JDMBA

Chinese Visa

2007-09-15T19:56:00.000-07:00

I received my Chinese Visa in the mail this week. Since I do not currently live in Chicago, Houston, Los Angeles, San Francisco, New York or Washington DC, I mail my passport to a visa agent in one of these cities instead of going in person. This time I decided to apply for a multiple entry visa which in many ways is superior to the single entry visas I used for my last few visits. The last time I was in China I had to go to the police station to extend my 30 day visa since my visit lasted longer than I originally planned. My multiple entry visa is valid for as many visits (up to 60 days each) as I can make to China within the next year.

New Websites

2007-08-19T02:15:00.000-07:00

I recently have launched new websites for my new law practice and China related business. For those who are interested, please visit:

China Education Consulting

Law Office of James Allen

Webzen Update

2007-08-12T15:24:00.000-07:00

I still own a large number of WZEN shares but I have not had the time to track it very closely as of late. I just Huxley is released according to the anticipated timeline unlike Sun which was delayed for what seems like forever. I also am eagerly waiting to hear the comments of NCTY relating to Sun on their upcoming quarterly conference call.

Next Trip to China

2007-08-10T01:12:00.000-07:00

I am excited about my next trip to China this October. I am not a big fan of the direction the US is headed and am worried about its long term economic prospects. China however has enormous potential. Therefore, I have decided that most of my entrepreneurial projects going forward will forces on either China or other fast growing emerging markets. It just makes mores sense to invest where the growth is.

Today more than ever, the best growth opportunities are being found overseas. 10 years ago a larger percentage of students from Asia who attended college or graduate school in the U.S. sought to remain here after graduation. Today many of these well qualified and bright students are leaving the US after graduation for better opportunities at home. Many high tech companies in the US are having a hard time finding enough qualified workers and the H1B visa restrictions and are not helping.

I believe in free markets. I also believe the best way to make money is to embrace change instead of fighting it. China will become the largest economy in the world during our lifetime. India and other countries will grow quickly as well. We should not be scared of outsourcing, we should embrace it. Instead of using tariffs and quotas as temporary Band-Aids, we should think long term and put more money into training out people for the industries of the future, instead of trying to artificially support the markets where we are losing our competitive edge.

Update

2007-08-10T00:50:00.000-07:00

I really have not made much of an effort to maintain this blog over the past year. Much has changed since my last post. Although I took the NY bar exam this July, I plan on remaining in Madison, Wisconsin where both my law practice and a China related consulting firm I co-founded with a former law school classmate will be based. Due to the amount of time I like to put into equity research and the lack of free time in my current schedule, I have not been trading very much as of late. Perhaps this will change in the future, but right now my primary focus is on building my business.

For those who are interested, I am building a law practice in the areas of immigration law, bankruptcy law, criminal defense (I am particularly interest in white collar crime) and anything related to doing business with China. Of course based on my business background, some people would wonder why I would not focus primarily on corporate law or securities law, etc. While I am still interested in these areas, I want to focus on areas that somewhat relate to my other businesses (such as immigration and Chinese related law). I also want to concentrate on practice areas where the revenue tends to come upfront (such as criminal defense, immigration and bankruptcy so that I do not have the economic pressures of having to deal with the economic strains of expensive litigation relating to cases based on a contingency fee arrangement. Criminal defense also happens to be one of the best areas of law for those interested in gaining lots of trial experience early on.

Back From Vacation

2006-09-06T15:04:00.000-07:00

I was out of state all of last week on a short vacation before school started. I still want to blog more about my experiences in China this summer once I can find some free time to do so. I am currently working on some business plans and may visit China again this winter.

Relating to the Chinese WVAS industry, this recent story seems to be pretty big news. A one month free trial is quite a large requirement, as new users will not generate revenue for the SP's as quickly making marketing and promotional activities less effective. I was also worried about churn among end users who might switch from SP to SP each month for certain WVAS services. Marketing activities and the decreased negative impact of churn are all positives of going back to the 72 hour period. In case of any further price declines I may be inclined to buy more shares of KONG and a few other WVAS providers.

Webzen Rebound

2006-08-17T22:34:00.000-07:00

I take back what I said the other day about taking profits in KONG too early. Webzen is currently up over 14% on the KOSDAQ with heavy volume. I bought more WZEN shares with my KONG proceeds on Tuesday. Now I just need to figure out the reason for the WZEN rebound. Let's hope it is part of a new trend! I still have a fairly big paper loss on my Webzen position.

Disclosure: I am long WZEN

Update: Webzen just hit its daily up limit (13,700) on the KOSDAQ. If it closes at this price that is a very good sign and may imply that WZEN could climb even further on the NASDAQ tomorrow!

eBay Auction Update

2006-08-17T18:14:00.000-07:00

My Bar Exam Auction still has 4 days left but I have already received more bids (13) than I ever expected. I have not yet decided how to spend my $3.93 ($5.25 minus the 25% SPLC donation =$3.93). I was thinking about buying another share of Webzen, but as of this moment I am not sure if I will have quite enough for another share. Webzen is currently up over 5% on the KOSDAQ today (Friday).

Disclosure: I am long WZEN

Strange TOMO Trading Activity

2006-08-16T12:50:00.000-07:00

Obviously I took profits in KONG a little too soon yesterday as it is up another 10% + today as of right now. Indeed the entire sector is up today. TOMO is up over 30% on no news! Somebody please let me know if they have a plausible explanation for the Tom Online trading activity today. I do not know if it is just short covering after a quick rise today (TOMO underperformed the China WVAS sector yesterday).

TOMO gave 3Q guidance was not that great (but they been known to give conservative earnings guidance) compared to their peers, so I am little confused today. Like I said yesterday, I feel like KONG and TOMO management is the best in the industry, but I am still baffled by this sudden rapid rise.

Just Took Profits in Kong

2006-08-15T09:32:00.000-07:00

Previously I had purchased KONG shares on 6/29/2006 for $8.15 which I sold on 6/30/2006 for $8.80. Then I bought shares on 7/19/2006 for $6.13 which I thought was a big mistake until today (I just sold all my KONG shares for $6.88). I listened to the conference call and felt that KONG is continuing to execute fairly well in this difficult time as compared to some other WVAS players. I continue to feel that TOMO and KONG have the best management teams in the WVAS space. However the 20+% gain today seems a little exaggerated so I decided to take my profits while I have a chance. I may buy back some KONG shares again if the price retracts back down towards six in the next month or so. I am happy that their 2006 guidance of 97-105 million was near the high side of their last guidance of 85-105 million. However, I still have some concerns regarding future regulations at China Mobile and the other carriers, and some longer term concerns about China Mobile itself moving further into content itself. I am also a little concerned that Java gaming and MMS revenue was down so much compared to the 1st quarter despite the seasonality arguments in the press release.

I wish WZEN came out with some news to let me exit with a profit in the near term. Unfortunately I think that is unlikely in the short term as I am down quite a bit on my WZEN position right now. I intend to hold my Webzen shares at least until SUN and Huxley commercialization.

Disclosure: I am long WZEN

Kong Zhong 2Q Results

2006-08-15T00:37:00.000-07:00

As of right now, I have a paper loss in KONG. Tomorrow the shares should rebound somewhat after a relatively good 2Q and decent guidance going forward. I still need to take time and listen to the conference call recording. I am most interested in hearing more about estimated 3G rollouts, future industry consolidation, stock buybacks and market share shifts in light of the recent China Mobile regulations. I am impressed that KONG management responded quickly to the new regulations by reducing headcount by 15%. I hope this step will allow them to remain profitable for the rest of the year before the market starts to rebound again in 2007 with the rollout of 3G. In the recent past KONG has executed as well as almost anyone in the sector (save perhaps TOMO). Lets hope KONG can parlay its lead in 2.5G services and Mobile Gaming as we move forward into the 3G realm next year. Based on their cash on hand and strong market position, I think KONG will rebound from recently industry challenges and rise again as we approach the 2008 Beijing Olympics.

Disclosure: I am long KONG

New York vs. California eBay Auction

2006-08-14T18:12:00.000-07:00

The eBay bids are coming in. As of right now there have been 10 bids already. Next Monday I will know if I will be taking the New York or California bar exam next year. I structured the auction so that everyone watching could tell which state was in the lead based on the last number in each bid. Bids ending in even numbers (0, 2, 4, 6, 8) mean I must take the New York bar exam. Bids ending in odd numbers (1, 3, 5, 7, 9) mean I must take the California bar exam.

Based on the first 5 bids I thought that most people thought I would be better off with New York. However other people apparently think I should take the California bar and the current high bid ends in a odd number (California). Since the result of this auction will have such a major impact on me I am currently a little nervous and anxious to see the result. I am sure that I will feel better about it next Monday when I know for such which bar exam I will take.

I really appreciate everyone's assistance in help deciding this important issue for me!

Bar Exam Auction

2006-08-13T13:27:00.000-07:00

I am happy to report that my eBay auction to determine which bar exam I will take next year already has four bids! Although I am aware that bidding may slow down soon since the auction has already reached the high price of $0.17, I still think it is pretty cool that so many people are interested in helping make this hard decision for me.

I received an email from the operator of Way Out Auctions where they are always "watching weird, strange and downright bizarre auctions on eBay". Apparently I am being featured on their website. I recommend checking it out. They have some interesting auction listed.

Thanks again for your support and happy bidding!

Which Bar Exam Will I Take?

2006-08-11T16:39:00.000-07:00

I will know the answer in 10 days thanks to this assistance on this eBay auction.

Some people think this is a crazy idea, but I really cannot decide if I want to take the New York or California bar. Here are the details:

Please help!

I am currently a 3rd year law student who cannot decide whether to take the New York or California Bar Exam next year. I have talked to countless professors, lawyers and fellow law students about the issue and still cannot make up my mind. There are many things I like about both New York and California. I love large cities which both states offer. I am interested in international trade and New York and California seem to be the most important trade markets. I have many friends in both states. Every time I have visited New York or California I had a great time.

I really need to make a final decision but have been unable to do so to this point. Consequently, I am turning to eBay for assistance. The winner of this auction can decide if they would like me to take the New York or California Bar Exam next year. This auction is not a joke. I will abide by the choice of the auction winner and take either the California or New York Bar Exam in 2007.

The goal of this auction is not to get rich (although law school and bar exam preparation is expensive) but to make a final decision about which bar exam I will take next year. Accordingly there is no reserve price for this auction and bidding will start at $0.01. However I am aware that unusual auctions such as this can sometimes gather significant interest and bidding. Therefore, I hereby pledge that 25% of the final closing value from this auction will be donated to the Southern Poverty Law Center.

Due to the nature of this auction, I think it is most fitting to donate the money to a law related cause and choose the Southern Poverty Law Center. Originally founded in 1971 as a civil rights law firm, the SPLC has expanded and is now well known for numerous legal victories against white supremacists and other hate groups. The SPLC is also a leader in racism and bigotry prevention. By helping teachers teach their kids to embrace diversity and combat hate, the SPLC hopes to reduce the prevalence of racism hate crimes in future generations. You can read more here:
http://www.splcenter.org

In order to help you make an informed decision, I have listed some advantages for each state:

New York:
Wall Street (I have an MBA and background in finance)
I am from the Midwest, so I am more used to NYC weather
Better public transportation system

California:
Close proximity to both the oceans (surfing) and mountains (downhill skiing)
Easier to get around in a car (compared to NYC)
Better college sports

The winner of this auction will receive:
1. A thank you letter from me.
2. Proof of a charitable donation to the SPLC made on your behalf in the amount of 25% of the final auction price.
3. Proof of my Bar Exam registration in your choice of New York or California
4. As a further courtesy, a copy of my Bar Results after I receive them next year.

New Focus

2006-08-11T16:29:00.000-07:00

I have decided to change the focus of my blog so that I give less emphasis to individual stocks and more to finance, law, economics, China and FDI. I still am extremely interested in equity research, but my time is limited right now and I feel my free time is better spent on pursuing business opportunities instead of following news and updating my financial models for numerous equities.

For those who are wondering, I still own Webzen. Although I have been very disappointed in the seemingly endless delays for the release of SUN and its less than spectacular results in Korea thus far, I remain hopeful long term. However due to a need to diversify I am not currently planning to add to my WZEN position until they initiate a stock buy back, announce a commercial release date for SUN in Korea, a beta testing release date for China and more positive news regarding Huxley.

My most recent purchase was KONG, which is already down quite a bit since my entry point. The new China Mobile regulations will have a huge impact on the entire WVAS industry and I am afraid more restrictions will come in the future. Let’s hope that the major players such as KONG, TOMO, SINA, etc eventually will pick up market share from some of the smaller players who will be put out of business by the new regulations. In the meantime, the next few quarters will be tough. The only real positive I see for KONG in the short run is its current cash position and low valuation. Perhaps as 3G deployment schedules become clear, more interest will return to the stock.

Disclosure: I am long WZEN, KONG

I am back!

2006-08-10T14:37:00.000-07:00

Sorry it has been so long since my last post. I had a wonderful time in China for the first half of this summer. As you know I took a short summer class and had a short internship in a Chinese law firm this summer. Being only my second trip to China I also did lots of tourist type activities in Beijing and Shanghai. I was also able to meet lots of lawyers, investment bankers, and other business people and government officials who helped better educate me about how business is done in China. Tentatively, I am planning my next trip to China for late December or early January when I will be pursuing potential jobs and or new business opportunities.

At this point I am no longer sure that I want to practice law at least in the long term. Although I might consider highly specialized legal training in a certain area (such as working for the SEC or a M&A boutique), in the long run I would rather be making the deals myself instead of drafting contracts for proposed mergers or litigating securities law problems after the fact. Right now I am more interested in Investment Banking or new entrepreneurial ventures relating to China.

Nevertheless, I am not going to complete my law degree without being admitted to the bar. New York and California seem to be the best fit for international trade, and are also the most difficult bar exams in the country. I will be taking either the New York or California Bar next year. Since I am not actively seeking legal jobs in either market, I am having a hard time deciding between the two. NYC is of course the financial capital of the world and has always been one of my favorite cities. I also like Los Angeles, San Francisco and Silicon Valley however and California whether seems hard to beat (where else can I either surf or ski/snowboard for most of the year?). I have many friends in both NYC and LA. I do not necessarily want to move to either city right now, I just want to pass the Bar for that state. Currently if I could move anywhere it would be Shanghai where I could do business and develop my Chinese language skill at the same time.

Perhaps my readers can give me some suggestions on which bar exam to take!

Back in the U.S. this Saturday

2006-06-21T01:30:00.000-07:00

Sorry it has been so long since I made a post. I have been in China (Beijing and Shanghai) since May 12th and have been very busy. You can expect more from me starting next week.

China is not manipulating its currency

2006-05-11T00:50:00.000-07:00

Here is a link to the China Daily article. This is important news. I wish I had more time to analyze its meaning. Instead I will likely be up all night finishing a take home exam

"The Bush administration on Wednesday announced it would not brand China as a country that was manipulating its currency to gain unfair trade advantages."
"A designation as a currency manipulator would trigger consultations between the two nations and could lead to trade sanctions if the United States won a case on the issue before the World Trade Organization."
"We are not satisfied with the progress made on China's exchange rate regime and we will monitor closely China's progress every step of the way," Treasury Secrectary Snow said.

Another SUN Pre-Open Beta Delay

2006-05-10T21:56:00.000-07:00

As of this moment Webzen is down a little over 4% to 24,250 Won on the KOSDAQ. This is likely the reason. It appears that SUN pre-open beta testing has been delayed again, rumored to be because of some server problems.

Here is an article about one persons opinion of the Webzen booth at E3 and more on Huxley from IGN. For those of you that would like more details on what Huxley is all about and how the XBOX 360 and PC versions will work together I highly recommend reading this preview from TeamXBOX.

Please do not expect much from me for the next few weeks. I am completing final exams right now. I am also leaving for China for almost month this Friday.

Disclosure: I am long WZEN

US Dollar Hits New Low Against Korean Won

2006-05-07T23:03:00.000-07:00

I have talked about this trend previously here and here. As of the time of this post 1 USD = 925.89 Korean Won. The Dollar depreciation against the Won (and other currencies) is happening even faster than I expected. Currently ALL of my equity investments are overseas. I am very bearish on the US economy long term. Instead of worrying about the fall of the US and the rise of other emerging markets, I intend to profit from the trend. I hope the US Dollar continues to fall, as I am making money as a result.

I better get back to studying. I have a Securities Regulations final exam in the morning.

PSPT Earnings

2006-05-04T10:55:00.000-07:00

People Support is currently up about 22% on the NASDAQ after reporting good 1st quarter earnings. 1Q revenue and 2006 revenue guidance was particularly strong. PSPT is investing for growth (additional building capacity, personnel, etc) so earnings are not truly taking off as quickly as some would like. Personally I like the continued investment as it will only improve their positioning long term.

I like that they are starting to diversify their revenue base and are not going to be relying primarily upon their 3 biggest customers (currently 51% of revenue) forever. I have been following the stock for quite a while. Unfortunately I never pulled the trigger to buy shares last month as I was considering. Here is the press release. After final exams I may start to analyze the company further.

As many of you know I primarily track just emerging markets. While I am most interested in China, I also follow developments in India, Indonesia and other countries. If anyone has any Asian ADRs they really like, please let me know and I will consider researching it as well and discussing my findings on this blog.

Webzen Performance Today

2006-05-04T10:17:00.000-07:00

Currently Webzen is still trading a nice discount (several percent) on the NASDAQ relative to its KOSDAQ valuation. We all know that the Webzen NASDAQ price follows the KOSDAQ price not the other way around.

Although I feel that Webzen had as good of a quarter as we could have expected, Webzen (KOSDAQ ticker = 069080) fell over four percent on the KOSDAQ last night. This is not unheard of, as similar thing happened last year. What is encouraging to me is that institutions and both domestic and foreign were net buyers of Webzen after earnings on May 4th. That means that individual investors (generally the least informed) were responsible for driving the price down last night. Since the rise and fall of Webzen over the last few months has correlated closely with the net buying or selling of institutions this is good news for WZEN shareholders as E3 approaches.

Disclosure: I am long WZEN

Webzen 1Q 2006 Earnings

2006-05-03T08:33:00.000-07:00

Webzen reported its 1st quarter earnings this morning. No real big surprises as they lost $5.91 million primarily due to the continued aging of MU. Some people actually expected them to lose a little more. Look for marketing expenses to rise dramatically in Q2 due to E3 and expenses related to the upcoming SUN launch. For more details on Webzen 1Q results visit their website here.

I still think SUN will do best in Asia, but look for to be licensed in the US and Europe as well. Huxley will likely go into closed beta testing this year. Webzen may start experimenting with its pricing models with the Wiki launch (perhaps the free to play avatar model will be used by Webzen?).

On another note, I have made an interesting note about the KOSDAQ/NASDAQ discount/premium issue as of late. Based on the current Dollar/Won conversion of 1/932.47 and the 3/10 KOSDAQ/NASDAQ ADS conversion, the KOSDAQ shares are trading at a healthy premium over the last few days. Historically they track very closely, and earlier this year the NASDAQ shares were frequently at a premium. From a trading perspective, it may be better to buy shares on the NASDAQ when they are at a discount and sell when they are at a premium to the extent possible. Webzen frequently moves in about a 20 cent range each day on the NASDAQ.

Since the premium is not that large it is nothing to really worry about at this point, I just feel it is interesting. If anyone wants me to email them a simple excel spreadsheet to automatically pull the KOSDAQ, NASDAQ and currency data from the web and do the conversion, let me know.

Disclosure: I am long WZEN

Webzen Press Release

2006-04-26T10:50:00.000-07:00

According to this press release "Soul of the Ultimate Nation" (SUN), MMO first person shooter "Huxley," and the mass-appeal casual MMORPG "Project Wiki" will all have playable versions available at the Webzen E3 booth this year. To this point I have had a hard time estimating the commercial potential of Project Wiki. Perhaps after E3 we will have a better idea about its prospects.

This press release may be important to online gaming investors as well. Microsoft reportedly plans to pay $200 to $400 million to buy Massive Inc., a private company specializing in placing virtual ads inside online games. According to some studies this market may grow ten fold by 2010 and generate hundreds of millions in advertising revenue, some of which may go into the coffers of Webzen and others. It would be nice if Webzen would let us in on their plans to accept or prevent advertising being placed in their games going forward.

Disclosure: I am long WZEN

Webzen Volatility

2006-04-24T12:36:00.000-07:00

WZEN shares have been extremely volatile over the past few weeks. Since early last fall, we have seen a substantial increase in implied volatility reflected in both WZEN call and put options. Perhaps the recent decline last week was due to rumors about a further delay of SUN, which is now viewed as less important since we now know it will only be for two weeks and will include numerous improvements over the last pre-open beta testing. I remain confident holding my shares going into E3 and SUN open beta testing.

Disclosure: I am long WZEN

Fall of Webzen This Week

2006-04-20T13:37:00.000-07:00

Webzen is down over 10% this week on both the KOSDAQ and the NASDAQ. I am not aware of any negative news so I have a hard time explaining the drop. Perhaps people are just nervous about the upcoming open beta testing and E3 reviews. We all know that the last pre-beta testing led to unexpected delays for SUN.

Based on the amount of time that has passed since then, I am reasonably confident that Webzen has been able to incorporate initial feedback to improve the game and the risk of further delays has decreased. I am really excited to see more of the Huxley details from E3. I remain confident in my Webzen equity position.

Here is an article that explains some of the reasons why Webzen shares have fallen this week.
Much will ride on the success of SUN.

Disclosure: I am long WZEN

Sify Reports Profit!

2006-04-20T11:01:00.000-07:00

Sify finally reported its first profit today for last quarter. It has been a long time coming. It looks like some of the capital expenditures are finally starting to pay off. I am excited about the prospects of growing and leveraging Sify Max to promote a WVAS, VoIP and online gaming business. Their 3300+ franchised i-Ways also should help position Sify to grow some of these value added services. I hope the license a new MMORPG besides A3 India sometime soon.

I have not talked much about Sify lately as I have been more excited about the valuation and prospects of Webzen as of late. For more details on SIFY, you can read my last post on the stock here. At the time of that post in mid-August SIFY was my second largest holding and it was trading at about $5 per share. I have since taken profits in SIFY. Clearly I wish that SIFY was my largest holding instead of WZEN during this period, but I still made money on both stocks so I am okay with it.

This was far from my biggest mistake. I once received a margin call related to CRYP which I could not cover so I had to liquidate about 5000 shares of TNT at about $15 per share (that I had bought at an average of under $2 a share) which I did not want to sell. CRYP is up many fold since then and TNT now trades at about $120 a share. My lesson learned in this case was to better diversify and limit my use of margin even in the case of stocks I believe greatly in, so that short term volatility does not force me to liquidate before I am ready. As a full time student I do not have the same access to capital I did while I was working full time. Luckily this problem will be over soon as I am graduating law school in December!

Fall of the US Dollar

2006-04-18T18:11:00.000-07:00

Anyone looking for more information explaining what happened in US equity markets today should read the FOMC minutes from last months meeting. Here is the AP story.

As most of my readers know, I am pretty bearish on the long term prospects for the US Dollar and the US economy as a whole. The US equity markets reacted very positively to the release of the minutes from the FOMC Mar 27-27 meeting. "When it appears as though the governors of the Federal Reserve believe that the end of the rate increases is near, that's very good news for investors."

However, I do not think it is positive news for those betting on the dollar in the foreign exchange markets. Since many predicted that the fed is likely to continue to push rates higher, FX traders may be wise to exit their long US dollar positions quickly after this announcement. Money naturally gravitates to places where it can receive a higher rate of return. If interest rates are not rising as far as expected in the US, some money will move out of the country and the US Dollar will fall. As a shareholder of numerous foreign stocks I am well hedged against (and actually am benefiting from) the fall of the dollar. I hope my readers are as well.

Last week I mentioned that I felt the Korean Won and other Asian currencies remained undervalued compared to the dollar. It looks like the above news only sped up the gains for the Won which has done very well against the dollar as of late. As of the time of this post each US Dollar can buy 945.55 Korean Won down from about 960 last week and well over 1000 last fall.

Recent Cindy Armstrong Interview

2006-04-18T14:48:00.000-07:00

Here is an interesting interview of Cindy Armstrong by Next Generation.

Disclosure: I am long WZEN

Webzen E3 Booth and Stock Option Grant Details

2006-04-17T19:11:00.000-07:00

Based on this SEC filing, I feel like the grant given to Cindy Armstrong was fair. I hope it will help encourage her to work very hard to ensure the success of Webzen game titles in this important new market.

Based on this map of the Los Angeles Convention Center, it looks like Webzen has a fairly large booth. Let's hope that they take advantage of the exposure by having a near final version of Sun, a playable version of Huxley and more graphics/details on APB and other games. I have high expectations for the convention.

Lets all complain to Webzen IR to update the estimated release dates for each of their games before E3. Obviously SUN was not released commercially (or even in "open" beta) by 3Q 2005. I really doubt APB will be ready by 1Q 2007 either, and 3Q 2006 seems aggressive for Huxley. I would like to hear an update on the release dates. I do not want the games to be rushed, as I think quality is MUCH more important. I just feel investors should be kept up to date on R&D timelines and old information should be updated when it is proved inaccurate.

Disclosure: I am long WZEN

Interview With Huxley Producer

2006-04-13T12:42:00.000-07:00

Here is an interesting interview between Gamespot and Kijong Kang, the producer in charge of the Huxley team at Webzen. Webzen has also provided Gamespot with some Huxley graphic that I recommend checking out. Huxley really looks like a great game to me. I think it will do well in America. I was really happy to read the following quote:

"We will be discussing launch dates in the future. Right now you can expect to play the Huxley PC game in the Webzen booth during E3 2006."

I was not sure there would be a playable version of Huxley available in time for E3, so this is great news to me. I am really looking forward to E3. I think there is a good chance Webzen shares will continue to rise as SUN open beta testing and E3 nears.

Disclosure: I am long WZEN

Cindy Armstrong to Head Webzen America

2006-04-12T14:47:00.000-07:00

Today, Webzen formerly confirmed this existing rumor in a press release. Cindy Armstrong has an impressive background and a great deal of industry experience. I think hiring her as CEO of Webzen America is a positive for Webzen shareholders.

Disclosure: I am long WZEN

Greenspan Currency Comments

2006-04-12T00:49:00.000-07:00

We all know that the Chinese Yuan is greatly undervalued relative to the US Dollar. My personal opinion is that the Korean Won despite recent gains is undervalued in comparison to the Dollar as well. Alan Greenspan recently stated that several of the major Asian economic powers (including China, Japan and South Korea) have undervalued currencies. He was quoted today in the AP story as stating that

"World equilibrium is probably better reached by allowing a number of these countries, which are showing extraordinary economic growth and really in many cases twice the growth of the developed nations, and allow currencies to firm"

However Greenspan also stated that he felt collaboration between the Asian nations on the issue may be difficult to achieve.

"My judgment would be it's very difficult to get an agreement between a number of major countries who have their own domestic political adjustments to make and find that there is a single adjustment on which all could agree"

Since I have a significant position in WZEN, I certainly hope the Korean Won continues to appreciate.

Disclosure: I am long WZEN

MU Expansion Pack

2006-04-07T14:21:00.000-07:00

According to Pacific Epoch NCTY will begin testing a new MU expansion pack from April 12th to April 20th. It will be interesting to see if the expansion pack will encourage old users to start playing the game again, or to pay for it legally instead of using the illegal pirate servers running MU (without the new expansion pack). I do not have too much faith in MU as it is very old and so many other good games are now on the market. Shanda is losing users for its two most popular games even after switching to the free to play model. I expect that besides a short term jump in usage, MU will gradually lose more and more of its users and be discontinued in China sometime next year after NCTY commercially launches SUN which it has also licensed fro WZEN.

Disclosure: I am long WZEN

In other online gaming news:

NCTY licenses Guild Wars from NC Soft. "The term of the license is three years from the date of commercial launch of Guild Wars(R) in mainland China." Guild Wars has done very well in other markets, but so has Lineage which never did that great in China. Nevertheless, it shows that the success of WoW may be helping NCTY in gaining exclusive licensing contracts for other foreign blockbuster games. Billsdue has also cited a rumor that NCTY may be close to forming a casual gaming joint venture with ERTS. I still prefer to invest in gaming companies that can develop their own high quality games. Licensing does not guarantee success. Often times produces lower margins than internal R&D. I will not buy NCTY at current price levels.

NTES has recently signed a contract to construct a new R&D center in the Hangzhou High-tech Zone according to Pacific Epoch. The center should open within the next 18 months. It is good to see that NTES is expanding while competitors such as SNDA are laying off R&D staff. However I took my profits in NTES last year and will likely remain on the sidelines until I hear more about their 2 new MMORPGs Da Tang and Tian Xia Er. Da Tang is an in-house developed 2.5D martial arts game based on the time of the Chinese Tang Dynasty. Tian Xia Er is an in-house developed 3D game based on Chinese mythology. They both were originally scheduled to be released last year, but have been delayed. I need more details on the new games since sooner or later Westward Journey 2 and Fantasy Westward Journey will show their age and quickly lose market share.

Many minority investors in GRVY felt slighted last year when "an affiliate of Taizo Son, with financing facilitated by Masayoshi Son or his affiliates, paid $24.70 per ADS for a 52.4% controlling stake in Gravity in the August 2005 transaction with Jung Ryool Kim, Gravity's founder, and certain members of his family" but stated at the same time that they would not pay more than $7.10 an American depositary share for additional shares. Although the final resolution is far from clear, minority investors may feel slightly better after the above press release, announcing the formation of a committee to protect minority shareholder interests at GRVY. The market price of GRVY has increased to about $9.00 from a closing price of $6.10 on March 21st. I will remain on the sidelines for now, but will eagerly await more details regarding upcoming games, international expansion and minority rights at GRVY.

Rebound of Webzen

2006-04-04T13:20:00.000-07:00

Webzen has started to rebound nicely over the past few weeks. I expect the price may continue to climb as we approach E3 and open beta testing for SUN in May. I am also encouraged that institutional buyers have started to move back into Webzen again as of late. Here is a recent interview with Aaron Rigby, senior producer for Webzen. Due to the user complaints regarding maps during the last pre-open beta testing, I hope that SUN has made some nice changes:

"SUN will allow players to customize their hunting maps once they’ve opened them through quests."

On another note, it appears that Yahoo still has the wrong market cap listed for Webzen. Aside from the Korean Won currency conversion, KOSDAQ prices need to be multiplied by 3/10 in order for the correct NASDAQ ADS conversion. It looks like Yahoo divided by 10 but did not multiply by three. Lets all contact Yahoo to report the error here.

This Yahoo Finance message board post from another WZEN investor will help explain the issue.

Disclosure: I am lone WZEN

Google Finance Beta

2006-03-21T20:14:00.000-08:00

It looks like Google Finance Beta is now live. Something about it is not aesthetically pleasing to me. However I guess it is a good start for Google. I use Google for search, but I will keep using Yahoo! Finance for now.

Is China Rethinking Online Gaming Limit?

2006-03-21T19:22:00.000-08:00

This story from Reuters quoting the Financial Times reports that protests from online game players may be forcing the government to rethink its attempt in limiting the amount of time they spend playing games.

Zhou Donglei, director of business development and investor relations at Shanda Interactive, as said "the government had 'backed off' after fierce complaints from players... [Players] say, 'It's my right, I can decide what I want to do with my free time, whether I want to watch TV, or play mahjong, or drink, or play games'," she said. "There's really not much the government can do."

This news if true could be good news for NCTY, NTES, SNDA and the other major players in the Chinese online gaming market.

Broken Hand

2006-03-17T12:18:00.000-08:00

I know I have not posted much this year. It seems like a series of unfortunate events have conspired to make it more difficult to update my blog. Currently I am getting used to typing with one hand in a cast. My fingers are not totally covered, and now that the pain is almost gone, it is getting easier to type.

Last week I broke my 4th metacarpal in a snowboarding accident. I actually feel lucky since I previously thought I broke my tailbone and was initially worried the Orthopedist would suggest surgery for my broken hand. My tailbone is now fine, it was just bruised, and no surgery was required for my hand. My cast will be off in another three weeks. I am actually a very good downhill skier, but I am a total beginner when it comes to snowboarding. However, I am not deterred and will be back snowboarding, fighting with the mountains every chance I get next year. Currently I am on Spring break in California with my girlfriend. We spent some time in Sacramento, Berkeley and San Francisco. I will try to do some more posting on recent events next week upon my return to school next week.

Webzen Signs New Exclusive Publishing Deal

2006-02-28T06:45:00.000-08:00

Here is the press release from Red 5 Studios in California. Red 5 seems to have a good leadership team in place. Apparently some of the key members of the WoW team were the parties who formed Red 5. This is a global licensing deal similar in structure to the APB signed in 2005. I would need to know more about the new game and the contract terms before I could evaluate the quality of this deal. It is good to know that Webzen North America (in California) is already busy working and making deals. The MMO game will run on the new Offset Engine by Offset Softare. I need to do some more research on it. I am excited to learn more about this new game. Stay tuned for further updates!

Disclosure: I am long WZEN

Update from todays Webzen SEC filing:

The tentative name for the game is "T-Project"
It is a 5 year global license (after the commercial launch date)
All Red 5 devepment costs will be covered by Webzen as a pre-paid royalty during the development period
20% of online revenue and package revenue will be paid to Red 5

Fire!

2006-02-01T09:42:00.000-08:00

I am very sorry for not making any posts in the last few weeks. I have been extremely busy. I am very sorry to report that there was a fire in my apartment building the other week and my neighbor died as a result. She was only 55 years old which is far too young, and smoke inhalation is never a good way to go. There are rumors that she did not immediately leave her apartment because she wanted to collect some personal belongings first. I hope that people are able to learn from this and realize that life is much more important than any physical belongings (which can be replaced with renters insurance which I highly recommend).

I was able to escape the smoke with only a temporary headache. However there was a quite a bit of smoke damage to my apartment as well since the firemen kicked in my door letting all the smoke into my apartment. In addition to my studies and judicial internship I had to spend time last week moving my belongings so that my carpet, walls, etc could be cleaned and dealing with the insurance company to make sure my dry cleaning, etc is paid for.

Once I get caught up with my studies I will post more details about my trip. I really had a great time. Currently I am working with several partners from the U.S. and China about setting up a new business venture. At the moment we are talking to web designers about the website, researching the proper corporate structure (most likely we will choose a Delaware LLC since an S corporation cannot have shareholders who are non-resident aliens) doing market research and assigning roles and responsibilities. We do not have much of a need to raise capital at this point. That may come further down the road.

Regarding WZEN:
I have not sold any of my shares and it remains by far my largest holding. Of course in retrospect I wish I had taken profits when it was over $10 after we learned about the problems in the Japanese markets and before the KOSDAQ took such a big hit. Frankly I did not expect the KOSDAQ would fall so far so fast. Fortunately I purchased WZEN at very low prices so my shares are still up dramatically from my average cost. Apparently SUN experienced some technical problems in pre-open beta testing. Perhaps the commercial launch will be delayed but I am not overly concerned. I am confident the glitches will be resolved and SUN will be a success. More than 700,000 people reportedly registered for the beta testing. I am considering buying more WZEN shares if they approach the $7 range. By this summer we should start to hear more news about Huxley which should help bring more attention back to this stock. For those of you following the Chinese online gaming market, I recommend reading this report from Pacific Epoch.

Disclosure: I am long WZEN

Back From China

2006-01-18T12:50:00.000-08:00

I arrived back in the United States late Monday night. Visiting China was a wonderful experience. Most of my time was spent in Shanghai and Xiamen. Xiamen University has a beautiful campus overlooking the ocean. When we were not in class we were able to do quite a bit of sightseeing and also visited another nearby city. I am absolutely in love with Shanghai and am convinced there will continue to be great opportunities for FDI in Shanghai (as well as the rest of China) for decades to come. I already have committed to starting a business venture with a few partners from both China and the U.S. I am really excited about the future. I plan on returning to China in May to spend some time in Beijing (Peking University) before I start working this summer.

I was not able to access my blog while in China. Apparently it is blocked. I am unclear on the exact reason for this since I do not recall ever discussing any of the most sensitive political issues on my blog (Tiananmen Square, human rights issues, etc). I promise to make a detailed post about my time in China very soon. I started back to law school yesterday and am already behind in my reading since I just purchased my textbooks. I also start my judicial internship at the Supreme Court tomorrow. I should have some more free time this weekend to update my blog.

On the investment front, I have not made a single trade since leaving for China. Webzen is still my largest holding by far and it will likely remain so for quite some time. The recent drop in WZEN does not appear to be company specific. The whole Korean market has fallen following the recent Japanese scandal involving Livedoor Co. Profit taking may be another reason since WZEN has advanced so much over the past several months. It should be noted that many of Webzen's competitors such as NC Soft, Actoz Soft and Neowitz have also taken a hit over the last 2 days. I am eagerly awaiting news regarding the success of the "Sun" pre-open beta testing that starts in a few days.

Disclosure: I am long WZEN

Leaving For China Tomorrow

2005-12-27T09:38:00.000-08:00

I am leaving for China tomorrow and doubt I will be making any new posts for a few weeks. I still have a few last minute errands to run before I leave such as buying a new memory card for my digital camera.

Webzen has fallen quite a bit over the last few days. I think most of the drop relates to the weakness in the KOSDAQ in general after the revelation of the Korean Stem Cell Controversy. However it also appears that open beta testing will be delayed. While this means that 2006 earnings will be lower than expected, I remain confident in the prospects of WZEN long term. It is better to release a high quality game behind schedule than release a MMORPG on time or ahead of schedule that contains lots of bugs. I think WZEN will not move up much more until SUN is released and we start to hear more about Huxley.

Disclosure: I am long WZEN

Break From Finals

2005-12-17T12:39:00.000-08:00

I had my 4th exam of the semester (Business Organizations) this morning. After coming back from the bar where I ate lunch and had a few drinks, I have decided to take the rest of the day off. Frankly I am a little tired from last of sleep and want to relax. My last exam is on Wednesday and I think that will leave be more than enough time to review my Taxation notes and materials.

Please stay tuned to my blog. I know it has not been a top priority for me in recent weeks, but I promise more frequent and detailed posts next semester. I will be heading back to Minneapolis next week for a few days before going to China for three weeks. Although I may not post much while abroad, I will be sure to share the details of my first trip to Asia upon my return.

On a positive note, I am sure many of my readers are happy about the continuing great performance of SIFY and WZEN. Apparently the rumor reported by Bill Bishop regarding Webzen and The9 turned out to be true. I am not sure exactly what has caused the recent run in SIFY besides the Raju Vegesna news a while back. Perhaps it has more to do with the overhang being eliminated after certain key insiders finished unloading their shares and the recent run up in the Indian markets in general. I believe that both SIFY and WZEN have great long term prospects (but I like WZEN the best) but I am expecting short term volatility and or profit taking in both. Sify may experience some downward pressure if the Indian market cools off and investors react negatively to the share dilution as a result of the announced Raju Vegesna capital infusion. Webzen shares could become under pressure if they do not announce the open beta testing start date for SUN before the end of the year as I had expected. On the other hand SIFY may have more room to run as REDF demonstrated this year and WZEN may benefit if Sun beta testing does better than expected and Huxley continues to get more and more positive press.

Webzen Rumor

2005-12-11T22:03:00.000-08:00

Webzen is way up again in Korea on the KOSDAQ as of right now. A new 52 week high of 32,750 was set earlier today. I just read an interesting rumor that Bill Bishop placed on his blog. I am not sure who his source is, but apparently The9 beat out Shanda and Ortisp to license SUN in China for about 15-20 million US dollars with about a third to be paid up front. As CEO of a Chinese gaming company and co-founder of CBS Marketwatch and I really respect Bill Bishop. It is nice to see that he and others in the Asian investment blogging community are making good money being long Webzen. Webzen has been my largest holding for quite some time and although I have been very happy with my large gains to this point I think there is more to come.

Disclosure: I am long WZEN

More on Webzen

2005-12-05T10:13:00.000-08:00

I hope my readers are making thousands of dollars on their Webzen holdings today also. I would like to make a couple of points:

The KOSDAQ has volatility control mechanisms which limit the upside (and downside) potential of securities on a daily basis. The up-limit of Webzen on the KOSDAQ Monday was 30,050, which also happens to be the current price. There 14,232 shares being bid at 30,050 that went unfilled, meaning there was still upward pressure at the close due to the up-limit and a lack of shares for sale at that price. Although there are certainly no guarantees, based on the up-limit closing scenario, high volume and huge institutional buying, it appears Webzen may have more upward potential in the short term.
I am not the only one who thinks Webzen is undervalued. In addition to the Korean institutional purchases as of late, Webzen itself has been buying back shares. In fact they made another timely disclosure Monday in Korea regarding a Depositary Receipt conversion.

Disclosure: I am long WZEN

New 52 Week High For Webzen in Korea

2005-12-04T16:46:00.000-08:00

Webzen has a ticker or 069080 on the KOSDAQ and WZEN on the NASDAQ. As of the time of this post Webzen is trading at 29,000 on the KOSDAQ. It reached 29,500 earlier this morning in Korea (a new 52 week high) on heavy trading volume. Tomorrow should be another great day on the NASDAQ.

I am hoping to hear an announcement soon regarding the start date for SUN open beta testing. Last week I was pleasantly surprised that Webzen was able to successfully license MU in American and Europe to K2 Network Inc. The US $2,000,000 licensing fee is more than I would have expected they could have achieved from a game that is already very old. This is a good sign for the prospects of SUN in the U.S. and Europe as well. I fully expect SUN to do well in Asia, but am more hopeful of the prospects of APB and Huxley here in the U.S.

Disclosure: I am long WZEN

Busy Week Ahead

2005-11-28T12:14:00.000-08:00

I hope everyone had a nice Thanksgiving weekend. I went to a friend's house in Chicago. I will wait until Christmas to go back to Minneapolis. Right now I am very short on time and feel like I have a pretty full plate until finals are over.

Here are a few of the news releases/blog postings that I feel are worth reading from the last week:

From China Tech Stories a recap of a Qinghua University sponsored study comparing the quality of the top Chinese search engines including Google, 一搜（Yisou), 百度（Baidu), 中搜（Zhongsou), 爱问 (iAsk), and 搜狗（Sogou). Of course Yisou is owned by Alibaba/Yahoo China, iAsk is owned by Sina and Sogou is owned by Sohu.

From China Net Investor a summary of a Financial Times article talking about China's National Development and Reform Commission (NDRC) considering taking action to give assistance to local VC firms in gaining certain competitive advantages over foreign VC groups who currently dominate the industry in China. The article states "The initiative – known as “Measure no.39” - has caused concern and disappointment among foreign private equity groups, which dominate China’s venture capital sector, and trade officials." This appears to be major news for those interested in the sector. Stay tuned for more developments in regard to "measure 39"

In the Chinese gaming market:

Shanda announced that it will convert its Legend of Mir II and Magical Land games to a free to play revenue model, instead selling optional value added services or "avatars" within the games themselves. Wool may be next to switch to this model. Shanda was down heavily on the news. Unless there is some major positive news regarding the EZ Station, or some major game licensing I doubt Shanda will be able to sustain a large upward rally until the launch of D&D online becomes closer and it commercial prospects better evaluated.

Netease announced that William Lei Ding has been named as CEO effective immediately. Mr. Ding is also the largest Netease shareholder. I think Netease is down today based more on concerns regarding the Shanda announcement than due to the CEO appointment news. Billdue pointed out a legitimate concern on the viability of the old pay to play pricing model in China as it mayy apply to future MMORPG games such as the 2.5d and 3d games Netease plans to launch next year. The9 is also down today likely due to similar concerns.

I am not saying that the Avatar model is a bad one. Indeed the huge success of Kartrider in South Korea (from Nexon) and to a lesser extent Yulgang in China (From China.com's 17 Game subsidiary) has taught us the model can work under the right circumstances. However game development needs to be closely tied to the prospective revenue model and it is hard to revenue switch models after a commercial launch without seeing massive revenue declines in the short run.

From Pacific Epoch, a summary of Tencents 3Q 2005 Earnings release. I have not had time to analyze the results yet (although FX losses appeared to be big factor in the lower earnings). Clearly the game QQ Fantasy looks promising and the QQ IM platform is a great asset in promoting usage of future Tencent online games. Tencent does not trade on the NASDAQ. Instead it trades on the Hong Kong Stock exchange under the ticker 0700. It is possible to gain some indirect exposure to Tencent by purchasing Naspers ADRs which has a large ownership stake in Tencent.

Regarding Chinese/emerging market ADRs not receiving much analyst coverage:

From CoolHeadInvestor, a post about a few of the big Chinese movers from last week. I think it is clear that the lack of much analyst coverage and institutional interest in some of the smaller Chinese ADR's have greatly increased their volatility. However it is also very clear that some tremendous values exist in the marketplace and those who have the ability to gather and carefully analyze public news and information will be able to profit by finding such bargains in the long run. I encourage all of my readers to email me a list of the emerging market ADR's they are most interested in (particularly those without much analyst coverage). I will try to analyze several such stocks on my blog going forward as time permits.

Thanksgiving Vacation

2005-11-22T09:26:00.000-08:00

I am going to be leaving town tomorrow for Thanksgiving weekend and will therefore not be posting much if any for the rest of the week. Any free time I have I will likely be devoting to studying for final exams. I feel pretty good about my prospects in Business Organizations 1, Corporate Finance and Professional Responsibilities. I think I need to spend a lot more time studying Tax 1 and Evidence.

Chinese Visa Application

2005-11-18T12:51:00.000-08:00

I turned in my Chinese Visa application to the law school today along with a passport sized photo, my itinerary and Passport. Apparently the school will be sending them all together to some sort of agent who will take them to the Chinese consulate in Chicago for Visas. My itinerary only details my flight to Shanghai since I have not purchased the Xiamen ticket yet. Studying in Xiamen is listed as the primary reason for my trip. I have been advised that this should not be a problem. I was also a little worried about the Passport sized photo being larger than the "photo box" on the application. I was told that this was fine also. Part of me also worries just a little bit about the very small possibility my Passport could be lost in the process. I think I am worrying too much. Or perhaps I have heard to many horror stories about Visa processing deadlines (for other countries not China) where Passports were not returned in time.

Big Move in SIFY Today

2005-11-17T13:20:00.000-08:00

SIFY closed up over 10% today. Since I am not aware of any major news today, I do not know why it moved so much. I took profits in SIFY today. I am still bullish in SIFY long term and intend to buy back in on any pullback.

Here is some recent news with implications on SIFY:

On the TRAI recommendation that Indian ISPs be exempted from service tax.
Political concerns regarding the TRAI and Telecom Minister Dayanidhi Maran.
On a possible entry of SIFY into the long distance market.
Infinity Capital Ventures equity investment.

Of course a reduction of elimination of the ISP service tax or a repeal of the VPN tax would improve the profitability of SIFY in the short run. However they also serve as a barrier to entry which may persuade other potential competitors from entering the market. In the long run I think the key for SIFY is to focus on its core competencies and not spread itself too thin my moving into too many areas. I think entering the long distance market (aside from their current VoIP offerings) is a bad idea. I hope that Raju Vegesna uses his new influence in SIFY to focus more on online gaming, VoIP services, WVAS and improving their portal.

Judicial Internship

2005-11-16T17:07:00.000-08:00

I found out late yesterday that I have been accepted for a judicial internship at the State Supreme Court. I am extremely happy and accepted the offer right away. I intend to do some more research to learn more about the background of the Justice that I was assigned to. I decided to drop Taxation II and Business Organizations II to make room in my schedule for the judicial internship. From what I heard the internship should be a lot of work. I am eager to further improve my legal research and writing skills in addition to learning more about what appellate advocacy is all about.

In other law school related news, I received my Chinese Visa Application today. I need to locate my Passport, which I know is hidden somewhere in my apartment. I am very grateful that my school is covering the cost of our Visa applications in addition to a travel stipend for the trip!

My Spring 2006 Schedule

2005-11-15T15:06:00.000-08:00

I signed up for a pretty heavy load. I will drop several classes if I am accepted for the Judicial Internship that I applied for at the State Supreme Court. As of right now I am registered for:

Trusts and Estates
Business Organizations II
Taxation II
Securities Regulation
Chinese Law
Law and Entrepreneurship

I am most excited about my Securities Regulation, Chinese Law, and Law and Entrepreneurship courses. Even if I do not get the Judicial Internship I applied for I may decide to drop Trusts and Estates or Tax II so that I can enroll in another finance class at the business school to help me review for the CFA exam in June.

New 52 Week High for Webzen

2005-11-15T09:20:00.000-08:00

I am not even thinking about taking profits at these levels. I believe WZEN will be trading much higher a few years from now as they commercialize their MMORPG pipeline now in various stages of R&D and beta testing. I am also encouraged by the healthy volume of institutional purchases as of late on the KOSDAQ. The price of WZEN is driven by the KOSDAQ, not the NASDAQ where trading volume is much lower and Webzen gets much less attention.

Disclosure: I am long WZEN

Chinese Airfare Issues

2005-11-14T16:22:00.000-08:00

As you know I recently purchased my first round trip ticket to China. I found a great deal flying United out of Minneapolis via Chicago to Shanghai. I might have considered flying out from Chicago but the airfare was much more expensive. Apparently United is trying to win market share from Northwest in Minneapolis and are offering a great promotional airfare for this purpose that they are not offering from Chicago. I have some friends who also will be coming to China with me. One of live is leaving from Chicago. Initially I thought this person could purchase the same deal I found, not show up in Minneapolis but just show up in Chicago instead. Unfortunately this is a dangerous strategy since United may sell his seat on the plane in Minneapolis if he does not show up there. I plan on getting off the plane in Chicago on the way back and skipping out on the last leg to Minneapolis (assuming of course I can find a way to get my luggage off in Chicago as well).

Thanks to everyone who gave me advice about my trip to China. I have reached a couple of conclusions based on what my Chinese friends have told me about airfare related issues. Generally it is much cheaper to fly to China from the East or West Coast (NY, CA, etc) than it is to fly from the Midwest where there is less traffic (and less competition) to China. I was lucky to find such a good deal. It also appears that it is much cheaper to fly to large cities such as Hong Kong, Shanghai, Beijing, etc. than it is to fly to Xiamen or other less popular destinations. In cases such as these it appears you can often save money (and have the opportunity to see more of China) by flying into a larger city with a round trip ticket and buying a domestic round trip ticket to your final destination separately. Currently Ctrip is quoting 960RMB each way from Shanghai to Xiamen. 960 Chinese Yuan = $118.76 US Dollars. My friend tells me that a domestic round trip ticket in China is the same price as two one-way tickets (no discount given). I am still saving hundreds and hundreds of dollars versus the best Minneapolis to Xiamen round trip ticket I could locate online.

I am not currently a CTRP shareholder but I expect they will benefit as the amount of international business travel to China picks up. It seems that Ctrip still has a strong lead over eLong (LONG) in terms of amrket share and brand recognition in China. eLong is spending lots of money to attempt to grow their market share. Time will tell what the result will be. I think there is plenty of room for both CTRP and LONG to prosper. Domestic travel is increasing as well. Unfortunately the Airlines are not benefiting as much right now since they price of oil remains high. As I blogged about previously, the airlines are positioned to benefit greatly from future RMB revaluations.

Final Exams Approaching Quickly

2005-11-10T11:42:00.000-08:00

I only have about one month until final exams. We register for the Spring semester next week. While I am excited about being almost half done with law school, I am concerned that I am spending too much time analyzing securities and working on various business plans. Therefore I have decided to cut back on trading for a while and just hold my current positions. As all of you know my two largest holdings are WZEN and SIFY. I feel pretty good about the long term prospects of both and am prepared to hold for the long term. My primary focus over the next month will be school. Over winter break I will become more involved in the market again and start preparing for the next CFA exam. For those of you who are really interested in learning more about financial analysis, I recommend the CFA curriculum. You can read more about the CFA designation here.

After the cash injection that SIFY announced today, they should have more than enough cash at hand to invest in capital expenditures until they reach profitability. Unfortunately profits (when they are achieved) will be diluted to account for the new shares being issued. Nevertheless I see this announcement as a positive and believe that most of the remaining major holders of SIFY are prepared to maintain a long term position in the company, reducing the selling pressure we have experienced from various major shareholders over the past few years.

As I mentioned earlier this week, I think the worst is behind us for WZEN. While 4Q 2005 will also be fairly bad, things should start to pick up in 1Q 2006 and get much better going forward. I definitely plan on holding my WZEN shares for several years and reap the benefit of all the R&D being put into SUN, Huxley, APB, etc.

Disclosure: I am long SIFY, WZEN

Airfare to Shanghai

2005-11-09T13:03:00.000-08:00

If anyone is aware of any great deals for round trip airfare to Shanghai please let me know. I would like to leave around December 28th and come back January 16th but I am fairly flexible on the exact dates. I would be willing to fly from either Minneapolis or Chicago, but I would prefer Minneapolis. So far the best deal I can find is about $1000. I plan to purchase my roundtrip ticket to Xiamen from Shanghai seperately once I figure out exactly how much time I will be spending in Shanghai before and after my class in Xiamen.

Netease 3Q 2005 Results

2005-11-08T13:35:00.000-08:00

EPS was much lower than I expected. I lost a lot of money yesterday with my Netease November call options. I need more time to evaluate the results, but my initial impression is that NTES may be oversold. Clearly competition is having an effect. I wish I had more information so that I could better evaluate the commercial prospects for the 2 new MMORPGs NTES has coming out next year. It seems that the commercial release of both games will be a little later than I expected.

"In order to maintain our strong position in the market, we are focused on solid growth with our existing MMORPG games while investing heavily in our game pipeline which includes Datang, our 2.5D game which is based on the background of the Tang Dynasty, and Tianxia, our 3D game based on Chinese mythology. Currently, both games are in various stages of beta testing. We expect the commercial launch of these games to be in the first half of 2006."

Here is a link to the 3Q press release.

SOHU Olympic News

2005-11-07T07:32:00.000-08:00

Apparently there was some truth to the rumors. Here is a link to the press release. The official website URL is www.beijing2008.com. I am sure we will here more about it tomorrow on the quarterly conference call.

Disclosure: I am long SOHU

Trading Activity This Morning

2005-11-07T06:48:00.000-08:00

I just sold out part of my SOHU position this morning (above $17). SOHU has done well over the past few days based on the good advertising revenue result and forecast from SINA and rumors reported by Marketwatch surrounding a possible upcoming announcement. I also was able to sell some of my SINA shares (above $25) at a profit despite buying them just last week before the poor 3Q results (week in WVAS). I feel lucky. I just bought some Nov NTES 90 calls in anticipation of good 3Q results being reported later today. I may buy some more NTES and or WZEN shares later this morning. This might be another good week!

Update! I just took some of my SINA and SOHU proceeds and purchased some more WZEN shares at just over $6.60. While I expect some short term fluctuation (in relation to 3Q results), WZEN is one of my favorite holdings at the moment in terms of long term potential. WZEN 3Q results just came out. You can download them here.

Disclosure: I am long SOHU, SINA, NTES, WZEN

Trading Activity Today

2005-11-03T10:48:00.000-08:00

Today I sold the SIFY shares I purchased just after their 2Q 2005 results. With the sale proceeds I purchased some more SINA shares prior to their 3Q 2005 earnings release later this afternoon. I am hoping that SINA will beat both average analyst earnings and revenue estimates, and give us some positive news about 1Pai sale or merger negotiations with Yahoo China/Alibaba. I am looking forward to the SINA conference call this evening. I have not made any moves yet, but I am continually watching the Nov NTES call options at various strike prices and am considering buying some calls before their 3Q earnings release next week. Based on the usage of their 2 primary games, I am expecting another great quarter and positive 4Q guidance from NTES.

Disclosure: I am long SINA, SIFY

Going to China in January

2005-10-28T13:37:00.000-07:00

I just found out that I will be going to China in January. I will be spending about a week in Xiamen to study law, and plan to spend at least a few days in Shanghai as well. I am very much looking forward to the trip. If anyone has any recommendations of what I should see while in Xiamen and Shanghai for the first time please let me know! I will be sure to post details about my experiences in January.

SIFY 2Q 2005 Results

2005-10-25T11:43:00.000-07:00

Revenue came in higher than I expected, however costs were higher also so the loss was more than I hoped for. Here are the results. Unfortunately it looks like a profit may be a few quarters farther away than I expected due to increased spending and continued capital expenditures. I wish Sify would work more to improve their portal, gaming, Internet Cafe, corporate networking and WVAS business instead of focusing so much on broadband access which is a very competitive and low margin business.

Despite the earnings release and conference call being less encouraging than I hoped, I believe the market overreacted today. For this reason I purchased more SIFY shares this afternoon at $5.18. I will likely sell some of my SIFY shares if it reaches $5.50 or so again in the next few weeks. While I think SIFY may still be a great long term investment, I doubt their will be much positive news to propel it much higher any time too soon.

I sold my WZEN shares today because I am worried that the increased loss will be worse than some hope due to declining MU related revenues and higher expenses (marketing for SUN and overhead related to building a larger R&D staff). WZEN is still one of my favorite long term plays right now. Clearly I have every intention of buying back lots of WZEN shares (hopefully at an even lower price) after the earnings release. I think WZEN is a great value right now. However, I am afraid other investors will want to sell after earnings come out, pushing shares lower in the short term.

Disclosure: I am long SIFY

Best Day of 2005!

2005-10-24T12:35:00.000-07:00

My regular blog readers know that my two largest holdings are WZEN and SIFY. Here is a recent post I made about WZEN. Naturally I am VERY HAPPY TODAY. As I right this post WZEN is up about 10% and SIFY if up about 17%. My other holdings are doing well today also.

There is actually not too much news today from either company. SIFY earning will come out before the market opens tomorrow and I have reason to be optimistic since margins should benefit from declining bandwidth prices and the repeal of the VPN tax. I also think A3 India and Sify Max should give us some traction. REDF reported good 2Q earnings which is probably much of the reason why SIFY is up so much.

WZEN earnings should be coming out soon, and they will likely be pretty bad. However, SUN is getting great reviews and hundreds of thousands have attempted to sign up for closed beta testing. Other Korean gaming firms have been increasing in price lately. In the past some of Webzen's competitors such as NC Soft have seen a massive run up in share price around the time promising new MMORPG's were being beta tested. Long term, I am very confident in my WZEN position. Short term things will be harder to predict. It is possible there will be some selling pressure if 3Q earnings are really bad, but it is also possible price will skyrocket if we here promising news about their new games or an announcement of a THQI partnership for example.

Disclosure: I am long SIFY, WZEN

Webzen Performance Today

2005-10-20T13:42:00.000-07:00

I am not exactly what caused the massive rise in WZEN today on the NASDAQ. It was up on the KOSDAQ also. Since WZEN is currently my largest equity position, I am clearly happy. Like I have said before I do not think 3Q 2005 earnings will be good. Expenses should be up due to an increased R&D headcount. I am more interested in the prospects for their large MMORPG pipeline over the next few years and huge cash position. I hope to hear more about the progress of SUN on the 3Q conference call. The second closed beta testing for SUN starts next week for 10,000 users.

This is the only piece of news I could find from today. Apparently THQI will be meeting with both GRVY and WZEN about a possible contract to help create the sequel for "The Incredibles" for XBOX 360 and Playstation 3. Nothing is confirmed at this point. Here is more information on the current THQI game.

Based on the strong 3Q Earnings of GOOG, I expect tomorrow will be a good day for most internet search and portal stocks (and perhaps the market in general) including the Chinese ADRs BIDU, SOHU, SINA, NTES, and to a lesser extent TOMO.

Disclosure: I am long SINA, SOHU, WZEN

eBay Response to Alibaba/Taobao Press Release

2005-10-19T17:30:00.000-07:00

Here is the eBay response. They sure were pretty quick in making the response. Based on the comment "Free is not a business model" it looks like eBay will continue to charge fees. If this is the case, I predict that eBay will lose the Chinese Auction Market to Alibaba/Taobao/Yahoo China (with or without the addition of the 1Pai Yahoo/Sina joint venture) just like eBay lost to Yahoo in China. eBay is overconfident and will lose again to Jack Ma and his superior management team who better understand Chinese cultural and business practices.

Here is a link to an interview Jack Ma recently granted CNN.

Disclosure: I am long SINA

Taobao Remains Free 3 More Years

2005-10-19T14:22:00.000-07:00

Here is the press release. China could one day become one of the worl'ds largest auction markets. Although there is already a very significant online population in China, ecommerce has growth has been stunted by the lack of widespread use of credit cards or other online payment systems. Trust is also a big factor as consumers in China are more accustomed to making transactions locally in person instead of ordering items online from another city or country, paying for them and waiting for them to arrive by mail. As online escrow and payment systems become more widespread in China, the winners in the Chinese Auction Market will reap the benefits. In the long term, I believe the profit opportunity is large, but in the short run I agree that building market share and a loyal customer base is more important than margins.

Alibaba now has plenty of cash as a result of the Yahoo China deal. I am glad to hear Alibaba CEO Jack Ma state: "By making Taobao.com's services free for an additional three years and investing US $120 million into growing our community, we plan to solidify Taobao's leadership position and add new functions and services that meet the unique local needs of China's e-commerce consumers." We already know that eBay previously announced that they would spend $100 million this year to promote eBay/Eachnet. I think there is a good chance that Taobao will continue to take market share from eBay in China. "Taobao.com has consistently scored highest vs. competitors in independent customer satisfaction surveys, with an iResearch survey rating Taobao.com's customer satisfaction at 77%, higher than all competitors."

The press release also contained an interesting marketing ploy:
"We call on Ebay to do what's right for this phase of China's e-commerce development and make your services free for buyers and sellers in China," said Alibaba CEO Jack Ma "Cutting prices is not enough -- it's time to make your services free and affordable for all of China's entrepreneurs and consumers."

Jack Ma further stated:
"Free is the right business model for China's current conditions, but Taobao.com is a business, and like any serious business we have a solid plan for profitability. With Alibaba and Taobao, our theory has always been, only after our members make money using our marketplaces should we make money."

Will eBay make their services free as well? Doing so would admit they made a mistake by moving to a fee system too soon. However they may have no choice. Taobao has been gaining market share quickly, and depending on the metric you are looking at may have already passed eBay/Eachnet in China. I think this press release was smart from the Alibaba point of view as it tells potential customers (and current eBay users) that Taobao cares about its customers and will only begin to monetize its business with fees after Taobao users have begun experiencing better financial success themselves. eBay will likely make it decision to further cut or eliminate fees on its own and not based on this request of Taobao. In fact I think that Alibaba actually hopes that eBay keeps its current fee structure in tact so that Taobao can gain more market share! Again this press release seems to largely be a marketing tool used by Taobao to gain publicity and attract new customers. I really like Jack Ma and his team.

As a Sina shareholder, I hope that Alibaba will be generous in assigning a value to 1Pai.com.com in any acquisition or merger with Taobao. Based on the valuation given to Alibaba in the Yahoo China deal and their strong balance sheet, I see no reason why Sina should be pressured into accepting anything but a generous proposal. After all Alibaba seems to be focused on building Taobao market share and customer satisfaction at the moment and 1Pai would make a nice addition.

Additional recommended reading on the Chinese Auction Market can be found here (from Zhangxi Lin Jun Li) and here (from iResearch). Here is the Alibaba Press Release regarding the Yahoo China deal. Read here for my previous post on the 1Pai.com takeover rumor.

Disclosure: I am long SINA

Attention Chinese Venture Capital Investors

2005-10-19T11:53:00.000-07:00

You better find a good attorney to interpret the implications of the new SAFE regulations on your business practices. I just found a link to this description of the new regulations on Billsdue. For more on the State Administration of Foreign Exchange go can visit their website here.

Basically any Chinese resident who wants to start a business involving a holding company overseas (like several of our favorite NASDAQ traded Chinese companies utilize) must get their business plan approved by SAFE, give detailed disclosures on the companies ownership and repatriate all foreign capital raised back to China. These rules appear to be retroactive, so they may have some potential impact on numerous existing companies utilizing these foreign holding company structures.

If only I could hurry up and learn the Chinese language and more about Chinese law, I think I would be pretty marketable to the law firms advising the foreign investment banks, and private equity groups doing business in China after I graduate law school. I am certain that Chinese law will continue to evolve and change rapidly as the economy grows at a rapid pace for the next several decades.

Upcoming Layoffs at Shanda?

2005-10-18T09:41:00.000-07:00

I am not sure who the "good source" is, but Billsdue has reported that Shanda may be planning to layoff 150-180 R&D employees. If this is true, it is bad news for Shanda shareholders. I have already stated that I think Shanda is too dependant on licensing foreign games. In a growing gaming market, firing R&D staff says something about their ability to internally develop high quality content. I am starting to feel I made a big mistake when I recently purchased some SNDA in the $28 range. Luckily I maintain only a very small SNDA position.

In other news, Pacific Epoch has confirmed that Shanda has release the EZMini today. I will wait to see the available content and consumer reactions before I draw too many conclusions. Right now I am starting to get worried about SNDA 3Q results and 4Q guidance.

Disclosure: I am long SNDA

Resignation of Shanda Board Member

2005-10-17T11:14:00.000-07:00

For SNDA shareholders, this may be important news as reported by Billsdue quoting the Financial Times. Bill Bishop pointed out that Shanghai Media Group is the only company that has received an IPTV license in China up to this point. He believes that the news of Li Ruigang's resignation from the Shanda board due to "conflict of interest reasons" may mean that it is now unlikely that Shanda will be able to "borrow" the IPTV license of SMG for its Shanda Box.

In other news, the China Tech Stories blog has reported that the "EZ Station" will be launched tomorrow October 18th in Beijing at thee International Communication Forum. The price of the box is still not confirmed.

While the news reported by Billsue is certainly a negative for Shanda shareholders, I do not necessarily think it means that Shanda will not be able to use the IPTV license of SMG. "Conflict of interest" can mean a number of things including having conflicting interests in any negotiation between SMG and Shanda for any royalties and or license fees being exchanged in regards to the IPTV license or other cooperation between the two firms. Cleary SMG want to value its IPTV license as highly as possible in any venture with Shanda. However, it is obvious that Shanda would like to pay as little as possible for the right to use or borrow the IPTV license. If indeed the resignation had to do with talks involving the IPTC license, I think the "conflict of interest" could easily have meant not being able to fully represent both firms in assigning a value to the right to use a license, since Shanda and SMG have opposing interests in such a determination. Perhaps the resignation means that Shanda will still be able to cooperate with SMG and use their license (but perhaps a cost more than Shanda had hoped for), but Li Ruigang as President of SMG felt he had to resign from Shanda since their interests in any pricing negotiation were contrary to his duty to SMG.

I am eager to see how the "EZ Station" is accepted in the marketplace. I currently maintain a small position in Shanda. I do not plan on buying any more shares until I get a better grasp of how well their diversification strategy will play out. Unfortunately, Shanda's revenue growth is slowing rapidly as its MMORPG's are aging and it is unclear how well D&D Online and its other games in the pipeline will be accepted in China. Despite its recent decline, I still prefer NTES to SNDA at this point, due to more successful internal game development capabilities, strong portal and huge customer base. The newest internally developed MMORPG's at Netease currently in beta testing have a good chance to succeed. I still think Shanda is too dependent on licensing foreign games.

For those of you that read Chinese or are willing to use online translation software, here is the Shanda EZ Station news as reported by Sina.

Disclosure: I am long SNDA

Overconfident CEO's

2005-10-13T11:34:00.000-07:00

For decades, many business people across the world have viewed Americans as cocky, ethno-centric or arrogant. While as a whole the stereotype may have some merit, it seems that the trait has begun to spread overseas. CEO's in the U.S. and abroad (particularly those of publicly traded firms) should be careful not to set unrealistic expectations.

Meg Whitman of eBay has been quoted multiple times that she thinks eBay can win in the battle for the Chinese Auction Market. Perhaps once Yahoo felt the same way since they defeated eBay in Japan. However the Yahoo/Sina joint venture 1Pai remains in a distant third. Many people questioned why Yahoo would pay such a large price to receive a 40% stake in Alibaba. I think the Yahoo China/Alibaba decision was the right one for Yahoo. eBay may have made a mistake in not partnering with or establishing a joint venture with Alibaba themselves after eBay/Eachnet began to lose substantial market share to Taobao. Chinese officials would much prefer to see a Chinese majority owned firm succeed than a company controlled from overseas. Perhaps this is why Alibaba felt comfortable launching AliPay before it was formally approved by all the proper regulatory channels while eBay/Eachnet was patiently waiting for PayPal approval. AliPay gained market share as a result. I am not so sure Chinese governmental officials would have let eBay launch PayPal early without full approval while Alibaba waited for AliPay approval.

In addition to the regulatory favoritism often given to locally owned businesses, it is important for firms to understand the local culture. It is my opinion that while most Eachnet staff remained immediately after they were purchased by eBay, most of the high level decision making for Eachnet was still being made in the U.S. Many people have observed that Taobao is more localized to Chinese culture than Eachnet. By giving primary control of Alibaba to Jack Ma and his team, Yahoo will gain many of the advantages of a locally owned and controlled Chinese business, while retaining a significant equity stake in one of the more powerful internet firms in China.

Today Pacific Epoch quoted Zhongsou Chen Pei, CEO of Zhongsou as being "optimistic about the search engine's quest to overtake Baidu." Sohu CEO Charles Zhang recently stated that "will surpass Baidu in terms of traffic within one year". Of course we all know that Baidu and Google are the clear leaders at the moment and it is too soon to count Yahoo or others out either. It may be true that Zhongsou will gain some momentum as a result of a fine desktop search product and their search R&D efforts over the last several years. It also may be true that Sogou will continue to gain market share with the help of the over 1 billion web pages being crawled, and traffic direction from their other web properties. However to make a blatant statement that they will likely surpass Baidu (particularly when a specific time frame is mentioned) is not in the best interest of shareholders.

Confidence can be a good thing, but I believe that being publicly overconfident or setting unrealistic expectations is a bad practice and harmful to investors who may not have the ability to properly determine how much weight to give such statements. It also can be an effective method to open the firm the firm to a class action lawsuit if investors felt misled.

I am not sure who will be the dominant player in the Chinese search or auction business 5 years from now. While I sometimes will share my opinion, it is important to note that I am just an individual investor not a CEO of a major internet firm with access to inside information and substantial influence on investor sentiment. Corporate executives and board members can and should be held to a higher standard than individual investors such as you and me when making such optimistic forecasts. I want a CEO who is confident but also realistic. I do not want a CEO who is overconfident and sets unreasonably realistic expectations.

Disclosure: I am long SINA

Taobao Q3 Statistics

2005-10-13T11:26:00.000-07:00

From Pacific Epoch:

It looks like Taobao has over 10 million registered users as of the end of September. Last quarter there was 23.4 billion Yuan in turnover up from 16.5 billion Yuan in Q2. It looks like Taobao is still growing quickly. This is exactly why I hope Sina demands an Alibaba equity stake instead of a cash buyout for its 1/3 position in 1Pai. I believe Taobao will become the clear leader in the Chinese auction market despite the best efforts of Ebay/Eachnet.

Disclosure: I am long SINA

My SOHU Purchase Today

2005-10-12T13:07:00.000-07:00

SOHU has been the worst performing stock in my portfolio as of late. Clearly they have not executed as well as TOMO, SINA and others in the WVAS market over the last few years. However despite the fact that they have lost WVAS market share and the new MII rules I discussed yesterday, I decided to average down and buy some more SOHU shares today at $15.20. SOHU now has a MUCH smaller portion of their revenues coming from WVAS as compared to SINA, its closest competitor. Most SOHU revenues now come from online advertising an area where SOHU has been gaining market share from SINA (and may surpass SINA very soon).

I think SOHU will see a rebound in 3Q WVAS services based on an overall market recovery, return of MMS licensing on the China Mobile network, and a bump from "Super Girl" related SMS activity. I am a little worried about 4Q WVAS guidance, but I think that risk is acceptable based on current price level.

I think 17173 should continue to gain advertising momentum due to higher competition and spending in the online game industry. I hope to hear more about Sogou on the conference call. Chinaren.com, Focus.cn, and Go2Map.com and the primary Sohu.com portal all have potential to build advertising revenues long term. In the short run I would not be surprised to see some relative weakness in Focus.cn's ad revenues since some people feel that certain major cities in China are currently experiencing a real estate bubble. With summer 2008 (Olympics time) as my time frame I feel very confident in my SOHU position.

Disclosure: I am long SOHU, SINA

MII orders "pornographic" and "superstitious" to be blocked by Oct 30

2005-10-11T10:32:00.000-07:00

China's Ministry of Information Industry recently made the announcement as reported by China Tech News. This is not good news for owners of the "pure play" WVAS providers such as TOMO, KONG, HRAY and LTON. Of course it will also apply to SINA, NTES, SOHU, Tencent, or any other company that allows or supports SMS messages over the mobile communications network.

The precise impact of this is hard to evaluate since I do not know the exact percentage of SMS messages that contain this sort of content. It appears these rules will also apply to MMS messages and other text or video content sent over the telecommunications networks. Like we learned last year, there is also a risk that WVAS players will be penalized severely (up to and including losing their WVAS license) if they do not or cannot (for technical or logistical reasons) block all such illegal content by the Oct 30, 2005 deadline.

I will hold my current positions in SINA and SOHU for now, but I will not buy any more shares until I hear their opinions on these rules on the 3Q conference call. As my readers know I took profits in NTES recently, but will consider buying back in before 3Q earnings release at the right price point. NTES does not have very much WVAS exposure anymore. I will avoid all the pure play WVAS providers (LTON, KONG, TOMO, HRAY) for the moment until I have more information.

Disclosure: I am long SOHU, SINA

1Pai.com.cn Takeover News

2005-10-10T14:33:00.000-07:00

From China Tech News:

Here is the news I have been waiting for as a Sina shareholder! Regular readers of my blog will recall that I forecasted this would happen when the Yahoo/Alibaba deal was announced. Alibaba did not acquire an interest in 1Pai.com as part of the Yahoo China merger. Since Yahoo now has in interest in both Taobao and 1Pai, it is natural that the two auction sites would be merged at some point to better compete with eBay/Eachnet. eBay has announced that they will spend $100 million in 2005 promoting eBay/Eachnet. I still like the chances of Taobao especially once combined with 1Pai. Currently 1Pai has about 1 million active listings. eBay/Eachnet and Taobao are the clear leaders in the space. I think Jack Ma is a true visionary and the combined Alibaba/Yahoo China team will beat eBay in China even with a lower advertising budget.

I am sure we will get more details on any 1Pai/Taobao merger sometime soon. Sina currently owns 1/3 of 1Pai. I truly hope that Sina will have the long term foresight to turn down any cash buyout and demand an equity stake in the new joint venture instead. Alibaba was valued at about $4 billion based on the terms of the Yahoo China deal. Taobao is a large part of Alibaba's valuation. For this reason I expect that Alibaba will be willing to pay quite a nice premium for a 1Pai acquisition, as they now have lots of cash and are determined to beat out eBay/Eachnet in the Chinese Auction market. Sina should move upwards based on this news. Again, I think it is imperative for Sina to take an equity stake in any joint venture/merger instead of a cash buyout for its 1Pai equity interest.

It is important to note that the above deal has not yet been officially confirmed. China Tech News simply reported that insiders had made the local media aware of the merger talks.

Disclosure: I am long SINA

Sorry I have not posted lately

2005-10-04T11:55:00.000-07:00

I want to apologize to my regular readers for not posting in a while. I promise things will get back to normal once I have finalized my summer 2006 employment arrangements. I admit that I have not been following the market quite as closely lately since I have been so busy with school.

WZEN and SIFY remain my biggest holdings.

I feel pretty good about the long term prospects of WZEN. "Sun" looks like it has a chance to be a big hit based on the record 303,000 people signing up in hopes to participate in closed beta testing. I am excited about the prospects for Huxley and APB also among the other titles to be released over the next few years. I may be interested in adding more shares, if WZEN takes a hit after their likely bad 3Q results are released. Depending on the premiums after the 3Q earnings release, I may look at buying some Mar 2006 WZEN call options with a strike price of $5 or $7.5. By March 2006 we should have a good idea of how well Sun is doing commercially. I would like to know who will operate Sun in China. I have heard rumors that it may be Optisp, but I do not think this has been confirmed. I feel the downside to WZEN shares is limited right now due to their very high cash position.

SIFY has finally begun to run over the last few days. As you all know SIFY has been outperformed by REDF by a large margin over the last few months. I think much of this may have been due to insider selling at SIFY after each run. Recently these major holders of SIFY appear to have completed selling their shares, so there should be less selling pressure after future gains. The volume of SIFY over the last few days has also been encouraging. Although SIFY is a leader in hosting, VPN, and broadband in India, I am most interested in their growth of online gaming and wireless value added service revenues going forward. Although SIFY owns a number of popular online destinations (www.samachar.com, www.khel.com, www.sifymax.com, www.bawarchi.com, www.sify.com), online advertising revenues will take longer to substantially develop. Here is a recent presentation SIFY made before the New York Society of Security Analysts.

NTES has been by far the best performing stock in my portfolio since I purchased it in the 30's last year. I recently took profits, but am looking to buy back in on any correction before 3Q earnings come out. Their new games look good and I believe NTES is among the very best positioned for successful internal development and operation of popular MMORPGs in China long term. I also expect near term growth in online advertising and casual gaming. I hope NTES starts giving more attention to mobile gaming going forward.

SOHU seems undervalued to me relative to SINA. I am a little worried about the impacts on the major portals as a result of new media restrictions in China. However I feel that long term the prospects for online advertising (and particularly paid search) remain very strong. I look for SOHU to beat 3Q 2005 earnings estimates based on strength in online advertising and a recovery or WVAS (due in part to "Supergirl" traffic). I also think SINA will do well in the 3rd quarter, although I am more interested in any news about what will happen to their 1/3 stake in 1Pai following the Yahoo China/Alibaba merger. It seems to me that eventually they will merge since Yahoo will not want to promote both Taobao and 1Pai independently forever. I hope Sina insists on an equity stake in any joint venture instead of a cash buyout, as I feel that Jack Ma and his team should be favored in the battle with Ebay/Eachnet for the Chinese Auction market. I feel comfortable with both my SINA and SOHU position at these levels and intend to hold at least until the 2008 Olympics.

Unfortunately I took profits in both KONG and TOMO too soon. My guess is that TOMO gained more attention after people started to think about the eBay/Skype deal and how it may impact China and TOMO/Skype. KONG and TOMO are both very well positioned for the growing mobile gaming market. I am going to stay on the sidelines for a while and wait for a correction before I consider buying back in to either stock.

I have not done much short term trading as of late due to time constraints. IIT and TLK have long given me my best results for taking advantage of short term price swings. Generally I will purchase shares after "bad news" such as the recent TLK corruption investigation or a general decline in the Indonesian equity markets and hold them until they reach my price target. I just took profits in IIT after holding for a few days. Neither of these stocks have the huge potential I see in SIFY of WZEN, but I feel they are undervalued and feel fairly comfortable using my margin buying power to make short term trades on either of them.

Disclosure: I am long SIFY, WZEN, SINA, SOHU

Death of Netease CEO Ted Sun

2005-09-20T13:35:00.000-07:00

I was very sorry to hear about Mr. Sun passing away. He did a wonderful job helping turn Netease around after nearly being delisted from the NASDAQ several years ago. COO Michelle Tong and CFO Dany Lee will take over until a new permanent CEO can be appointed. I was unaware of the fact that Mr. Sun has been on medical leave since April 2004. I would like to give my condolences to his family, friends and employees of Netease.

On another note, I took profits in NTES last week at just over $84 (I had purchased my shares in the low-mid thirties last fall) since I was not sure how the market would react to the new gaming regulations (and fatigue system). However I feel the correction today was unwarranted. Based on the current usage of XYQ and XY2, I believe Netease will comfortable beat revenue and EPS estimates again this quarter.

Going forward, I believe both of the MMORPGs currently being beta tested by NTES will do well. Growth in casual gaming should continue to occur as NTES launches more games. Despite the apparent failure of Fly for Fun, I believe NTES is undervalued and gaining market share on SNDA who may need to wait for the release of D&D Online next year before rapid revenue growth returns. I bought back into NTES at $78.15 late this afternoon before the close. The only gaming area where I feel like NTES should be doing more is mobile gaming. I hope they will put more resources into this area in the future.

Mobile Gaming International Expansion

2005-09-08T10:20:00.000-07:00

We already know that certain players in the Chinese Internet market have plans to expand aggressively overseas. Alibaba, Tom Online and many others have already begun to make moves. China is the most important MMORPG market in the world. Casual and Mobile gaming is growing rapidly as well. It seems natural to me that some of the major Chinese players such as SNDA, NTES and others should expand overseas at some point like many of their Korean counterparts are doing (Webzen, Gravity, NC Soft, Nexon, etc).

Of course it is more important to maintain a leadership position in China than to be a weak competitor in many international markets. Most games require a significant degree of localization which is very time intensive. With that in mind, mobile gaming may be one of the best ways for the Chinese players to expand abroad in the short term. Mobile games are easier, faster, and cheaper to produce. Therefore the downside is limited as compared to a major MMORPG launch (which requires a major R&D, marketing and technical support budget). However mobile and or casual gaming can help Chinese firms gain market share and name recognition before they are ready to launch major MMORPG's on the international market.

Today KONG announced an agreement with Japan's NetVillage to launch wireless games in Japan. We already know about the TOMO/India Games Partnership. Within the mobile games arena I would hope that SNDA, SINA, NCTY, NTES and others step up their efforts not only in China but abroad. The mobile gaming market will be huge in a few years. I see no reason why the Chinese WVAS/Online Gaming providers cannot become a major force not only in China but globally as well.

TOMO/Skype and VoIP Market

2005-09-08T08:33:00.000-07:00

I have seen Skype in the news quite a bit lately. In China and across the globe, Skype and other VoIP providers are beginning to give the incumbent telecommunications company's major headaches. Competitive pressure on the traditional telecommunications will only increase as VoIP prices fall, quality improves, and broadband penetration continues to grow.

According to China Tech News China Telecom "has been consulting with some software and hardware suppliers on issues related to establishing VoIP services in big cities like Beijing, Shanghai, Guangzhou and Shenzhen". While in the short run, incumbent telecommunications providers may fight for more regulations to limit or control VoIP providers, in the long run, VoIP should prevail. I think China Telecom and others would be wise to move aggressively into the VoIP market themselves or risk rapidly losing market share to other VoIP startups once the technology really starts to take off in China.

TOMO/Skype seems to be well positioned at the moment from a technology and marketing standpoint. Unfortunately some regulatory risks may emerge to limit its growth. It will be interesting to see if any of the Skype takeover rumors turn out to be true (and if so what the implication on TOMO will be).

Here are some interesting articles/blog postings about Skype:

From a technical standpoint, Skype needs to give more attention to supernode issues. Since there are potential security, bandwidth consumption and computer resources issues associated with a Skype user allowing their computer to serve as a supernode, many people will try to avoid doing so. However, without a sufficient number of supernodes, Skype will not perform as well and voice quality will decrease. Skype voice quality is currently pretty good, but as tech savvy customers continue to seek to avoid serving as supernodes the voice quality and growth of Skype may slow.

Back in School

2005-09-07T14:16:00.000-07:00

I started back to class yesterday. I am behind in my reading already since I am still waiting for several of the books I ordered online to arrive in the mail. I decided it was better to save a few hundred dollars than get the books immediately at out law school bookstore. I will be very busy with OCI (On Campus Interviews) the next several weeks so I was bound to fall behind in my reading anyway. I plan to catch up as much as I can this weekend.

On another note, we have several Tulane students here as "visiting students" this fall which I think is great. It seems that people here are eager to help them find housing. Many people have donated used law school books. Many others have donated to the Red Cross fundraising campaign sponsored by one of our student organizations. I am happy to see that so many of my fellow classmates are eager to help society. We will see if people start acting differently as the fall interview season continues and we compete for jobs. I hope that everyone will continue to exhibit the kindness I have witnessed over the last few days.

My blog posting will likely continue to be light over the next week or so as my schedule is very busy. I have multiple interviews almost every day for the next several weeks. I also will be likely be slow in responding to email from my blog readers. Please come back and visit soon. I will provide updates on my job search as it proceeds. I have several interviews with some high profile firms over the next few days. I should log off now to do some additional research on the people I am interviewing with.......

My Most Important Post Yet

2005-09-01T17:11:00.000-07:00

I am busy getting ready to move back to law school in a few days and feel like I have too much to do but too little time. However I cannot imagine how the students at Tulane Law School or Loyola Law School feel right now. I actually considered accepting a scholarship to attend Tulane myself. I hope that other law schools are willing to help out these students by accepting them as visiting students for the semester. From what I have heard so far, it seems like many schools are willing to help accommodate these students, and multiple law firms appear willing to help provide jobs until the school recovers.

Obviously what has happened in New Orleans is a tragedy. I am worried things will get worse before they get better if more resources are not moved in to help. People in New Orleans are literally dying from hunger and thirst. The citizens if New Orleans need all the help they can get.

I encourage all of my readers to reach out and help the citizens of New Orleans, many of whom are still stranded in the city with no available transportation. If you have a car, you can help by driving people out of the city. If you are a doctor you can help treat the wounded. If you have an extra room in your home, please loan it to a homeless family. If you cannot get to New Orleans, please donate food water or money. If you donate money please be careful to avoid the fraudulent charities who may seek to take advantage of this disaster. I recommend the following charities:

Of course there are countless other reputable charities available. Just please be careful to avoid the con artists. Your fellow citizens need help. Please do not wait any longer, act now!

Update!

If you or anyone you know attends Tulane or Loyola, New Orleans Law School please visit this website for a list of law schools who are willing to accept you as visiting students. Most have agreed to not charge you any tuition, and some will help you with housing!

China Online Payment Market

2005-08-26T20:26:00.000-07:00

I recently blogged about 99Bill. Today China Tech News announced that 99Bill has signed two more major deals. In addition to the deals with Sohu and China.com announced today, 99Bill also has Netease and Baidu among its partners. It also has cash to spend due to recent venture capital financing.

Contrary to what many people may think, there is not a two way race in China between Alipay and PayPal for leadership in the online payment market. 99Bill is one of the many competitors. I am certain more competitors will enter the market in the near future. There may be multiple winners, but there will certainly be many losers. It is still too early to forecast who will win with any high level of confidence.

If I had to make a bet today about who will benefit the most by an improved online payment system in China, I would pick:

Ecommerce in general
Chinese Consumers

Recent NCTY Performance

2005-08-26T19:47:00.000-07:00

I am surprised that NCTY has dropped in price so much over the last few days. Overall I thought the 2Q 2005 results were pretty good. I actually thought shares would rise a little. After opening slightly higher on Thursday morning, shares fell sharply all Thursday as well as Friday morning, before a partial recovery later today.

The only thing fairly negative that I can think of to explain the drop, is worries about the impact of new gaming regulations. However, I do not think most players play more than three or five hours per day, so revenue should not take that big of a hit. Even for hardcore gamers, it seems like it would be possible to open multiple accounts to get around the time restrictions anyway.

Besides, we already knew about these regulations prior to the call, as Netease had talked about them and there have been news releases on the issue over the last few weeks. Perhaps some traders were disappointed in the EPS results. Again, I feel like the one time charges related to the WoW launch should not have been a surprise. Revenue for the second quarter came in above expectations and based on current ACU data, WoW should account for more than the current 3Q 2005 revenue estimates.

The only explanation I can think of is that some people were expecting NCTY to report blowout revenues and earnings based on WoW, and the results did not meet their increased expectations. Sometimes there are analyst estimates and whisper numbers. When these figures differ, stocks can drop despite meeting or beating analyst expectations. In this case the results came in at -$0.11 EPS. The whisper number was -$0.05. It should be noted that many analyst do not like to update their EPS estimates close to the time of quarterly earnings releases. For this reason, there expectations (and those of others) may differ from actual EPS estimates. Analysts have also gotten more conservative in their estimates after the .com bubble years, since they look better when a company exceeds their estimates instead of missing them.

I currently have no position in NCTY. However, if share prices continue to drop and I hear positive news about their new internally developed game now in beta testing, I may buy some stock.

Tencent Q2 Results

2005-08-24T19:29:00.000-07:00

Here is the press release. I wish Tencent was traded on the NASDAQ. I know that I can gain some Tencent exposure by buying NPSN, but I am not sure if I want to be involved in most of the other Naspers businesses.

Revenues increased 11.1% quarter over quarter while net profit increased by 92.8% to $22.6 million. Despite many competitors within the IM market, Tencent is holding its own. In a way, IM can be kind of a winner take all (or most) market like online auctions. Users want to use the same IM software as most of their friends. Since Tencent has by far the most IM users, naturally most of people's friends (or business associates, etc) will be using Tencent. Although new software such as that recently announced by Google in the U.S. will lessen barriers to entry based on compatibility problems (since Jabber technology would allow Google instant message users to connect with established IM systems that also work with Jabber, including America Online's ICQ and Apple Computer Inc.'s iChat) Tencent still has a large competitive advantage in its dominant IM market share.

In the future Tencent will be able to increase revenues from its user base in all sorts of areas including advertising, online games, WVAS and ecommerce. Tencent and Alibaba are likely the most powerful players in the Chinese internet market that are not currently traded on the NASDAQ. Tencents online portal QQ is also pretty popular according to Alexa. Apparently, Tencent will be entering the Chinese online auction market as well. Taobao and Ebay seem to have a major lead. Tencent does have a massive user base, but I still think they are a long shot to ever catch Ebay, Taobao (or even 1Pai). Tencent is definitely a company to keep an eye on. It is traded in Hong Kong.

NCTY Q2 Analysis

2005-08-24T16:55:00.000-07:00

I plan on listening to the conference call later tonight. Here are the results. As I expected, they did not hit EPS estimates. Advertising and promotional expenses relating to the launch of WOW were incurred during the quarter. Based on the Q2 results on WZEN, we already knew that MU is rapidly aging. Until the commercial release of World of Worldcraft, NCTY relied on MU for virtually all of its revenues. This has changed overnight.

World of Worldcraft was just commercially launched on June 7th, but by the end of June it already brought in $6.3 million in revenue. Since analyst estimates only averaged $5.37 million in Q2 revenue, NCTY was able to blow away revenue estimates with WOW alone. Q2 revenue for the quarter totaled $6.7 million. WOW contributed more in revenue than I expected.

What really matters is future guidance. Based on Q2, there is every reason to expect that Q3 average analysts estimates of $20.45 million are way too low. Hopefully we hear more on the conference call. I think it is likely that WOW will bring in $25 million in Q3 (or more) by itself.

The move of NCTY to acquire full ownership in C9I last month was wise. It seems pretty clear that WOW will bring in substantial revenue and profits for NCTY thru 2006. It is difficult to forecast how long the game gain in popularity, and how long it can retain a leading position in the Chinese MMORPG market. There will always be some level of regulatory risk, particularly for a licensed foreign game with lots of violence. I think WOW will do very well for at least a few years. It is difficult to forecast MMORPG revenues for individual games long term. As we have learned from MU (and as we are beginning to see for RO), popular games can fall off very quickly. This is not likely to happen for WOW for quite a while, but there is no guarantee that it will not happen before the WOW license expires on June 7th 2007 (according to page 96 of NCTY's F1 filing, the license expires on the 4th anniversary of the commercial launch). If the game is still profitable, there is no guarantee the license will be renewed.

Although NCTY is likely to do well over the next few years with WOW, their long term success will be based on their ability to diversify revenues and launch other successful games. Without WOW, NCTY would be is very poor shape right now despite previously operating the most popular game in China, MU.

"The9 recently commenced the all-access open beta for its first proprietary MMORPG, Joyful Journey West, on August 18, 2005. Details of the commercial launch will be released shortly." I hope to hear more on the conference call about Joyful Journey West. The game is similar to SNDA's very successful casual game Maple Story.

NCTY is likely to rise on the NASDAQ tomorrow because of the success of WOW and increasing analyst estimates for the rest of 2005 and 2006. I still will not be a buyer until I am convinced that NCTY can be successful with other internally developed games so they are not continually relying on licensing the next foreign blockbuster MMORPG.

Just today, Pacific Epoch reported that NCTY lost out in its attempt to license the hit Korean online basketball game Freestyle that is was rumored to be pursuing. This proves that a business model based primarily on licensing popular games is difficult. You will not always be able to win the license (at least at the right price), and if you win the license there is no guarantee the game will be a commercial success.

Disclosure: I am long SNDA and WZEN

UPDATE! Based on the conference call Average Concurrent Users (ACU) are 260,000. Assuming no growth the revenue from WOW alone for 3Q would be:

Average revenue per user per hour * ACU * Days in Quarter * Hours Per Day = (.45Yuan) $0.0555521 * 260,000 * 90 * 24 = $31.198 million!

NCTY will beat Q3 revenue estimates easily as ACU for is likely to increase not stay the same or decline. As evidence of this, NCTY said they will be opening a 5th data center for WOW in September. There will also be a WOW upgrade pack coming in the next few months. Merchandizing revenues are another possible revenue growth area.

In regards to their new game Joyful Journey West, which is in open beta testing, "they are pleased with the response". NCTY also has a 3D game currently being internally developed which should be launched in the second half of 2006.

The new gaming regulations will be implemented over the next few months. I think the time limit rules will have some impact, but nothing too devastating. Most MMORPG players do not play that many hours (three or five) in one day anyway. For a summary of some of the new regulations from Pacific Epoch read here and here. If you speak Chinese, I suggest reading this. Otherwise use one of the many online translation services such as WorldLingo to read the article.

I still do not feel like NCTY is close to the best value in the Asian online gaming market. However I definitely would not be selling shares short with the growth of WOW. If NCTY is able to diversify revenues and obtain good results with other games, their share price may have some decent upside.

GRVY Results

2005-08-22T23:00:00.000-07:00

I listened to the call. GRVY simply had very poor results. Although fundamentally GRVY shares may be extremely cheap, I do not see any near tern growth drivers. We will not see open beta testing for R02 until much the second half of 2006. Until I am presented with great evidence for the near term prospects of Requiem, Stylia or RO2 I will not buy GRVY shares at these levels. Management has lost some credibility with me.

The only positive I heard on the conference call were comments about the SNDA partnership (although I wonder if the relatively small licensing fee paid by SNDA to GRVY speaks to what SNDA thinks its prospects are in China). Since SNDA already has another game which competes closely with RO2, perhaps they really do have a longer term strategic relationship in mind, which could be a positive for GRVY. GRVY animation and other businesses are still too small for me to care much about yet. I guess it would good that GRVY did not give a clear future guidance, since they have a track record of being overly optimistic anyway. Overall it was still a very negative earnings release and conference call in my mind.

Random Thoughts

2005-08-22T21:45:00.000-07:00

My portfolio has done very well this year. I do have some losses (I am still down slightly on WZEN and SIFY) but everything else is doing great. I took some profits at times that turned out to be very wise in retrospect. I almost feel too confident right now. Unfortunately, it reminds me of a time several years ago.

Once upon a time I thought I was a stock market genius. Although I had been following the market actively since junior high, I had never been an active trader. I would exceed my monthly sales budget at work (business to business telecom sales) and then spend most of my time trading. I turned about $2,000 into about $70,000 in less than a year. I used options and margin for leverage and did not diversify at all. I was nearly always maxed out on margin and would day trade certain stocks (trying to extract $0.125 per share - commissions on 1000 share lots) with any extra buying power. My risk profile was off the map.

In fact I made almost all of my money in one stock (ticker TNT). After the Russian ruble devaluation, I was certain the near bankrupt Russian oil firms would survive. Oil prices were bound to rise over the next decade as China and other emerging markets continued to increase the world demand for oil. Russia needed its oil companies to survive, as they were best positioned to help Russia grow and prosper. Today a large percentage of Russian tax revenue still comes from oil and telecom. If it was not for the outrageous incremental tax rates on oil exports, firms like TNT would be much more profitable than they are today. Without the outrageous excise taxes, they would be able to use that extra cash flow to make needed technological improvements to their aged and inefficient equipment. Regardless, TNT was the best performing stock I ever bought.

I started buying TNT below $2 and sold olt at about $14. I wish I had never sold. Those 5000 shares would be worth over $225,000 today with current TNT share prices over $45. Unfortunately, I was too confident, and was convinced I had found the next home run. I took my money out of TNT and put essentially all of it into CRYP.

At the time Senator Kyle of Arizona was trying to kill the online gaming market in the U.S. by various methods. One idea was to force the ISPs such as AOL and Prodigy to stop allowing U.S. customers to log onto offshore casinos. I was convinced this was technologically difficult if not impossible. It is always possible to cloak your identity online, and perhaps connect through an offshore ISP who could redirect you to the casino. CRYP licensed software for but did not operate the casinos. They were profitable and had lots of cash in the bank (rare for an internet firm back then). They were also growing and diversifying (getting more revenues from overseas where there was less legal risk). I thought I had found my next TNT. Ultimately I was correct (despite the recent huge correction after rumors about losing a key licensee, CRYP is still well above where I purchased it), but in the short run I was wrong. Visa and MasterCard started to deny transactions to open online gambling accounts (partly because of government pressure and partly because they were losing money when gamblers filed bankruptcy). CRYP took a hit in the short run until online payment systems became more common.

Over the last few years CRYP has taken off due the growth of online poker. Party Poker, traded in London is the clear leader in online poker, but CRYP is still the top software licensor for online casinos. The moral of the story is that I was not diversified, was unable to cover my margin call when it came and lost all of my TNT profits and CRYP profit before it rebounded.

It is not enough to be correct in the stock market when you are too highly leveraged or not diversified. You also have to be correct on the timing. It is impossible for any investor to be correct on timing or on any stock. TNT could have easily been YUKOS which fell from the number one oil company in the world (based on proven oil reserves) to bankruptcy due to political/tax turmoil between the former (now incarcerated CEO) and Russian President Vladimir Putin. I was lucky with TNT. I was unlucky with CRYP. I was unlucky and or unlucky with countless other stocks.

My point here is that I have learned the value of asset allocation and diversification over the years. Perhaps my time as a financial advisor has made me a little more conservative. Much of my money is in Asia at the moment. Much of it is in internet stocks. Once again I feel like I am not diversified enough. While I feel great about the long term growth prospects in Asia (particularly China and India) I do not want to put all of my eggs in one basket. While it may be easier to earn high returns in markets with high GDP growth over time, not every stock will be a winner.

I used to be a big fan of recommending ETF's and index funds for clients. Why pay a large management fee when most fund managers cannot exceed an index over time anyway. Those managers that do outperform often do not stay at the fund forever anyway. Nobody wants to constantly trade mutual funds in search of the latest hot fund manager. I believe there is value in seeking the opinion of a financial advisor, to help develop and clarify goals, and make a plan to achieve them, in a tax efficient, cost effecting manner based on the risk tolerance of the investor. Having said that I believe index funds and ETF's can be used very well in a proper asset allocation plan instead of the load mutual funds recommended by many financial advisors. Perhaps I should use ETF's myself so that I can concentrate on my studies more and think less about stocks. Unfortunately I like investment research too much to ever rely solely on ETF's for myself.

The point is that I know I need to be more diversified and I am in the process of developing a better asset allocation structure. I will still likely overweight Asia and other emerging markets (perhaps using some ETF's), as I am not a big fan of the prospects for the U.S. economy long term. However I need to add a lot more industry diversification. Right now I have too much invested in emerging market internet and emerging markets telecom stocks. Based on my long term supply/demand forecasts, certain commodities have recently sparked my interest.

For many of the reasons why I bought TNT in 1999, I still think there are some great opportunities in energy and certain (non energy related) commodities long term as worldwide demand grows with help from emerging markets such as China and India. On that note I suggest you all read this interview with Jim Rogers. If you all like Jim Rogers you may also be interested on his thoughts about China and the Yuan. I will make more comments on my thoughts about energy/commodity investment prospects in the near future.

More 2Q Results This Week

2005-08-21T23:24:00.000-07:00

I will not be able to dial in to either the GRVY or NCTY conference calls this week. However I plan on reviewing the earnings reports and listening to recordings of the calls as soon as possible.

For detailed coverage of GRVY I recommend reading CoolHeadInvestor. He has built a detailed financial model, forecasting GRVY revenue for each of the major markets they operate in. It is very difficult to estimate demand of an online game. It becomes even more difficult trying to estimate demand changes for a game over time in lots of different markets, each with different competitive environments and local tastes. On the conference call, I will listen carefully for usage statistics for RO (my fear is that at some point, usage will drop off sharply for RO like it has for MU this year) and the beta release date of RO2 (the sooner the better). I will also listen for updates on ROSE and Stylia (casual gaming is a fast growing marker also). I still prefer WZEN over GRVY (since WZEN has a much larger MMORPG pipeline at the moment), but assuming RO can keep growing in certain markets and RO2 becomes as popular as I hope, GRVY is probably very undervalued as well. GRVY has an international distribution network that is unmatched. It could make a compelling takeover target for the right company.

I am not interested in investing in NCTY. I feel it is overvalued at these levels. Essentially right now it is a bet on World of Worldcraft. Some people think NCTY can leverage the success of World of Worldcraft to diversify and release other successful games. I am not so sure. Remember they had the number one game in China previously (MU). Look at where that led. If it were not for World of Worldcraft, NCTY would be trading at a fraction of its current levels. NCTY will need to prove to me it can diversify its revenue base (and not just hope to continually license the next big hit) before I will even consider investing in it. Based on the new gaming regulations, I am sure it will become more difficult to license violent foreign MMORPGs such as World of Worldcraft in the future. On the call I will be listening for comments about where World of Worldcraft users are coming from (new MMORPG users or users taken from other competitors). I will also listen carefully to comments about the new gaming restrictions.

My impression is that over the long run local Chinese firms with a large emphasis on in house development (such as NTES) will be the most successful online gaming players in China. Since China wants to encourage local development, a model based on licensing foreign games will become more difficult to achieve profitability with. GRVY and WZEN are both wise for diversifying internationally. It will not be quite so easy to import online games into China in the future.

For those following the Chinese Instant Messenger, WVAS, or Online Gaming markets, I also recommend looking at the Tencent earnings release this week. It is traded in Hong Kong. For Americans that want some equity exposure to Tencent, the easiest way may be to purchase shares in Naspers which is based in South Africa but has large ownership stake in Tencent.

Disclosure: I am long WZEN and NTES

2L Summer Job Search

2005-08-21T00:31:00.000-07:00

I start my second year of law school in a few weeks. As most of you know, I am working as a summer law clerk in the corporate litigation department of a law firm near my home town this summer. I have greatly enjoyed the experience. Recently I have given a lot of thought to my 2L summer (summer following my second year of law school) job search.

I have lived primarily in the Midwest my whole life and would like the experience of working somewhere else next summer. New York, Washington DC and Hong Kong (I would consider mainland China but my Mandarin will likely not be that great by next summer) are the most logical options for me. If I do stay in the Midwest, Chicago would be my top choice.

Most large law firms rotate summer associates between different departments. My preference would be to work for a firm that emphasizes securities, M&A or corporate litigation. I would be willing to work for a smaller boutique firm that focused on one of these areas.

I had a phone interview as a 1L with the SEC for their summer honors program. I was not offered a position. It is my understanding that the SEC hires many more 2L's than 1L's. I will be applying to the SEC again for next summer.

In addition to the law related jobs mentioned above, I plan to interview at the business school this fall. I will apply for investment banking and equity analyst positions. I would of course be most interested in a hedge fund with a Chinese focus, but I am not sure how many such positions are available and I imagine that they are extremely difficult to obtain.

I will keep my readers posted as the fall interview season progresses. On campus interviews start almost immediately upon returning to law school. Interviews at the business school start a little later. Since many firms that I wish to apply to (from other parts of the county) or China do not interview at our school, I will be sending out tons of applications separate from my OCI bids.

My 5 Largest Holdings

2005-08-20T17:06:00.000-07:00

Currently my 5 largest holdings are SIFY, WZEN, NTES, SOHU and SINA. Since I mainly talk about Chinese stocks on this blog, I have not spoken as much about SIFY and WZEN (which happen to be my 2 largest holdings currently).

SIFY is an internet, network and ecommerce company in India. Currently most of their revenues come from corporate data and network services. Retail internet access is the next largest revenue contributor. Other areas such as online advertising, ecommerce and WVAS are still very small but growing quickly. Here is a link to their most recent quarterly report. According to Alexa, Sify is currently the 6th most popular website in India. It should be noted that Rediff, the 3rd most popular site according to Alexa, is also publicly traded on the NASDAQ under the ticker symbol REDF.

Sify is the clear leader in two areas, corporate network services and the operation of Internet Cafes or I-Ways in India. I see continued growth in both areas. In addition to further growth in their corporate networking, internet access and I-Way businesses, I am excited about Sify's potential growth in WIFI, VOIP, WVAS and Online gaming areas. Recently launched Sify Max, should be a positive for their fast growing shopping and WVAS business. The I-Way business currently has about 3000 internet cafe's (most of which are franchised). I see this as an excellent platform for a rollout of a MMORPG and Casual Games business in India. A3 licensed from Actoz is the MMORPG currently being promoted by SIFY.

Recent news for SIFY includes a ruling by the TRAI on ISP entry fees and licensing fees for offering VPN services. "VPN is a leased-line based service used by large corporate houses and retail chains to link up their offices across the country on a common network." As broadband rates continue to fall in India, broadband ISPs such as Sify Broadband will continue to benefit at the expense of (sometimes more expensive) dial up providers. Several years ago 3 companies (SAIF, SARF and Venture Tech) purchased SIFY shares at extremely low prices. All three have been selling SIFY shares over the last few years as prices have increased. Based on SEC filings I think no longer think SARF is a beneficial owner. SAIF (SOFTBANK ASIA INFRASTRUCTURE FUND) sold lots of shares over the last few days as prices increased on large volume. This heavy selling pressure from SAIF is likely one of the primary reasons why REDF outperformed SIFY by such a wide margin this week. As SAIF and Venture Tech run out of shares to sell, I believe the downward pressure on SIFY shares will lessen and SIFY will be ready for a large price run-up as it approaches profitability in the near future.

WZEN is a far less diversified business than SIFY; it is primarily a pure play MMORPG business based in Korea. Right now ALL of its revenue essentially comes from one game, MU. Earnings will likely continue to become weak until its next MMORPG is commercially released. It appears that its next game SUN will enter closed beta testing on September 27th. You can find further comments of mine about WZEN here. For anyone who is interested in investing in WZEN I HIGHLY recommend you visit their website and download trailers for their upcoming games. For my impression of which games will be successful in specific regional markets look here. I am most excited about the prospects of SUN, Huxley and APB. Since MU is rapidly aging, an investment in WZEN is largely a bet on the future success of upcoming games. Of course their huge cash position (Warning! Yahoo Finance Key Statistics are often not up to date. Always look at the most recent SEC filings and balance sheets for current data) is also very attractive!

My most recent comments on NTES can be found here. In my opinion, recent profit taking in NTES may be another good buying opportunity for those interested in initiating a long position in NTES. I think it is likely that even the highest analyst estimate for 2006 could prove to be too conservative. I felt that NTES would exceed 2Q 2005 analyst estimates and turned out to be right (actually the results were even better than I thought!). Since most Netease revenues come from online games lets hope that I am correct in forecasting Da Tang and Tian Xia Er and casual games revenues ahead of analyst estimates for 2006. I recommend reading this recent post by CoolHeadInvestor on NTES. Pacific Epoch recently published an interesting interview with former Shanda R&D director Monte Singman. Free registration is required to read this Pacific Epoch interview. I recommend reading both part 1 and part 2. There is a positive reference to the potential of the Netease game Da Tang in part 2.

My most recent comments on SOHU can be found here. Recently there has been a traffic decrease for Sogou on Alexa. It is too early to know the cause for sure. Perhaps there is an error at Alexa, or perhaps Alexa corrected a previous error. Based on the recent page views per user increase, perhaps one of the more inefficient Sogou referral sources (in terms of page views per user) stopped directing traffic to Sogou. I recommend keeping an eye on Alexa data. I feel pretty good about Sohu right now after recent insider purchases.

My most recent comments on SINA can be found here. I recommend listening for an announcement on what will happen to the 1pai joint venture with Yahoo after the Yahoo China/Alibaba deal. In my mind there are three possibilities:

1. Alibaba/Yahoo will purchase the remaining 1/3 ownership of 1Pai in order to gain full control.
2. Alibaba/Yahoo will leave 1Pai as is and Sina will continue to own 1/3 of the joint venture
3. Alibaba/Yahoo will merge 1Pai with Taobao in order to better compete with Ebay/Eachnet. Sina will be given an equity stake in the new Taobao/1Pai business (likely to retain the name Taobao).

I am hoping for the third option. Contrary to some people who think eBay will be successful in China, I think Alibaba will win. Meg Whitman and her team does not understand the local market as well as Jack Ma and his team and Alipay already has a good lead on PayPal.

Disclosure: I am long SIFY, WZEN, NTES, SOHU, SINA

Looking For Suggestions

2005-08-17T23:55:00.000-07:00

As many of you know I am relatively new to blogging. Of course I would like my blog more appealing to my readers. Since many of you are more technically savy than I am I thought I would ask you for help on ways to improve my blog.

Originally I was posting entire URLs when I linked to other blogs or websites in my postings. I would include the URL even if it was very long. Later, I found out about Tinyurl and started using their links instead of the longer URLs. I recently added Feedburner for feeds and Haloscan for trackback services. Just in the last few days did I figure out that my formatting would be much better if I inserted URLs into my links instead of pasting them directly on my blog all the time.

I am looking for advice on additional ways to improve my blog. One of my major problems is that I am still getting traffic to my old blog which I would rather come here. Please post any comments you have, so that I am able to make my blog more appealing to you, my readers. Thank you for your help!

Sincerely,

JDMBA

China WVAS Sector

2005-08-17T19:30:00.000-07:00

I recently read a great post from CoolHeadInvestor about the Chinese WVAS sector. I am starting to agree with CoolHeadInvestor on a number of points:

The "easy money" has already been made
Margins are likely to fall at some point in the future
There will be continued problems with billing system policy and logistics changes
There will be continued losses due to the elimination of "silent users

I do not fully agree with the comment "new players can enter into the play field with little capital, technology and human resource." I believe the capital and human resource requirements for new WVAS players will increase going forward. I also believe that consolidation will continue to the advantage of some of the larger players. China Mobile has already begun to cut the revenue sharing for smaller WVAS players, thereby reducing margins. Competition will increase, margins may narrow long term as more free WVAS services are offered, but unless the major carriers start providing most of the WVAS content themselves instead of outsourcing it to the WVAS providers, I do not think WVAS will be totally commoditized any time soon. The larger players and those who are able to differentiate themselves by superior content acquisition (from strategic partnerships and licensing) and distribution will still be able to make good money in the industry in the near term.

I have recently taken profits and liquidated my TOMO and KONG positions. CoolHeadInvestor also has posted an analysis of KONG and HRAY here. He is not incredibly bullish on either. While I am truly excited about certain segments of the industry long term (such as mobile games) I will keep my position in the WVAS "pure players" limited in the near future. Most of my China related investments are now in the portals (NTES, SOHU and SINA).

As of this moment my five largest holding are SINA, SOHU, NTES, SIFY and WZEN. Recently I sold my TLK, TOMO and KONG positions to purchase more WZEN shares at these low levels. I have approximately equal positions in each of the Chinese portals above. SIFY and WZEN are by far the most heavily weighted of my five largest holdings.

KONG 2Q Results

2005-08-16T21:12:00.000-07:00

I think KONG had good 2Q results and 3Q guidance. Its performance on the NASDAQ today puzzled me. It opened at $11.92 and quickly rose above $12. I expected it to remain in that range, but after drifting lower for most of the day it closed down at $10.45.

With good results my only explanation is that some analysts were expecting even better, or traders were simply taking profits as KONG has increased from below $8 per share earlier this summer. I think profit taking is the more likely answer. HRAY, and TOMO also finished down today, although LTON managed to finish ahead as it approaches its Q2 release this Thursday.

KONG Earnings Preview

2005-08-16T00:27:00.000-07:00

I continue to believe that the management of Tom Online and Kong Zhong has been the best at executing their business plans in the WVAS sector. KONG results may be a little bit weaker than those reported by TOMO since WAP performance reported so far this quarter by other companies has been relatively weak. WAP comprised 60% of 1Q 2005 KONG revenues. WAP only comprised 19% of 2Q wireless revenues for TOMO.

I expect KONG will show strong revenue growth and beat expectations for:

IVR
SMS
MMS
Java Games
CRBT

I expect KONG to meet or slightly miss targets for WAP growth.

Overall I expect earnings to come in at $0.20 or $0.21 just slightly ahead of analyst estimates of $0.19 per ADS: http://finance.yahoo.com/q/ae?s=TOMO

On the conference call I will be very interested in the future outlook of WAP growth as it makes up such a large percentage of KONG revenues. I will also look for comments about mobile game development, an area where KONG is one of the clear leaders and poised for massive growth.

Must Read Comments From Charles Zhang

2005-08-15T23:42:00.000-07:00

As CEO of SOHU, of course he is biased. However I am very impressed with the results of Sogou over the last six months, so I will take his comments seriously:
http://it.sohu.com/20050816/n240258718.shtml

Apparently, he feels that Sogou may be able to surpass Baidu within a year. This is truly an ambitious target. Previously he had stated it as his goal to become the top search engine within two years. Over the previous three and a half months Sogou traffic has increase 350% compared to 28% at Baidu. He has stated that Sogou is now the second most popular search engine in China. Overall Google still seems more popular in China, but if we are talking strictly about Chinese language search Sogou and Yisou could both make a claim for second place depending on the metrics we are using to compare them.

“我买搜狐的股票的一个重要的原因是因为搜狗，因为它现在已经成为中国第二大的搜索引擎。我们半年前的流量是百度的十几分之一，但是现在已经是1/3。以前我说我们两年将超过百度，但是现在我敢说一年超过百度。”

他还透露，在过去的三个半月里，搜狗的流量涨了350%，而百度只涨了28%。

但是他又表示，“一年内超过百度主要是说流量，我宁愿搜狗的收入和利润暂时不要超过。”他希望搜狗在流量到达一定量级的时候再谈论收入。

Charles Zhang says that right now Sogou is benefiting from its relationship with SOHU and its many internet properties. Obviously Sogou gets a lot of traffic from http://www.sohu.com, http://www.chinaren.com, http://www.17173.com, http://www.focus.cn, and http://www.go2map.com. However Mr. Zhang would not rule out the possibility of a Sogou spin-off and IPO in the future.

对于搜狗这个孩子，张朝阳现在显然充满了更多的偏爱。这得益于目前火热的搜索概念。在他看来，百度的流量早期都来自于几大门户，就类似Google当年是雅虎养大的一样。而搜狗现在正借助着搜狐的流量慢慢地成长起来。因此，他表示，不排除未来有可能会将搜狗单独上市。

“但是现在我们还不会考虑这个，我们现在想的还是如何把流量和影响力做上去。”就这一点而言，张朝阳认为目前搜狗的唯一对手就是百度，而Google“在中国没戏”。

Sogou hit an all time high traffic ranking of 29 on Alexa a few days ago.

Disclosure: I am long SOHU

HRAY Earnings Analysis

2005-08-15T21:33:00.000-07:00

I think HRAY shares very undervalued at the moment. Having said that, I will not be a buyer in the short term as I see further price declines likely and no major short term catalyst to increase interest in the stock.

2Q earnings of $.25 per ADS were in line with analyst expectations (once you back out the one time legal fees of $500,000). Including the legal fees diluted earnings were $.22 per ADS.
Revenues came in at $15 million, which is less than average estimates of $15.66M.
0.5% quarter-over-quarter growth was worse than TOMO and SOHU, but better than NTES and SINA. Comparisons to TOMO, KONG and LTON are most valuable as they are all essentially pure play WVAS stocks at the moment. Direct comparisons are a little difficult since most HRAY revenue comes from CHU while most KONG and LTON revenue comes from CHL.
On the conference call they stated that they expected no short term M&A activity. I think many people were hoping HRAY would get bought out. This is unlikely to happen in the short term.
Revenue splits are unlikely to change at CHL or CHU in the short term. HRAY is considered a top tier WVAS provider.
They would not give a future guidance but based on their "gains in CHL revenue offsetting losses from CHU" comments I think it is likely that revenue will be about flat in the 3rd quarter compared to the 2nd quarter.
HRAY appears to be losing market share on the CHU platform. I think HRAY was too comfortable being the leading WVAS provider on a growing CHU network. Now that mobile phone growth rates are slowing and competition is increasing, HRAY needs to better execute its business plan in order to avoid losing more market share. They need to improve marketing and increase the number of strategic partnerships like TOMO and KONG have been doing.
Most HRAY CHU revenue comes from 2.5g.
HRAY CHL revenue is split about 50/50 between 2.5g and 2g.
IVR and CRBT should grow in the near future.
A new policy at CHU to offer a free trial or "“customer experience” to new users before requiring a new subscription is cutting into short term revenue gains
A continued effort at CHL to eliminate inactive monthly subscribers will slow revenue growth at CHL
HRAY feels it is well positioned for 3g
As most new phones are now capable of handling WAP services which was not the case a few years ago, WAP should continue to grow over the next few years. HRAY is a leading WAP player (particularly on the CHU network).
Management has considered buying back stock, but has avoiding do so since they do not want to give the impression they are just doing it to counterbalance the effect of the share lockup expiration in a few days. They stated they may consider a buyback in the future. A share buyback would be positive for HRAY, but I understand their logic on the timing issue. Shareholders do not want to be given the opinion that the share buyback is solely for the purpose of avoiding further share dilution.

Overall, I think HRAY is a great value. Even if EPS comes in a little below expectations for the next few quarters and they earn $1 per ADS this year, the stock is still trading at under 10x 2005 earnings and they have over $3 cash in the bank. Right now I am not overly confident that they will achieve 27.2% revenue growth in 2006 as analysts are expecting: http://finance.yahoo.com/q/ae?s=HRAY

HRAY is greatly undervalued even if it averages only 15% growth over the next few years. I think HRAY shares will be trading much higher 2 years from now, but I am expecting further weakness in the short run. As long as its competitors such as TOMO (I am expecting KONG and LTON are executing better than HRAY also, but we will find out soon) are gaining market share HRAY shares will continue to be discounted. In the short to medium term, I do not think HRAY will outperform the sector as a whole until they either announce a share buyback or takeover rumors resurface. If prices fall below $8 in the coming months, I will likely become a heavy buyer.

99Bill and the Chinese Online Payment Market

2005-08-14T21:45:00.000-07:00

For those of you who are certain that the winner of the China electronic payment market will be either PayPal or AliPay, you may be in for a surprise.

There are lots of players in this fast growing market, and several have major funding behind them. One in particular, 99Bill has been in the headlines a lot lately. Today it was reported by iResearch that 99Bill (which was founded in May 2004 and commercially launched its payment platform in January 2005) "has raised an undisclosed Series A round of venture funding led by Doll Capital Management (DCM) and Peninsula Capital."
http://tinyurl.com/79xr7

"99Bill intends to utilize this undisclosed sum of money to further develop its technology platform, as well as increase the adoption of its payment platform among partners and Internet users in China."

ChinaTechNews reported today that "99Bill and Netease (NTES) have reached an agreement to jointly establish an online Netease prepaid card payment platform. Under the agreement, 99Bill launched the new online payment service to let the Netease's prepaid online game card users to pay for the third party online products and services, and enable the Internet and wireless service providers to accept the prepaid card payment online. "
http://tinyurl.com/7utwg

"With 99Bill's new payment services, Netease prepaid card users will be able to purchase and pay for products and services offered by third party providers, in addition to Netease products and services."

In addition, just last month Pacific Epoch reported that "99Bill announced a partnership with China's most popular search provider Baidu, which will offer 99Bill's online payment platform for its bid-ranking and movie search services."
http://tinyurl.com/akqpy

If I were SINA or NTES (both of whom have lots of cash), I would seriously think about using my extra cash to make an acquisition in the online payment market in the near future before the barriers to entry become too high. Perhaps 99Bill could make for a good acquisition target. Other major portals such as TOMO, or SOHU should also be looking at this area as they have large user bases to market such a service to. TOMO and SOHU have less cash than SINA and NTES but they could use their stock to finance the deal. SNDA seems eager to expand into new areas. I would not be shocked if we heard an announcement from them stepping up efforts in the online payment market sometime in the near future.

Online Payment is very important to the growth of ecommerce in China. Currently online game providers have to give up a significant percentage of their revenues to prepaid game card distributors. Search engines such as Sogou and Baidu have a difficult time collecting pay per click revenues from smaller advertisers. Buyers and sellers in online auctions often hope to meet in person because they do not have an acceptable way to pay online or cannot fully trust the other party. Predicting the winner in this market at this point is difficult. However, one thing is certain. There will be a massive increase in the Chinese online payment market in the coming years, and someone is sure to be greatly rewarded.

Update!
Here is another recent example of a Chinese payment service (SmartPay) getting venture capital backing:
biz.yahoo.com/prnews/050815/cnm003.html?.v=1

With the current banking system in China fully inadequate to properly support ecommerce growth there could be room for multiple winners in China, unlike the U.S. where PayPal has the lion's share of the market. However at the rate we are going the market could become crowded pretty quickly and there are likely to be some big losers as well.

Upcoming Earnings Releases

2005-08-14T20:45:00.000-07:00

Come back soon for my opinions of the following 2Q 2005 earnings releases:

HRAY 8/15
KONG 8/16
LTON 8/18
GRVY 8/22
NCTY 8/24

HRAY Earnings Preview

2005-08-14T20:05:00.000-07:00

I do not own HRAY shares, but have been tracking the stock for a while. Although HRAY has recently made efforts to diversify its business with China Mobile, the great majority of its revenue still comes from China Unicom. Therefore I am most concerned about the following quotes taken from the most recent TOMO SEC filing:
http://tinyurl.com/adsal

"In late July 2005, China Unicom noticed several major Service Providers (SPs), including Beijing Lei Ting, a wholly-owned subsidiary of the Company, of a temporary suspension of the settlement of service fees, because of complaints it received from mobile phone users pertaining to services rendered during the period from January 2005 to June 2005. According to the notice received by Beijing Lei Ting on July 28, 2005, China Unicom received complaints from users regarding the provisions of SMS, which may be in breach of certain conditions of the agreement with the mobile operator. China Unicom would investigate those complaints and temporarily suspended settlement of services fees with Beijing Lei Ting commencing from the distribution of fees payment for the month of May 2005, until further notice."

"Potential penalties could be in the form of requiring double confirmation from subscribers, suspension of certain services, cancellation of the agreement, monetary fines, and suspension of new businesses with China Unicom."

We all know what happened to the major WVAS players last year when China Mobile announced investigations and sanctions relating to WVAS service and or billing violations. I take it as a positive sign that CHU did not suspend TOMO during the investigation. There is no proof at this point that TOMO did anything wrong. I hope that TOMO and others with CHU revenue receive their suspended account receivables in full once the investigations are complete. Of course this may be of much bigger concern to HRAY (if they are involved in any investigation) than TOMO since HRAY gets most of its revenue from CHU while TOMO gets most of its revenue from CHL.

If we learn tomorrow on the HRAY conference call that they are being investigated also or CHU accounts receivable are being temporarily suspended, HRAY shares will likely decline. If on the other hand we learn that CHU is not investigating HRAY then I expect share prices to rise.

Please note there are a quite a few stock options outstanding that could dilute the existing share count upon exercise:
http://tinyurl.com/amw7b

However, I do not think there will be any rush to exercise stock options at these price levels. Based on its PE ratio, HRAY is among the very cheapest in the Chinese WVAS market. In addition they have no debt and well over $3 in cash per share!

I think their share price is being punished right now due revenues being heavily dependant on CHU and WAP. However, HRAY is beginning to diversify and as short term billing platform and logistical issues are resolved at CHU for WAP, HRAY is likely to rebound nicely. We know that WAP is an area poised for growth long term. HRAY also seems well positioned for revenue growth when 3G arrives. Based on the WVAS results we have seen so far (SOHU, TOMO, NTES, SINA), absent any negative announcements regarding a CHU investigation I am expecting revenues and profits to come in line with current analyst expectations:
http://finance.yahoo.com/q/ae?s=HRAY

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2005-08-14T01:16:00.000-07:00

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