Thursday, April 27, 2006

SOHU Q106 Report

SOHU.com reported yet another good quarter, beating its own guidance and street forecasts.

Advertising: I have been checking its web sites regularly, found a strong online ad momentum after Chinese New Year. Autos, computers, cell phones, other electronics, and real estate are the strongest categories. Also given that SOHU has a network of web sites, it is good to see that some of those sites started picking up ad revenue as well, such as ChinaRen.com. As Chinese economy continues growing(though many have been afraid of a 'slowdown', it will still grow much faster than the western world), it is reasonable to believe more advertising money will migrate from offline to online. SOHU still has a lot of inventory to handle more volume. The Company guides for 25% YoY ad revenue growth for 2006, I think they are trying to be conservative, and I believe 30% YoY growth is quite possible.

Search: The Company said search traffic to Sogou.com is up 50% sequentially. Although I disliked this search engine in the past, I noticed they have improved a lot recently. Although I think Sogou is still behind Baidu and Google in terms of search quality, the gap has been narrowed. It is good for SOHU shareholders to see more usage of SOGOU search engine. However, going forward, the search engine war in China will be a tough one, my feeling is that finally one winner will take a majority market share, with other minor players fight for remaining shares. Google and Baidu are very formidable players.

Wireless: Wireless has been on the way of slow recovery, and I think it will continue this trend.

That said, I believe SOHU is still the best pick to get Chinese Internet advertising exposure. My 12-month expectation has been increased from 27$ to 29$. Also, I feel attempted to say my 27$ price target, which I called seven months ago when the stock was trading around 16$, may soon be hit.

I sold my SOHU shares last month, I am still looking for a good entry point to get back in.

Here is my updated revenue model, I did not get time to set up 2007 projections yet, I may do so after next quarterly report.


SOHUQ106 Posted by Picasa

Friday, April 07, 2006

AAPL

I picked up some AAPL shares in the past several days, it has recovered strongly from previous low on the news of Windows enabled Intel processor based Macs.

Apple has a slight 2.5% market share in world pc shipments. I tend to believe this strategic shift of letting Macs to support Windows is a huge plus for the company. I used to think of buying a Mac, but was not so comfortable to do it on the worry that I may not be able to continue to use many tools that I have in Windows. Now that worry does not exist any more. I guess more pc shoppers will focus more on Apple's brand name, elegant design, super product quality, and convenient customer support. As the Piper Jaffray research report puts it:
Even "Slight Changes In Market Share Have Significant Impact On Apple's Model."

I am long AAPL.

Webzen(WZEN) on the move

An article "Rebound of Webzen" on http://jdmba.blogspot.com tells some recent development on this distressed South Korea game developer.

I believed this is a value stock at current level, its future largely depends on the upcoming roll out of its game portfolio. The biggest risk is that the uncertainty of market acceptance of these upcoming titles.

I am long WZEN.

Friday, March 24, 2006

Tom Online to Buy EachNet as well?

Based on an article "Tom and Ebay Following Yahoo-Alibaba?" at http://bbb.typepad.com/billsdue/, rumor has it that Ebay may sell its China auction site EachNet to Tom online.

Things are getting more interesting.

SINA

The rumor that Tom online was looking to step into Sina seems to have some basis. Hong Kong newspaper ??? had an article saying Tom is in talks to buy Shand's 20% stake in SINA, citing unidentified person.

I guess SINA stock has run up in past couple weeks mainly due to this takeover speculation. It is hard to say how likely the takeover will happen, but in the past years, we have heard plenty of this kind rumor, it first started with Yahoo to buy SINA, then Shanda, and now it is Tom Online.

If Tom Online is serious, then I guess Shanda could make some money on their 20% stake. Chen Tianqiao may have realized that speculating on taking over SINA was a huge strategic mistake, he may find that it has wasted him one year's time and locked up his capital. I think it is good for him to unload this stake at a premium to any buyer who wants it. If he can make 25% on his 200+ mil USD bet, not bad. On the other hand, if he does not sell out, he may have to sell out on open market in one or two years to retire his convertible debt(most likely debt holders will exercise put option).


From a fundamental perspective, I think current stock price($27.5) offers a good point to get out, if you are not an expert in takeover/merger plays. I maintain my previous year-end target of 25$.

Wednesday, March 22, 2006

CNTF Reports Q405 Earning

CNTF Reported Q405 Earnings

Techfaith Wireless(CNTF), the Chinese handset design solution provider, reported a better than expected Q405. For full year 2005, net revenue was 90 million USD, diluted EPS is 1$.

However, Q106 guidance is only about half of what was expected, revenue is guided to be 12.5 mil USD, net income to be about 1 mil USD. They also provided Q2 guidance for revenue of 24 mil USD and net income of 8.5 mil USD. For full year 2006, they are extremely upbeat, giving a revenue forecast of 'at least' 120 mil USD,net income of about 44 mil USD.

The company cited losing one customer and discontinuing of two GSM platforms to be the reason for the Q106 revenue shortfall. Since we are at the end of Q1 already, I guess actual Q1 and Q2 numbers will come closely with guidance. So if Q2 is really based on 'existing orders'(as they claimed), then the Q1 shortfall is not that material.

Beyond Q2, I don't think many have faith and visibility to belive too much in their at least 120 mil USD revenue guidance. The management said smart phones and pocket pcs will start contributing revenue in Q2 and total contribution from this unit for full year 2006 is expected to be 30 mil USD. So essentially they believe revenue from other units will be roughly flat to that of 2005, the growth driver is the smart phone and pocket pc business.

Techfaith set up the smart phone operation last December, so far they have about 450 people working under this unit. Based on products published on their website(http://www.techfaithwireless.com/english/services_1_5.htm), it is quite impressive to be able to build these gadgets in such a short time. I tend to agree that smart phones will be more popular in both enterprise and retail space, the success of Blackberry is a proof of the enterprise needs on wireless communication device. On the retail front, I believe phones will become 'smarter', in the sense that they are not only going to be calling devices, but also a information organizer and mobile entertainment platform. I think the 30 mil USD revenue target from smart phone and pocket pc is achievable.

On the margin front, we may see some further gross margin compression due to a product mix that includes more low margin products, such as smart phones. CEO believes gross margin for handset design and software application should be quite stable.

The conference call did not mention anything about the rumor I mentioned yesterday.

Given the volatility in both business performance and stock price, it is hard to call for a sure bet. I am holding a small piece which I bought before the earnings, I plan to hold on to it. If this stock drops to single digits, I am thinking to pick up more.

Tuesday, March 21, 2006

Tom Online to acquire EachNet?

Bloomberg news reported a rumor that Tom online (NASDAQ:TOMO) is in talks to take over EachNet, Ebay's fully owned China operation. I also read some rumor some days ago that Tom may take over Sina.

Anyway, nowdays we don't lack rumors. Let them be.

I did not update on these Chinese wireless plays(TOMO,KONG,HRAY,LTON) for quite a while, I may do so when I get some spare time. I can disclose that I am not a big fan of them at this moment, especially Tom Online. HRAY and KONG may have some investment value if they can drop a little bit further.