Chinese Internet Stocks: Will Censorship Hurt Profits?

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(By Rebecca Lipman)

It’s commonly acknowledged that the Chinese internet is heavily censored, a fact that hasn’t failed to escape the knowledge of the Chinese population either. Some are of the opinion the awareness of the internet’s limitations in China is actually discouraging users and hurting an extremely profitable online industry.

Michael Schuman writes in a Time.com blog:

Major international sites, including Twitter, Facebook and YouTube, are completely blocked here. Certain searches are impossible, emails are monitored, many web pages simply won’t open, and others open so slowly (like this blog) that only the most patient or determined will endure the wait

That’s because of all of the government filtering and monitoring. When the government feels that a sensitive event is taking place, like the National People’s Congress, the Internet can grind to a near halt.

The user experience described above is not typical for everyone. Some Chinese citizens commented that their Internet performance is just fine, and this description should be taken with a grain of salt. However, even on a small scale these problems can have a variety of negative impacts.

The resulting web experience, Schuman says, saps people’s interest in the internet and halts the curiosity and idea exchange the internet otherwise fosters. This inhibits the actions that bring users to bounce around from site to site, creating internet revenues from ad campaigns, online shopping, and a general free flow of information that progresses knowledge. What’s more, waiting for web sites to load is a drain on productivity.

Economically he wonders if China’s economy can continue to thrive if it is simply using a different internet than everybody else. “Can they develop and market the kind of products that tap into the latest global trends from behind a firewall their competitors don’t face?”

This sounds like bad news for Chinese internet companies subject to a more tedious and limited user experience. But when it comes to these sort of things, China has a significant advantage in number games: Internet usage in China is booming with 485 million registered web users and counting. What’s more, almost two-thirds of the population has yet to log on.

The government is also working to expand internet access to more rural neighborhoods. Cost of the internet also remains cheap, less than 100 Yuan/month. David Michael of BCG said to the Economist back in August that the annual value of China’s e-commerce market would likely quadruple by 2015, to $305 billion.

But Shuman raises an interesting point, even if China’s internet economy booms, it is still limited. Can these companies truly compete with the growth and stability expected of an internet industry operating in uncensored regions?

To help you follow the trend we list below the Chinese internet companies trading on the US markets. Do you think these names will thrive or suffocate?

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1. Baidu, Inc. (BIDU): Internet Information Providers Industry. Market cap of $45.62B. Provides Internet search services. The stock has gained 15.89% over the last year.

2. Sohu.com Inc. (SOHU): Internet Information Providers Industry. Market cap of $2.26B. Engages in the brand advertising, online gaming, sponsored search, and wireless businesses in China. Might be undervalued at current levels, with a PEG ratio at 0.8, and P/FCF ratio at 11.89. The stock has had a couple of great days, gaining 7.13% over the last week.

3. Youku.com Inc (YOKU): Internet Information Providers Industry. Market cap of $2.23B. Operates as an Internet television company in the People's Republic of China.

4. Renren Inc. American Depositary (RENN): Internet Information Providers Industry. Market cap of $777.31M. Operates a social networking Internet platform in China. The stock has had a couple of great days, gaining 5.12% over the last week.

5. Jiayuan.com International Ltd. (DATE): Internet Information Providers Industry. Market cap of $407.30M. Operates an online dating platform in the People's Republic of China.

6. Bitauto Holdings Limited (BITA): Internet Information Providers Industry. Market cap of $248.04M. Provides Internet content and marketing services for the automotive industry in the People's Republic of China.

7. SouFun Holdings Ltd. (SFUN): Internet Information Providers Industry. Market cap of $226.49M. Provides marketing, listing, technology, and information consultancy services to real estate and home furnishing industries in the People's Republic of China. The stock has had a couple of great days, gaining 7.59% over the last week.

8. ChinaCache International Holdings Ltd. (CCIH): Internet Information Providers Industry. Market cap of $122.59M. Provides Internet content and application delivery services to businesses, government agencies, and other enterprises in the People's of Republic of China. The stock has lost 79.54% over the last year. 



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , Technology


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