to AT&T (NYSE:T) and Sprint (NYSE:S) – but it also counts the likes of Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX) and Amazon.com (NASDAQ:AMZN) among its competitors. That means they’d better have some deep pockets or a distinct competitive advantage. And I’m not convinced MobiTV’s offerings are unique enough for the company to emerge as the leading player in the mobile video market.

Rather than offering video itself, MobiTV serves more as a plug-and-play platform that smartphone data providers can use to offer value-added video services. Who really needs additional video services, though, when you can buy exactly what you want when you want it? On my own iPhone, I tap into my existing Netflix account or purchase video directly from iTunes. During March Madness last year, I shelled out $20 and bought streaming rights for an NCAA app that allowed me to watch all 65 tournament games. I access content when I want it, and – in the process – sidestep the compulsory additional monthly charges MobiTV users are subject to.

2) Slow growth. Investors give the benefit of the doubt to tech IPOs that are losing money so long as a company’s growth rate is impressive. Between 2009 and 2010, revenue at MobiTV grew by a mediocre 6.8 percent. On top of that, losses actually climbed from $14.6 million to $14.7 million. That bumped up the company’s total debt obligations to $116.3 million.

3) Diversification wanted. That fact that MobiTV relies on three companies (Sprint, AT&T and T-Mobile) for the bulk of its revenue should give investors pause. Sprint alone accounted for 54 percent of the company’s revenues in 2010. And that partnership isn’t set in stone. A year from now, MobiTV’s deal with Sprint converts from an annual to a month-by-month contract. With an AT&T and T-Mobile merger on the horizon, they could be down to two primary revenue sources.

“If we are unable to renew our agreements with these customers on favorable terms, or at all, or if any of these customers were to terminate our agreement for any reason, our revenue would decline and our operating results and financial condition would be harmed,” MobiTV states in its S-1 filing.

MobiTV seem to see the writing on the wall: they’d best diversify their client base if they hope to keep the electricity flowing to their servers. That’s exactly where this IPO comes in. It’ll give them a fighting chance at forging new partnerships abroad, but it’s yet to be seen if that will be enough to give the company long-term viability.



Top five best social media stocks


How to resist the new world order


Top 10 new investing books for 2011


How to file a patent


How to invest in the Swiss franc


Why invest in silver?

Do China Dangdang shares look attractive? (NYSE:DANG)

Despite a drop of nearly 48 percent since its IPO, I’m still optimistic about Dangdang’s (DANG) future. Here are three reasons to consider buying stock in the so-called “Amazon of China.”

It’s been a rocky ride for shares in E-Commerce China Dangdang, Inc. (NYSE:DANG). Stock in the China-based online retailer debuted in December at $29.91 a share. Yesterday, those same shares closed at a new 52-week low of $15.56. That’s a drop of nearly 48 percent. Yet, I’m still optimistic about Dangdang’s future. Here are three reasons to consider buying into the so-called “Amazon of China” – even at today’s depressed prices:

1) Dangdang’s drubbing is temporary. One of the biggest reasons Dangdang’s shares have been falling comes down to simple supply and demand. Insiders who were previously locked out of selling their shares now have that right as the post-IPO lock-up expires. Just 19 million ADRs were trading last week. With the lock-up expiration, there are now more than 58 million ADRs on the market, per CNBC. Insiders who want to turn their paper holdings into currency now have that right, and it’s going to take the market a while to absorb that glut of supply.

2) Unrivaled sales growth. A recent report from SmarTrend named Dangdang the No. 1 Internet Retail stock in the world in terms of sales growth. Sales are expected to grow more than 113 percent from $375.9 million last year to $802.1 million in the next fiscal year. That puts DANG ahead of investor darlings like Netflix, Inc. (NASDAQ:NFLX), Priceline.com Inc. (NASDAQ:PCLN) and even Amazon.com, Inc. (NASDAQ:AMZN).

3) Setting the stage for even bigger growth. Dangdang’s aggressively expanding its product offerings, fulfillment facilities and accessibility as it faces fierce competition behind the Great Firewall. During an earnings call last month, Chairwoman Peggy Yu Yu made it clear the company’s not ready to start milking DANG for profits, but rather it’s fixating on setting the stage for future growth. We’ll “keep plowing whatever gross margin we make back into operations,” Yu Yu said.

Already, the scope of the site is expanding. Total orders surged 40.9 percent year-over-year last quarter, and the company’s total number of active customers grew by 42.3 percent. The site’s most impressive growth came from third-party merchants, with sales screaming up 242.9 percent. If those trends stay intact, Dangdang stands to make long-term investors a whole lot of yuan.



The unofficial tech IPO calendar for 2011


5 reasons LinkedIn’s stock is set to plunge (LNKD)


Three reasons to invest in the Square IPO (when it finally arrives)


3 reasons NOT to invest in Groupon’s IPO


DangDang (NYSE:DANG) founder labels Morgan Stanley ‘motherf**kers’


How to buy Chinese Yuan

LinkedIn IPO date and stock price set: Is it a buy?

No one’s quite sure how investors will react to the debut of an U.S.-based social networking site, and that might be what scares me the most.

LinkedIn is set to IPO on the NYSE on Thursday, May 19, 2011, under ticker symbol “LNKD.” It will be the second social networking site to start trading on the Big Board this month after the so-called “Facebook of China,” RenRen.com (NYSE:RENN), went public on May 5.

It appears LinkedIn has piqued investor interest. The company raised its offer price $10 yesterday from a range of $32-$35 per share to $42-$45 per share. LinkedIn, which targets white-collar professionals, has displayed some impressive growth. Revenue doubled last year to $243 million and membership ballooned around the world to more than 90 million.

Nonetheless, some investors are worried we’re in the midst of Tech Bubble 2.0, and I’m inclined to agree. Here are three reasons to consider holding out before you buy shares in LinkedIn:

1) LinkedIn’s peers. There aren’t many social networking sites that are public, so we don’t have much to go on. In fact, there’s really just one other social networking Web site that trades on U.S. stock exchanges, and that’s China’s RenRen.com. RenRen IPO’d on May 5, and shot up 29 percent in its first day of trading. Not even two weeks later, investors have pushed the stock down 30 percent to $12.73 – a figure that’s below RenRen’s IPO price. If we’re looking for track records in the social networking space, here’s one that says “stay the hell away” (in the short-term, anyway).

2) Steep valuation. Consider this: LinkedIn’s latest valuation puts it at 17 times last year’s revenue. That’s a rather staggering figure when we compare it against other more established tech titans:

  • AOL, Inc. (NYSE:AOL): 1x 2010 revenue
  • Apple Inc. (NASDAQ:AAPL): 12.5x 2010 revenue
  • Google, Inc. (NASDAQ:GOOG): 6x 2010 revenue
  • Microsoft Corporation (NASDAQ:MSFT): 3.5x 2010 revenue
  • Netflix, Inc. (NASDAQ:NFLX): 6x 2010 revenue
  • Yahoo! Inc. (NASDAQ:YHOO): 17x 2010 revenue

Yahoo’s rich valuation is thanks in no small part to it’s rather cunning investments in Chinese tech companies (see my post Three reasons to buy Yahoo! Inc. (YHOO) in 2011).

3) Bad timing? Earlier this week I penned a piece titled Stock market crash looming on horizon? The gist? Darkening clouds seem to be gathering on the horizon for the broader stock market. Commodities have crumbled in recent weeks, defensive stocks including healthcare and blue chips are on the rise and inflation’s starting to cut into the pocketbooks of consumers. Shares in speculative companies like LinkedIn could get hit the hardest in the event of a major downturn in the markets.

Not buying my arguments? Convinced LinkedIn stock is going to start strong and shoot for the moon? Check out my post 3 reasons to buy LinkedIn shares during IPO, which outlines the bullish case for the company. If you’re looking for more reasons to stay away, I can indulge you there as well with my post: 3 reasons NOT to invest in LinkedIn IPO.

The fact of the matter is, we’re in uncharted waters. No one’s quite sure how investors will react to the debut of an U.S.-based social networking site. That might be what scares me the most. Investing isn’t about having a “hunch” a stock will do well; it’s about picking companies with strong profits and even better prospects for the future. LinkedIn’s got great prospects, but it’s clear we won’t be seeing profits anytime soon. That makes buying shares a gamble – particularly on LinkedIn’s first day of trading.



The unofficial tech IPO calendar for 2011


Jiayuan.com IPO: 3 reasons to invest in Chinese dating site


Will Demand Media’s (DMD) stock recover from Google shock? Absolutely


Yandex IPO: 5 reasons to invest in Yandex stock


RenRen IPO’s biggest hurdle might be PengYou


Tudou IPO: Is Tudou stock a buy?

Netflix stock performance predictions for 2011 (NFLX)

Twelve months ago, you could have bought a share of Netflix, Inc. (NASDAQ:NFLX) for $72. A single share will now set you back $221. Still, we still see lots of reasons why Netflix stock can go even higher in 2011.

Twelve months ago, you could have bought a share of Netflix, Inc. (NASDAQ:NFLX) for $72. Let’s call those the good old days. Since then, Netflix has screamed up more than 200 percent with 26 percent of those gains coming since the start of 2011. A single share will now set you back $221.

My finance and I have an ongoing argument about shares in Netflix. She feels like the company has started exiting the growth phase with a one-way ticket to Value Stock Valley. Yes, she’s got some valid arguments: the company DOES face more realistic competition (ala Facebook, Amazon, Hulu, etc.) than it did a year ago, and I’ll readily admit they could use a better selection and more new releases (which will only come at the expense of margins). Still, I’m optimistic about Netflix’s stock performance in 2011. Here are three reasons why:

1) Global domination. A Credit Suisse note out yesterday titled “Don’t Stop Believing,” gave Netflix two very enthusiastic thumbs up with an analyst there upgrading the stock from Neutral to Outperform. The reason? International growth. Credit Suisse predicts Netflix’s subscriber base will triple to 69 million subscribers by 2016 on the strength of growth abroad.

Apparently, The Canada Experiment has been a good one so far. When Netflix opened its doors to subscribers in the north late last year, Credit Suisse predicted they’d reel in 300,000 subscribers by the end of 2011. That was a pitifully low estimate. After just six months, Netflix has 900,000 subscribers in Canada. Online streaming is the future, and there’s no one better positioned to capitalize on that future than Netflix – no matter what country you’re in. (FYI: Credit Suisse raised its price target on Netflix’s stock from $180 to $280).

2) One ring does not rule them all. Fears over Netflix’s competition feel overblown to me. It’s as if we believe people only want to stream video from a single source. Riiiiggght. I’ve got a Netflix account, but I still occasionally rent movies via Amazon’s online rental service. I still check videos out from the Blockbuster kiosk at my local Speedway, and very occasionally I log onto Hulu (even though the site’s ads make me want to vomit). Just because I can watch The Dark Knight on Facebook for a one-time fee, I’m not going to run out and cancel my Netflix account. We’re used to seeking out entertainment from multiple services. That’s not going to change because Facebook starts offering a small, boutique-y selection of movies.

3) Shoot the networks. In a move that could shift power away from networks and studios like HBO and Showtime, news broke last week that Netflix is wading into the content production pool. The company struck a deal with the film studio Media Rights Capital to produce an original series that will stream exclusively on Netflix servers starting late next year. Kevin Spacey will star in a political drama dubbed “House of Cards.” The series, which is being billed as “a satirical tale of power, corruption and lies,” will be directed by the rather brilliant David Fincher (whose portfolio includes The Social Network, Seven, Fight Club and The Curious Case of Benjamin Button). It’s a big roll of the dice for Netflix – and it’s one that I fully expect to pay off.



.XXX registrar expected to bring in $200 million a year


Why invest in silver?


Five reasons to invest in the RenRen.com IPO


Top 10 best gold and silver ETF funds


3 more reasons to invest in a Facebook IPO


The unofficial tech IPO calendar for 2011

Three reasons why I’d buy stock in a Spotify IPO

So long as Pandora and Apple cling to models that provide a sub-par user experience, I’m betting all my chips on Spotify. Now, let’s just cross our fingers that an IPO is in the works.

The debate over the future of the streaming music industry has me depressed. Executives, it seems, are incapable of divining what listeners want out of the music industry. I’ll try to distill it down: we want a Netflix for music. We don’t want a download-driven iTunes for music. We don’t want a custom-radio radio station (ala Pandora or Slacker) for music or a cloud-based music storage system. We want a subscription-based service that gives us access to millions of songs that we can listen to on demand.

The only company that seems to have figured this out is Spotify – a Swedish start-up that’s reportedly nearing a $100 million financing deal with venture capital tech titan Digital Sky Technologies (DST). DST’s well-known for investing in late-stage start-ups that are nearing an IPO. They own 10 percent of Facebook, for instance. They were in early on Zynga and Groupon, and now they’re ready to give Spotify a war chest as the streaming radio company looks to move into the U.S. market.

Here are three reasons why I’d buy stock in a Spotify IPO:

1) Spotify gives us full control. Lets be honest here. Part of the reason I use Pandora is because I’m too lazy to spend time transferring music onto my iPhone. I just can’t be bothered to deal with the multi-gig folders full of music I’ve built up over the years. If I can access what I want to hear when I want to hear it, I’ll pay for it. I don’t necessarily like Pandora’s model, but it’s easy. There’s just one glaring problem: Pandora doesn’t let you play specific titles or albums. You type in a song or artist you like, then get a “custom radio station” that plays similar music and – every now and then – the actual song or artist you wanted to hear in the first place. Don’t get me wrong, I’ve discovered some new bands I love (and probably wouldn’t have found any other way) while using Pandora, but they’re still leaving up that last little hurdle that’s infuriating: the inability to play a specific track. Spotify’s model gives us what’s missing in the streaming music industry: full control.

2) Subscriptions save me money. If Spotify’s music catalog is good enough when the company launches in the U.S., I’d be more than happy to fork over $15 a month to gain access to millions of songs. In essence, users would get an entire music store of albums for the cost of a single CD. This is precisely like the Netflix, Inc. (NASDAQ:NFLX) model; the model that brought down Blockbuster. If I were renting DVDs from a brick-and-mortar store at $5 a pop rather than streaming movies from Netflix, I’d easily be spending $50 or more a month.

3) Subscriptions offer steady revenue. The beauty of Spotify’s model comes from a long-term base of steady revenue – something most tech start-ups are lacking (i.e. Twitter). Lets say Spotify snags 20 million subscribers (Netflix’s total) at $15 a month; that’s good for $3.6 billion in revenue every year. That kind of money will buy you a lot of bandwidth and give you a whole lot of cash to use while negotiating deals with record labels.

So long as Pandora and Apple cling to models that provide a sub-par user experience, I’m betting all my chips on Spotify. Now, let’s just cross our fingers that an IPO is in the works.



Worst IPO idea in history? Bear-bile farming


The unofficial tech IPO calendar for 2011


Is Poynt Corp. a mobile Groupon? (CVE:PYN)


Triggers that could push gold to $5,000 per ounce


Five reasons to invest in the RenRen.com IPO


Six reasons to buy shares in Pandora’s IPO

Youku.com (NYSE:YOKU): China’s Netflix (NFLX) and Youtube all in one?

Youku’s (YOKU) CEO wants to move into the mobile video streaming market. Good thinking. China’s got the largest mobile market in the world with more than 750 million mobile users generating $7.55 billion in subscription fees every month. If Youku can get a small piece of that income, they could quickly become profitable.

While I gobbled up some shares in Youku.com, Inc. (NYSE:YOKU) during the company’s IPO, I’m starting to wonder if I made a poor decision. If the company can’t take its sudden windfall from this massive IPO and start making cash, I’ll run for the hills, but I’m willing to give Youku the benefit of the doubt for now. Here’s why:

1) Good lineage. Youku.com was founded in 2006 by Victor Koo, the former President of the wildly successful Chinese Web portal Sohu.com, Inc. (NASDAQ:SOHU).

2) Size. Youku.com is China’s biggest online-video company. If the company can maintain its position and continue its growth, it stands to be just as much of a cultural force as YouTube is in the U.S. Let us not forget either that China already has more Web users (an estimated 420 million) than the entire population of the U.S. – and there are still hundreds of millions more Chinese who will likely keep the Web growing in China for several years to come.

3) Direction. Since filing for its IPO, Youku has maintained that it will use its IPO funds to “upgrade technology, buy videos and expand sales and marketing” as it looks to change from a user-generated video site into more of a premium-based video site along the lines of Netflix, Inc. (NASDAQ:NFLX). Already Youku licenses professionally-produced videos from more than 1,500 content partners. Netflix’s model is obviously more profitable than YouTube’s. If Youku can maintain its market leadership and meld subscription-based services with free user-generated videos, it should have the best of both worlds in a single online destination.

Youku’s CEO Koo also emphasizes the company’s desire to move into the mobile video streaming market. Good thinking. China’s got the largest mobile market in the world with more than 750 million mobile users generating more than $7.55 billion in subscription fees every month (the equivalent of $2,900 per second!). If Youku can get a small piece of that income, they could quickly move their books into the black.

4) Growth. According to Youku’s IPO filing, revenue at the company increased 135 percent to 234.6 million yuan ($35.1 million) in the first nine months of 2010. Sales at the company have more than doubled this year, and the Chinese online video market has more than doubled, too. As the company changes tack from user-generated video to professionally-produced content, it’ll be interesting to see if they can keep costs low and start turning a profit. If they do that, maybe buying into Youku’s IPO won’t turn out to have been such a bad idea after all.


Top seven largest Chinese tech stocks of 2010

Here’s a run-down of seven Chinese tech stocks you might want to consider investing in from China’s version of Google to its burgeoning Netflix and monster online gaming and news companies.

Tencent Holdings Ltd. (HKG:0700) has knocked Apple, Inc. (NASDAQ:AAPL) off its perch to become the world’s best-performing technology company, according to Businessweek.com. Boasting China’s largest market cap for a tech company on the strength of its free instant messaging platform Tencent QQ, or, simply, QQ, Tencent commands more cash than even Baidu.com, Inc. (ADR) (NASDAQ:BIDU).

Over the past 12 years, QQ has helped grow Tencent from from an instant messaging business into a sort of Wal-Mart of services for China’s Web user. The company makes online games, provides Internet dating services and online storage. Most of its income, though, comes from the premium services it provides for its QQ users. For a modest monthly fee, you can add things like avatars, games, music, virtual pets and more to your IM account, and since Tencent has more than 636 million users, those modest fees have started piling up as monumental mounds of cash. We all know, too, that growth in China’s Internet market shows no signs of slowing.

Here’s a run-down of four other Chinese tech stocks you might want to consider investing in:

1) Baidu.com, Inc. (ADR) (NASDAQ:BIDU). The most popular search engine company in China, Baidu is the seventh most-visited Web site on the Internet. Available in China at baidu.com, they’ve also recently branched out into Japan with their domain baidu.jp. The company’s stock isn’t cheap, though, as it trades at a P/E ratio of 81 (compared to Google’s P/E of 24).

2) NetEase.com, Inc. (ADR) (NASDAQ:NTES). The owner of a popular Chinese Web portal, NetEase’s 163.com is the sixth most-visited site in China, which gives it more traffic than American heavyweights like ESPN, Craigslist and CNN. One of the company’s most successful products is its online role-playing game Fantasy Westward Journey.

3) SINA Corporation (NASDAQ:SINA). A news and blogging site that caters to a wide audience in China, sina.com and its subdomains attract some 3 billion page views per day. The company’s $4.3 billion market cap makes it the fourth-largest tech company in China.

4) Sohu.com, Inc. (NASDAQ:SOHU). A search engine and online gaming company, Sohu.com often falls under the giant shadow cast by Baidu, but the company’s still got a market cap of $2.5 billion, and it trades at a much more reasonable P/E ratio than Baidu (20 vs. Baidu’s 81). Sohu was ranked by Fortune as the world’s 12th fastest-growing company in 2010.

Other Chinese tech stocks to keep an eye on:

Youku.com, Inc. (ADR) (NYSE:YOKU). The Chinese version of YouTube.com, Youku.com is (like its American counterpart) yet to make a profit, but that hasn’t stopped them from an IPO on American exchanges. Over time, Youku’s focus has shifted exclusively from user-generated videos to professionally-produced videos, which it licenses from more than 1,500 content partners. Call it the Chinese equivalent of Netflix, Inc. (NASDAQ:NFLX).

Shanda Interactive Entertainment Ltd. (ADR) (NASDAQ:SNDA). China’s leading publisher of online games (and a major online and paper-bound book publisher), Shanda claims to have more than 1.2 million users playing its online games at any given time – and that’s based on numbers from 2005! The company’s trading at a P/E ratio of 20.4.