Code JDMBA: Big News in the Chinese Internet Market

Tuesday, August 09, 2005

Big News in the Chinese Internet Market

From Pacific Epoch:
pacificepoch.com/newsstories/37048_0_5_0_M/

As many of you know, Alibaba (the owner of www.taobao.com) is already a major player in the Chinese internet market. It is likely the most valuable privately held Chinese internet firm. Read more about Alibaba here:
www.alibaba.com/aboutalibaba/index.html

Apparently it will exchange 35% of its business in exchange for "Yahoo China's core businesses" according to Sina quoting an inside source. "Yahoo's China businesses currently include a Chinese Internet portal, the search engine Yisou, online auction website 1pai (a joint venture with Sina (Nasdaq: SINA) and instant messaging service Yahoo Messenger." Although Yisou was mentioned in the article (www.yisou.com), 3721 (www.3721.com) was not. I am not sure what this means.

The deal looks like a win for both parties in my opinion. Taobao gets the Yisou portal to help promote its many services and Yahoo gains an ownership stake in one of the most valuable Chinese internet firms. Yahoo is behind others in the search, portal and auction businesses in China. It was in need of a good local partner. Alibaba is about as good of a partner as Yahoo could hope for.

My guess is if the deal closes, Sina will be compensated for its 1/3 share of Sina/Yahoo Auctions (www.1pai.com.cn), which will be taken over by or merged with Taobao. Alibaba is a company with great potential in my opinion. Its business to business internet services are unmatched in China. They also have good chances to succeed on a global scale.

Currently in my opinion, Taobao is leading in the Chinese auction business with eBay/Eachnet (www.ebay.com.cn) a close third. Yahoo/Sina Auctions are a distant third. eBay may be able to gain some traction if PayPal takes off, but competition is fierce and eBay is getting a late start in the online payment market in China.

Stay tuned for further developments.

Disclosure: I am long SINA

Update!!!!

Yahoo will pay $1 billion and all of its Chinese business for the 35% stake. www.3721.com will be included in the deal. This deal values Alibaba at about $3 billion dollars:
http://tinyurl.com/7uqjo

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