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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Top five best social media stocks

Even before Facebook and Twitter go to the markets, there are already a handful of pure plays in the social networking space. Here’s a look at the Top 5 social media stocks to date.

It’s becoming clear that social networking is big business – particularly on the heels of news that Global X is planning a social media ETF. Throw in upcoming IPOs from Twitter and Facebook, and it’s starting to feel like 1999. Even before Facebook and Twitter go to the markets, though, there are already a handful of pure (or nearly pure) plays in the social networking space. Here’s a look at the Top 5 social media stocks to date:

top-5-best-social-networking-stocks1) LinkedIn Corporation (NYSE:LNKD). Trading at a P/E of 646, LinkedIn isn’t cheap. The social networking site for professionals does have some interesting tricks up its sleeve, though. For one, more than a quarter of the company’s revenue comes from subscription-based services. That gives it a steady flow of incoming cash that a lot of the company’s peers don’t have. Check out my post “LinkedIn IPO: 5 things you don’t know about the professional social network” for more.

2) RenRen Inc. (NYSE:RENN). RenRen lost $64 million last year, but the company’s growth prospects as the “Facebook of China” are tantalizing. Traffic at the site is up more than 12 percent over the past three months, according to Internet stats company Alexa.com (that’s roughly the amount of time since RenRen’s IPO). Alexa ranks RenRen.com as the 16th most-visited site in China.

3) SINA Corporation (NASDAQ:SINA). OK. SINA’s not a pure social media stock play, but the company does own Weibo.com. Weibo (pronounced “WAY-bwah”) happens to be the Chinese equivalent of Twitter on steroids. Growth at the micro-blogging site is off the charts. Over the past three months, it’s shot up 865 percent. That’s got SINA (which is partially owned by Yahoo!) thinking about spinning Weibo off.

4) Taomee Holdings Ltd. (NYSE:TAOM). Don’t feel bad if you haven’t heard of Taomee. You probably wouldn’t have unless you’re a child with an Internet connection in China. Taomee operates safe social networking spaces for tykes. The virtual worlds the company has created are quickly morphing into the offline world, too, with bestselling books and upcoming TV and movie projects in the pipeline (Click to read our recent article: Five reasons to invest in Taomee IPO (TAOM) for more).

5) Tencent Holdings Ltd. (HKG:0700). I’ve listed Tencent in the No. 5 slot simply because you can’t buy shares in the Chinese tech giant on American exchanges (you’ll have to trade shares on the Hong Kong Stock Exchange). Tencent operates China’s second most-popular Web site: QQ.com. QQ’s instant messaging software is omnipresent in China. In fact, with more than 647 million users, it’s the largest online community in the world.

Honorable Mentions: Ancestry.com (NASDAQ:ACOM) and Jiayuan.com International Ltd. (NASDAQ:DATE). Read more on Jiayuan: 3 reasons to invest in Chinese dating site Jiayuan.com.

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RenRen IPO’s biggest hurdle might be PengYou

As RenRen’s IPO date approaches, the so-called “Facebook of China” may face stiff competition from Baidu.com, Inc. (NASDAQ:BIDU), Facebook and Tencent Holdings Ltd. (HKG:0700).

With RenRen’s IPO date looming on May 4, investors are salivating over the first major social networking site to hit American stock exchanges. The so-called “Facebook of China” may face stiff competition in the months to come, though, as both Baidu.com, Inc. (NASDAQ:BIDU) and Tencent Holdings Ltd. (HKG:0700) have moved to aggressively ramp up their social marketing efforts in China.

China’s largest search engine, Baidu.com, is well-known among investors. Shares in the company debuted on the Nasdaq in 2005, and they’ve risen more than 1140 percent since. Earlier this month, Facebook announced rumors surfaced that Facebook struck a deal with Baidu to launch a new social networking site in the country (per MSNBC). No launch date has been announced (if it does indeed come to pass), but the companies will reportedly work together to build a new social networking site from scratch, as Facebook.com remains blocked by the Chinese government.

A partnership makes perfect sense. Baidu currently owns 73 percent of the search market in China but has struggled to succeed in the social networking space. The site’s reach should help it heavily promote a new social networking venture much the way Google has done with its Chrome Web browser. Facebook benefits from Baidu’s close working relationship with the Chinese government – something its needed to get past the Great Firewall.

Time is of the essence, though, and Tencent already has a head start on Baidu. Tencent operates the world’s largest online community with its wildly popular instant messaging platform, Tencent QQ. QQ claims more than 636 million active users. To put that in perspective, that’s more than twice the population of the U.S.

Tencent’s earliest foray into social networking started in 2009 with the launch of XiaoYou, a Facebook-like platform targeted at students. XiaoYou allowed users to create profiles based on nicknames (rather than real names) much like MySpace.com. We saw how well MySpace played out here, and Tencent must have taken notice.

The company scrapped XiaoYou last summer in favor of a new “real-name” social networking site dubbed PengYou (per TechRice). When PengYou launched public beta testing in September, invites were extended to employees at publicly-listed Chinese companies, including Fortune 500 companies in China, TechRice writes. By December, the site fully opened up to the public, and an Open API was released so that developers could write custom software for PengYou.

The site allows users to sync up with their QQ accounts and their SINA Weibo microblogging accounts (think the “Twitter of China”). Investors like those ideas. Late last week, analysts at Goldman Sachs actually downgraded SINA Corporation (NASDAQ: SINA) from Neutral to Sell citing a belief that SINA’s Weibo won’t be able to compete with full-scale social networks like PengYou.

“In our new analysis, we believe the most likely outcome is for Weibo to become an alternative loosely-engaged social network weighted toward its distinctive social media elements, and for Tencent Pengyou to become the dominant social network in China by leveraging its much larger QQ community and more developed platforms,” Goldman writes.

Since its launch in December (just five months ago), PengYou has grown rapidly. The social network’s currently ranked by Alexa.com as the 26th most-visited site in China. That puts it in striking distance of RenRen.com, which is ranked as the 15th most-visited site in China. It’s clear we’re witnessing the start of what promises to be a dogfight over social networkers in China. Tencent, Facebook and Baidu have entered the race late, but the finish line is a long way over the horizon.

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A Sina Weibo IPO could be in the works as China’s Twitter moves to Weibo.com

China’s popular Twitter-like site Weibo may have taken a step closer to an IPO yesterday by unmooring itself from Sina.com with the launch of Weibo.com.

China’s popular Twitter-like site Weibo may have taken a step closer to an IPO yesterday by unmooring itself from Sina.com. No longer will users have to click or type their way to t.sina.com.cn. Instead, they can type in Weibo.com to access the microblogging site instantly, according to Penn Olson.

Back in February, I wrote a post titled Will we ever see a SINA Weibo IPO? I speculated then that SINA Corporation (NASDAQ:SINA) would be silly to spin off its fastest-growing business. I may have jumped the gun.

All systems seem to be pointing to a Weibo IPO sooner rather than later. First, there was a thinly-sourced report in March from China’s 21st Century Business Herald that claimed Sina was in talks with several investment banks as it mulled a Weibo IPO.

Now, there’s a move to separate the microblogging site from Sina.com by giving it its own domain. Perhaps it’s just a matter of time before we get our hands on an official S-1 filing.

For now, users will be able to use t.sina.com.cn AND weibo.com. Eventually the two sites will be merged, and traffic going to t.sina.com.cn will get re-directed to Weibo.com. The re-branding should help raise public consciousness for Weibo in China and abroad.

“We have successfully built Sina microblog Weibo into the largest and most influential social media platform in China, with user base increasing by more than 25 times in 2010,” Sina’s CEO Charles Chao said after the company’s Q4 earnings report last month.

The total number of Weibo users doubled to 100 million in the four months leading up to the report, and Sina’s in the process of deploying an advertising and a virtual goods marketplace on Weibo. While the microblogging service is yet to generate any revenue, analysts still believe Weibo could be valued at $3 billion or more.

And judging by the success of several recent tech IPOs out of China (including YOKU, DANG and QIHU), a Weibo IPO has the potential to turn into a public spectacle – especially if the site could beat Twitter, LinkedIn and Facebook onto stock exchanges.

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Top 5 best ways to short the dollar

Here are five simple ways to bet against the dollar; from opening a savings account in a foreign currency to investing in precious metals or American Blue Chip stocks.

1) ETFs. Perhaps the easiest way to bet against the dollar is by investing in an inverse dollar ETF. The PowerShares US Dollar Index Bearish ETF (NYSE:UDN) is the best in class with a daily trading volume around 156,000 shares. UDN shorts futures contracts as it tries to track the Deutsche Bank Short US Dollar Index (USDX) Futures Index. A better option, though, might be shorting an ETF that’s long the dollar in the form of UDN’s sibling, the PowerShares DB US Dollar Index Bullish ETF (NYSE:UUP). UUP has a trading volume that’s 16 times higher than UDNs, and some sources argue shorting long ETFs is a better strategy than going long short ETFs.

2) Buy gold. Since the supply of gold is relatively stable, the precious metal’s price tends to behave independently of the actions at the Fed’s printing press. If the value of the dollar goes down, gold prices can stay the same, but it’ll still take more dollars to buy the same amount of gold. Throw increased investor demand for gold into the mix when inflationary fears are building in the economy, and you’ve got a recipe for surging gold prices.

3) Convert your dollars to yuan. The Chinese government has loosened the strings it has the yuan of late, finally allowing allowing Americans to open yuan savings accounts directly in the U.S. The Bank of China branches in New York and L.A. allow investors to save cash in the form of renminbi (deposit up to $20,000 a year). Kiplinger also recommends checking out EverBank, which offers savings accounts in 20 foreign currencies (provided you pay a 0.75 percent transaction fee when you buy and sell currencies). Accounts can be started with as little as $2,5000.

4) Invest in multinational Blue Chips. While companies like tractor-manufacturer Deere & Company (NYSE:DE), The Coca-Cola Company (NYSE:KO) and software company Oracle Corporation (NASDAQ:ORCL) are all headquartered in the U.S., they derive significant portions of their income overseas. In the case of Oracle, 70 percent of the company’s revenues come from business outside of the U.S. Not only does these investments give you exposure to emerging economies, they hedge your exposure to the dollar while paying a modest dividend.

5) Invest directly in foreign companies. In the tech realm, the Chinese market operates behind what’s been dubbed The Great Firewall. American tech companies can’t get in, and a lot of the country’s biggest tech companies aren’t yet trying to capture audiences outside the domestic market. That means growth in your investment is unmoored from the performance of the dollar. In tech, consider SINA Corporation (NASDAQ:SINA), the maker of a Twitter-like microblogging service called Weibo. China’s financial markets has a new player in wealth management company Noah Holdings Limited (NYSE:NOAH) and the Chinese advertising industry looks like it’s led by Focus Media Holding Limited (NASDAQ:FMCN). There are also numerous plays in China’s solar industry from JA Solar Holdings Co., Ltd. (NASDAQ:JASO) to Trina Solar Limited (NYSE:TSL) to name a few.

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SINA’s Twitter-like Weibo service proves bright spot in earnings report (SINA)

So long as Weibo’s in-house censors are fast enough to keep the Chinese government happy, the site could make SINA’s $5 billion market cap look laughably small in the years to come – particularly since Twitter, which isn’t backed by a popular portal site, has a valuation that’s nearing $4.5 billion.

SINA Corporation’s (NASDAQ:SINA) Q4 earnings report wasn’t warmly embraced by investors. Shares were down more than 5 percent in after-hours trading last night. Still, SINA’s Twitter-like Weibo service (pronounced Way-Bwah) proved a bright spot. Interest in Weibo helped push up traffic and online ad revenues for the site’s parent company SINA by 30 percent to $82.5 million in the quarter.

Weibo’s total number of users also soared, doubling to 100 million in just four months. “The firm has said Weibo will start generating revenue in the first half of 2011 via the sale of virtual items and advertising space,” Reuters reports.

“2010 has been a year of transformation for Sina,” Sina CEO Charles Chao said. Besides ad growth, “we have successfully built Sina microblog Weibo into the largest and most influential social media platform in China, with user base increasing by more than 25 times in 2010.”

SINA’s increasingly pitting the company’s future on the back of the micro-blogging service. Indeed, SINA plans to open Weibo up to outside developers in a bid to transform the company from an Internet portal to a social networking Internet platform that can tap outside app developers for growth and innovation.

The approach is similar to Facebook’s App platform, which has led to incredible growth for game development studios like Zynga (not to mention spiking valuations, pageviews and time-on-site for Facebook). So long as Weibo’s in-house censors are fast enough to keep the Chinese government happy, SINA’s $5 billion market cap could look laughably small one day. Twitter may have more users, but it isn’t backed by an Internet portal and it’s already got a valuation that’s nearing $4.5 billion. SINA’s best days may be yet to come.

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Will we ever see a SINA Weibo IPO?

A Weibo IPO would draw lots of attention and probably lots of dollars. With an estimated 120 million users, Weibo still trails Twitter by some 50 million accounts, but the size of China’s Internet market leaves ample room for growth.

One of the biggest growth stories out of China right now is SINA Corporation’s (NASDAQ:SINA) Twitter-like micro-blogging site, Weibo. Rumors surfaced during Q2 2010, that SINA might spin off Weibo (pronounced Way-Bwah) with a $100 million investment from search giant Baidu.com, Inc. (NASDAQ:BIDU) and B2B giant Alibaba. Such a move would turn Weibo into an independent company and likely fill the company’s coffers on the strength of a speculative IPO.

The odds of that happening seem scant, though. SINA’s counting on Weibo to fuel the company’s growth. Known predominantly as a Web portal company similar to Yahoo! Inc. (NASDAQ:YHOO), SINA’s been focusing on transforming itself into a social networking site that can tap into a network of outside app developers.

“Weibo is the best opportunity for Sina to transform into an Internet platform,” Ma Yuan, a Beijing-based analyst with Bocom International Holdings Co, told PeopleDaily.com last week. “It is becoming the next killer application on the Internet and mobile phones.”

It’s undeniable, though, that a Weibo IPO would draw lots of attention – and probably lots of dollars. With an estimated 120 million users, Weibo still trails Twitter by some 50 million accounts, but the size of China’s Internet market leaves ample room for growth.

SINA’s shares have priced in a $2 billion valuation on Weibo, according to Goldman Sachs analyst Catherine Leung. In Leung’s mind, that valuation’s steep, as Goldman downgraded SINA’s shares from Buy to Neutral.

I’m not sure I agree. The recent news that Twitter raised capital on valuations around $9 billion makes SINA’s stock look attractive.

Weibo currently dominates China’s micro-blogging industry controlling 87 percent of the market share in the niche. It operates much like Twitter, allowing users to post to the site online or via text message. Posts are limited to 140 characters, as they are on Twitter, but Chinese characters typically allow users to express more with fewer characters. Weibo’s also made significant improvements on Twitter’s model by allowing users to post replies to Weibo “tweets” and upload video and images.

SINA acts surprised when pressed on rumors that Weibo might spin off and IPO on its own. Pen Shaobin, VP of SINA and GM at SINA Weibo, denied rumors that Baidu and Alibaba are looking to invest in Weibo: “It is pure rumor,” he was quoted as saying on DoNews.com.

Interestingly, there was no mention or denial of an IPO in Weibo’s future, but I just don’t see it happening. It’d be like Apple spilling off its iPad division. Weibo’s too integral to SINA’s future to be sold off for a lump sum when the future gains look so promising. Don’t set aside cash waiting for a Weibo IPO, buy SINA shares instead. You’ll probably be better off.

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Top three best China tech stocks for 2011

Despite the fact that shares in Taobao are as-yet unlisted, the company still tops my list of the top three best China tech stocks for 2011.

The Chinese tech stock sector is one of the few that seemed unfazed by inflationary fears in 2010. This year, too, looks promising for Chinese tech stocks, particularly on the heels of an enthusiastic 150-page dossier Credit Suisse (NYSE:CS) produced in an attempt to predict where the Chinese economy will be in 2015.

Across all sectors in China, Credit Suisse sees e-commerce out-performing all other sectors over the next four years. Indeed, the company expects China’s e-commerce market to more than quadruple to $311 billion by 2015, Forbes reports. That would make the Chinese e-commerce market as big as the U.S. e-commerce market.

The biggest beneficiary of that growth will be Taobao, an e-commerce site that’s part of the privately held Jack Ma empire (aka as the Alibaba Group). Despite the fact that shares in Taobao are as-yet unlisted, the company still tops my list of the top three best China tech stocks for 2011:

1) Taobao.com. Alibaba’s Taobao CFO told Reuters last week that the company has “no IPO plans for now,” but I wouldn’t be surprised if they do decide to IPO by the end of the year. Taobao currently controls 75 percent of all e-commerce transactions in China, according to 247WallSt.com, and the company’s serious about expanding its influence. Along with Alibaba, Taobao’s dumping $3 billion to $4.5 billion into a warehouse network that will make shipping throughout the country more efficient. If shares in Taobao or the Alibaba Group don’t IPO this year, there’s still an interesting play on the company: Yahoo! Inc. (NASDAQ:YHOO) owns a 39 percent stake in Alibaba.

2) E-Commerce China Dangdang, Inc. (NYSE:DANG). Dangdang is the smallest of the four major e-commerce sites in China (behind Taobao, Tencent’s Paipai and 360buy.com). The company controls just 0.7 percent of China’s online transactions, but their recent IPO in the U.S. should give them plenty of ammo to target a larger market share. Dangdang planned to use $25 million to $30.0 million from its IPO to broaden the company’s product categories; $25 million to $30.0 million to expand fulfillment capabilities; and $25.0 million to $30.0 million to enhance its technology infrastructure. The company appears to be closely following Amazon.com’s growth in the U.S. After starting as a bookseller, they’re now expanding into other higher-margin product areas.

3) SINA Corporation (USA) (NASDAQ:SINA). No stranger to the market, SINA Corporation had its IPO more than a decade ago. After tumbling to $1.56 per share during depths of the Dotcom bust, shares have climbed 4,900 percent to $78 per share. The Web portal company had a great 2010, returning more than 100 percent as the company has shown a consistent ability to innovate and expand its offerings. SINA launched a Twitter-like microblog site, Sina Weibo, in 2009 that’s helped www.sina.com.cn grow to be the fourth most-visited Web site in China, according to Alexa.com. The company also offers streaming video, online games, email services, Web search and news. Best of all, SINA’s EPS rose more than 45 percent during each of the first three quarters in 2010.

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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.

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