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Is Baidu About To Pull A Google And Split Off Its Search Core, Too?

Just as Google reorganized under new parent firm Alphabet ( GOOGL ), Chinese search leader Baidu ( BIDU ) is planning to break off its search operations into a separate company, according to a report Thursday. Baidu plans several changes to its business structure, including establishment of a subsidiary that will house its online search services, said Marbridge Consulting, citing a release via Baidu’s official account on Tencent Holdings ‘ ( TCEHY ) WeChat mobile messaging platform. Baidu will establish “Baidu Search Company,” an entity comprised of the Search Services Group, the Mobile Services Group and the Nuomi.com team, the report said. Baidu acquired group-buying website Nuomi.com in 2014 as part of its online-to-offline, or O2O, strategy. Xiang Hailong, Baidu senior vice president and Search Services Group general manager, will head the new company and report directly to Baidu CEO Robin Li, Marbridge Consulting said. “Following the restructuring, Li will focus more of his time and energies on Internet finance, driverless cars, artificial intelligence and similarly innovative areas of the business, along with related strategic priorities,” Marbridge said. Like Alphabet, Baidu is investing to develop self-driving cars and other technology not related to its core search operations. In November, Baidu announced it had submitted an application for a direct-banking license in partnership with China’s Citic Bank, and for an online insurance license in partnership with Allianz and Hillhouse Capital. To continue its growth, Baidu should follow in the footsteps of Alphabet-owned Google “and split its non-core businesses from its core search and ads business. If they do this, Baidu stock would likely receive a big boost, leaving them with the cash to make a foray into the U.S. market,” Taiwan-based Sephi Shapira, CEO of mobile advertising platform MassiveImpact, told IBD via email in February. The company’s revenue guidance for Q1 fell short of analyst expectations. Baidu stock was up more than 1% in midday trading in the stock market today , near 196, ts highest price since late December. Baidu stock has nearly doubled since August but is down 9% in the past 12 months. Shares broke out of a cup-with-handle base at 189.90 on March 29. Other leading China Internet stocks were little changed Thursday, with  Vipshop Holdings ( VIPS ), Alibaba Group ( BABA ) and NetEase ( NTES ) all down a fraction, and JD.com ( JD ) up a fraction. On Monday, Baidu confirmed that it’s seeking a $1 billion loan. A Baidu spokeswoman said the company aims to borrow the funds through a five-year syndicated facility for general corporate purposes, according to Bloomberg.

NetEase Sees Dip In Mobile And PC Games, Gets Hurt By Tax Change

China gaming company  NetEase ( NTES ) is being hit by declining user activity for both its PC and mobile games and an “unfavorable” tax rate change, according to an analyst. “Cross-border commerce continues to grow, but we are cautious on likely negative catalysts, including government regulations, currency exchange fluctuation and intensifying competition,” wrote ITG Investment Research analyst Henry Guo in a research note Monday. Seasonality and competition are offsetting the company’s cross-border e-commerce momentum in Q1, he said. “Longer term, we continue to see multiple potential risks to NetEase’s e-commerce efforts, considering the uncertainties related to government policy and tax regulations on cross-border commerce and increasing competition from established e-commerce players in the market,” Guo wrote. NetEase stock closed Monday at 140, down 3.1%. NetEase stock has risen 36% in the past 12 months but is down 22% since early January. Shares touched a record high above 186 near the end of 2015. Three China tech firms — Internet search leader Baidu ( BIDU ), e-commerce king Alibaba Group ( BABA ) and Tencent Holdings ( TCEHY ), China’s leader in messaging and gaming — lead the way in China’s Internet arena. NetEase is another leader on China’s Web, as is e-commerce company JD.com ( JD ). The company said that revenue from online games, its biggest segment, more than doubled in Q4, thanks to growth in its original mobile games. The company’s “Westward Journey Online” and “Fantasy Westward Journey” came in as the top two games in the Apple ( AAPL ) iOS China app store in the fourth quarter, NetEase said. While the company now has multiple mobile games in testing, Guo said, few are available for public testing. “As such, we haven’t seen a step-up in game user activity in the quarter, which we attribute to a lack of promotions or incentives,” he said. Guo said he has modeled NetEase’s ad revenue to decline 10% quarter over quarter in Q1 2016, “a significant improvement from the year-ago period’s 18% quarter-over-quarter decline, reflecting NetEase’s heightened immunity to advertising seasonality, such as the Chinese New Year.” NetEase is best known for its desktop PC games and has had a lucrative exclusive license for Activision Blizzard ( ATVI )‘s “World of Warcraft” in mainland China since 2009. The company also develops its own games, mostly the multiplayer variety played on desktop PCs and mobile devices. Apple stock closed down a fraction at 105.19, while JD.com stock fell 2% to close at 25.82. Alibaba stock rose a fraction to close at 76.48, while Baidu stock rose a fraction to 185.17.

Gaming And Messaging Drive Up Tencent Q4 Revenue And Stock

Tencent Holdings showed the growing maturity of China’s love for all things Internet with a fourth-quarter earnings report containing strong growth in online games and social networking revenue. Tencent ( TCEHY ) said revenue surged 45% in local currency to $4.7 billion, beating the consensus estimate of $4.3 billion. Tencent shares, which trade over the counter in the U.S., rose 4% to 20.36 Thursday. The company’s primary stock listing is in Hong Kong, where it is the heaviest-weighted component of the 50-issue benchmark Hang Seng index, accounting for more than 10% of the index. Profit fell slightly short in Q4 as Tencent continues to aggressively invest in video content and mobile operations. Tencent reported earnings per share minus items of 12 cents, up 21% from a year earlier, though the result was a penny short of the consensus estimates as polled by Thomson Reuters. The company reported a net profit of $1.1 billion, up from $905 million a year earlier. “The overall results were pretty strong, with mobile gaming really exceeding expectations,” said Henry Guo, an analyst at ITG Investment Research. “One concern is the money Tencent is spending to acquire video content, but management believes they have the scale to mitigate the bottom-line pressure of content costs.” In 2015, Tencent made heavy investments to expand its library of exclusive premium videos. Tencent has an exclusive partnership with the National Basketball Association to broadcast NBA games in China. Tencent also has an agreement with Walt Disney ( DIS ) to be the exclusive online distributor of the first six “Star Wars” movies. The expanding video catalog led to a six-fold increase in video subscriptions year over year, as mobile daily video views nearly doubled over that time, the company said. Tencent is among China’s Internet leaders, along with e-commerce king Alibaba ( BABA ) and search leader Baidu ( BIDU ). Other China Internet leaders include e-commerce company JD.com ( JD ) and NetEase ( NTES ), which is the second-largest gaming company in China by revenue, after Tencent. Despite a slowing China economy, its Internet leaders have continued to show healthy growth. On Feb. 24 NetEase reported Q4 earnings that beat estimates. JD.com reported Q4 earnings on March 1 that showed strong revenue growth and a smaller-than-expected loss. JD is the largest online direct-sales company in China. A year ago, JD formed a strategic partnership with Tencent. Alibaba also beat estimates when it posted Q4 earnings on Jan. 28. Alibaba provides e-commerce platforms used by businesses and individuals to sell goods and services. Its sprawling business includes cloud computing and mobile payment services. Chinese online travel agency Ctrip ( CTRP ) had a different story. It reported Q4 revenue Wednesday that jumped 50% in local currency and beat views, but the company’s Q1 revenue guidance widely missed expectations. At Tencent, revenue from online games, its largest revenue source, rose 33% to $2.46 billion in Q4, primarily driven by growth from smartphone games through its WeChat and QQ mobile platforms. Monthly active users for its QQ messaging platform for mobile increased 5% year over year to 853 million. Monthly active users on its WeChat mobile messaging service rose 39% to 697 million. Both products serve as a strong distribution platform for Tencent games and digital content offerings. They also send massive volumes of traffic to Tencent’s social networking service, enabling a boost in online advertising. Online advertising revenue rose 118% year over year to $880 million. “Our connection strategy has really extended WeChat and mobile QQ from being social communication tools to becoming platforms for games, publishing, social advertising, premium content distribution and provisioning of other online services,” said Tencent President Chi Ping Lau in the conference call with analysts. Revenue from its social network and messaging services rose 37% to $1.1 billion. The increase was mainly driven by growth in subscription revenue, as well as higher revenue from virtual item sales.