A slew of social networking sites are operating in China at the moment. They are benefiting from the Chinese government's decision to block the popular U.S. sites Facebook and Twitter on the mainland. Smart Chinese entrepreneurs have unabashedly copied these popular sites to try and be the first mover within China. The current issue ofFast Companyhas a cover story on the heated rivalry between two popular Chinese social networking sites, Renren and Kaixin001. Here's what U.S. investors should know.
The two sites, which are both currently private, although Renren isexpected to go publicthis year, currently have 260 million users. That's pretty amazing when you consider that Facebook itself has gained 600 million users globally over a much longer period of time. It's also astounding how readily Renren and Kaixin001's founders admit copycatting the U.S. websites.
Renren's founder is a Wang Xing, who studied at the prestigious Tsinghua University before going to the U.S. to pursue a Ph.D., then dropping out to start Renren with about $45,000 in seed capital.
Kaixin001 was the first mover in China's social networking space and has over 100 million users. Although Kaixin001 had the initial buzz, Renren has now surpassed it in growth, at 165 million users. Renren was also sneaky in the early days when it was trying to catch up to Kaixin001: It bought the URLwww.kaixin.comand invited people to join a social network that looked like Kaixin001 but was actually signing people up to Renren. Kaixin has since won a court battle to say this is improper. But even today, the URL redirects to Renren.
Only a third of the Chinese population is online (vs. 75% in the U.S.). Therefore, social networking and e-commerce sites in China have enormous potential for the next five years. Additionally, there's big opportunity ahead for increased ad spending on websites (which also goes for the U.S.). The growth should be even faster in China, though, because of the increased rise of purchasing power of a growing middle class.
I spoke earlier this week withTheStreet TVreporter Brittany Umar, for her "China Watch" segment. She asked about Chinese demand for lumber and the best way to play it.
It used to be that wood was not a popular choice for housing and construction in China. China used to be more fixated on getting structures up that were functional and cheap. Therefore, steel and concrete were the big commodities in demand for house construction over there. They're still going to be key inputs going forward, of course.
The steel and iron ore names with China exposure are pretty well known, of course. The two best pure-play cement companies, which both have exposure to China growth, are Lafarge (which trades on the pink sheets) andCemex(CX-commentary-Trade Now). Lafarge is the more stable of the two. Cemex has been trying to grow its way back to fiscal health, after taking on too much debt in the lead-up to the financial crisis.
I remember five years ago or so, a friend of mine got transferred to China to head up Lafarge's China operations in Beijing. His eyes were as wide as saucers for years. He couldn't believe the scale of growth going on there and the size of the opportunity. Compared with the company's North American business, it was an astounding difference.
So, what about lumber? As it turns out, after the U.S., China is now the second-largest consumer of lumber in the world. It is also the largest importer of lumber products. What gives?
There are a couple of factors at work here. First is the increased standard of living in China. The emergence of the middle class in China means that there has been an increase in demand in Western tastes. On a trip there recently, I toured some higher-end housing developments, which look like they were directly transplanted from Scottsdale, Ariz. As the property developers took us around, they proudly noted the hardwood floors -- very different from much "basic housing" that was built throughout much of China more than 10 years ago.
Contributor Eric Jackson says the business, technology and media elite attending the Davos conference this week in Switzerland will swear they'll get conduct productive business and advance philanthropic causes. Don't buy it
Contributor Eric Jackson says watch for Google (GOOG) SVP of Business Operations, Shona Brown, to wield some major influence now that Larry Page is taking over as CEO from Eric Schmidt. Brown co-authored the 1998 book "Competing on the Edge" about how the ideal tech companies need a balance ofentrepreneurial zeal with proper organizational structure.
NEW YORK (TheStreet) - When I was a struggling Ph.D. student 10 years ago or so, my advisor was good friends with a revered professor of strategy and organization from Stanford: Kathy Eisenhardt.
Although Kathy's written countless academic articles on the subject and strategy and competing in ultra-fast industries, she's not a professor in the Business School at Stanford, but in the Department of Industrial Engineering and Engineering Management.
In 1998, she gave a talk at Columbia about a new book she co-authored with her doctoral student at the time. The book was calledCompeting on the Edge: Strategy as Structured Chaos. The co-author was Shona Brown. Today, Brown is the senior vice president of business operations atGoogle(GOOG_). And with last week's news that Larry Page would talk over running Google in April from Eric Schmidt, Shona Brown's importance at Google just increased significantly.
So, who is Shona Brown? Like most people at Google, she's brilliant by normal standards. The Canadian, who majored in computer science at college, was selected as a Rhodes Scholar. She decided that she wanted to work with Kathy Eisenhardt at Stanford in the mid-1990s and graduated with a Ph.D. in strategy and organization from the Engineering School.
At Stanford, with Einsenhardt who was well-known and well-regarded by tech companies in the Valley, she got involved in many interesting side consulting engagements. Instead of opting for the academic path after graduation, she decided to pursue consulting. She went on to be a management consultant at McKinsey & Company in Toronto, where she worked with Patrick Pichette, who -- like her -- was also a Rhodes Scholar and was working at McKinsey at the time Brown joined. He would later go on to become an executive at Canada's largest phonecompany, Bell Canada.
At McKinsey, Brown began working with Google and its senior executives and founders on the ideas discussed in her book. To boil the book down, the co-authors discuss how companies, especially tech companies, seem to do better when they strike the right balance between organizational structure (clear roles/processes) and entrepreneurial dynamism (e.g., reacting to some instant news in the market or environment instead of being too bureaucratic to react).
Contributor Eric Jackson says Larry Page pushed out Eric Schmidt as Google CEO because of Mark Zuckerberg envy. Zuckerberg defied conventional wisdom and remained CEO instead of steeping aside for someone with gray hair. Page, who senses Google is falling behind, thinks he can recharge the company. There's a lot of risk for investors with this unknown quantity at the top. Eric owns AAPL.
My first reaction to the news on Thursday thatGoogle(GOOG-commentary-Trade Now) co-founder Larry Page would be taking over as the CEO from Eric Schmidt starting April 1 was that it was a negative for the stock in the short term.
This was counter to the initial jump in the stock in the response to the strong quarterly results. The stock initially bounced from $626 at the close of Thursday to $644 about 45 minutes after the news broke about Schmidt's departure from the top job. Those who were bullish on the stock were making the case that a strong company trumps the importance of the CEO.
Although I agree with the power of a group over any one individual or leader, a CEO carries significant weight for investors when looking at a public company. Although Google is a known company -- now public for over six years -- the price action in Google on Friday suggested that people are nervous about Larry Page's ascension.
If you sold your Google stock immediately at the open on Friday, you got $640 for the stock. It immediately dropped below that and didn't stop all day. It closed below $612 by the time Friday's session was over.
What does the market have to fear from Page leading the company? The hundreds of profiles about him describe him immediately as "smart." They say that "he's always been interested in the business" -- that's supposed to be a selling point? They say that he's driven and that he has always admiredApple(AAPL-commentary-Trade Now) co-founder Steve Jobs. And Schmidt and former IPO banker and Google employee Lise Buyer have gone out of their way to say that this succession has always been planned and that Page was always slated to take the top job.
I don't know Larry Page, haven't met him and have barely ever heard him speak, aside from his brief comments on Thursday's earnings call. (Is it unreasonable to expect that the new head of a $200 billion company would stick around longer than 10 minutes to answer questions, including the bland comment, "I'm incredibly excited about the possibilities to come"?)
Contributor Eric Jackson says everyone loves Canada's economy these days because of its commodities and its relatively low debt. However, there are some big problems below the surface that its Central Bank must grapple with.
Last night's surprise announcement thatGoogle(GOOG-commentary-Trade Now) Co-Founder Larry Page would take the CEO post from Eric Schmidt on April 1 caught everyone off guard. A few years ago, Schmidt had talked about the "troika" of him, Page and Sergey Brin working together for the next 20 years. And the market seemed to like that because Google had been extremely successful up to that point. The thinking was, if it ain't broke, don't fix it.
The stock is up today because of Google's strong earnings last night, but I believe there could be trouble ahead for the company based on this move.
Google used to be thought of as unassailable in ads. It perfected AdWords, which revolutionized the media world over the last 10 years. However, it has had a hard time leveraging that success into other businesses.
There are some areas of real promise. Google is starting to fire on all cylinders in the display segment, where it used to trail Yahoo (YHOO) badly. This improvement is also helping Google to take advantage of the YouTube acquisition. YouTube still dominates the user-generated space and Google hopes to expand its uses to include professionally streamed content as well. Meantime, Android phones are helping ensure that Google will play a central role in the mobile world. Just yesterday, the company said it is now activating 300,000 Android devices a day.
But Google faces a huge challenge fromApple(AAPL-commentary-Trade Now) in the mobile market. Steve Jobs recently said that users interact with ads very differently on mobile devices than on computers. If true, this could greatly hurt the cash cow AdWords business.
Facebook has also made Google's attempts to build up a social networking business (remember Wave?) look silly.
Despite the Google troika's valiant efforts yesterday to make it sound like this transition is the culmination of years of planning, I don't buy it. Schmidt admitted yesterday that internal decision-making issues at Google have hindered the company's ability to respond to competitive threats in recent years.
ContributorEric Jackson, who invests in Apple, says CEO Steve Jobs is irreplaceable but that the market has to discount he may not return. But even without Jobs, Jackson says Apple is undervalued. Jackson owns AAPL.
Since the announcement on Monday of Steve Jobs' medical leave of absence fromApple(AAPL-commentary-Trade Now), there has been intense speculation as to what the short- and long-term implications will be with respect to the company's stock price.
On one side, it's clear that Apple and Jobs want to disclose a minimal amount of details when it comes to the CEO's medical prognosis. This was also the case during the two prior leaves of absence Jobs took. It was only after Jobs returned to work that Apple disclosed he had had a liver transplant and that he has a rare form of cancer.
On the other side, you have many investors -- including several who pride themselves on good corporate governance -- that are angry because the company is not disclosing more information. This group wants more details on Jobs' condition and insight into the company's succession plan.
As a guy who likes to think of himself as pro good governance, I don't really have strong feelings on this one. Apple has consulted with its lawyers around this issue since early last decade. From those discussions, the company came to the conclusion that the SEC doesn't have firm ground to stand on with respect to forcing Apple to disclose any more than it already has. But, even if that is true, is it still the right decision not to disclose more?
I guess the question is what more can the company disclose? Jobs is obviously sick and in need of more treatment. Will sharing the specifics help? Although my governance friends will say yes, I just don't believe that to be the case. No one knows whether treatment will work at this point.
As far as the succession planning issue, part of the reason the stock has behaved well since Monday is because the market has confidence in Tim Cook, the COO, based on his previous stints at the helm when Jobs has been away and his continued steady performance with the financial community since then. It's true that some investors would have liked the company's board to come out and declare a plan in waiting just in case Jobs was hit by a truck one day. But how many companies do that? None that I can think of.
No one liked American International Group as little as a year ago. It was the poster child for everything that went wrong before the financial crisis. Politicians and pundits assumed that theFederal Reserve'shasty rescue of the company --- to prevent a terrible crisis from spilling over into a catastrophic one -- would be a financial burden all taxpayers would carry for years, if not decades, to come.
The idea that AIG might one day be actually able to pay back the government was laughable.
Consider these facts:
The Federal Reserve, with the help of the Treasury Department, had to step in to orchestrate a $182.3 billion bailout to keep AIG going;
For this loan, AIG has been paying 14% interest to U.S. taxpayers;
In exchange for the bailout, the government took preferred shares which give it effectively 92% control of the company.
Robert Benmosche was appointed the CEO of AIG on Aug. 3, 2009. He was immediately self-confident.
"The government might even make a little bit of money when we're done," he said at the time of his hiring.
Such a notion at the time seemed preposterous to many.
Financial blogger Barry Ritholz appeared onYahoo! Finance'spopularTech Tickeron Aug 20, 2009, and called Benmosche's claims that AIG could one day repay all its loans to the government "totally absurd."
Benmosche has been a colorful CEO. He remained at his Croatian vacation home for the first few weeks on the job, even inviting reporters into his home and holding impromptu press conferences. Stories were written about the fact that his home had 12 bathrooms that were gold-plated. He talked about his vineyard. The image Benmosche projected wasn't one of a government bureaucrat living at below-market salary rates.
He immediately started holding internal town hall meetings with AIG employees, promising that the government wasn't going to bully them around anymore or get in the way of them running a great company. He promised to fight for employees to get the compensation they deserved. Stories also circulated about him pressing his own board for a better pay package for himself. Finally, AIG's board -- made up of people selected by the government -- told Benmosche to cool it. He stopped being so public, except for when he had to admit a few months ago that he was being treated for cancer and would leave the company when a proper successor could be chosen.
Anything thatApple(AAPL-commentary-Trade Now) announces relating to its new products is major news. So you can imagine that when the company announced Monday just before 9 a.m. EST that CEO Steve Jobs was taking a medical leave, it sent the blogosphere and mainstream media alike into fits trying to figure out its implications on various scenarios.
We need to think of the trading implications here, and specifically how the stock will trade today.
Yesterday's announcement led to an immediate 6%-7% drop in Apple's German-traded stock. Here in the U.S. the stock has traded above $330 for most of the premarket, which signals a 4% loss -- not as great.
However, I expect a down move within the first hour of trading today. There are many retail investors, mutual funds and hedge funds that will likely be quick with the trigger finger, especially if the stock does move below $330.
Despite a move down at the start of trading, I expect it to quickly reverse and the stock to start to immediately draw in buyers looking to get some of the stock on a discount ahead of the earnings later tonight. As buying slowly sends up the price from any initial lows, look for copycat buyers to keep pushing it up. Apple is certainly a one-sided trade: You don't come across too many bears on Apple, and this is especially true among the larger institutional buyers. Those fans will start to come out of the woodwork as the day goes on.
You can also expect many shareholders to come onCNBCandBloombergtoday talking about Tim Cook and how he is a "known quantity" this time as opposed to the last time Steve Jobs left the company. This is true (even though it's a simplistic analysis). Cook has emerged in the last seven years as a trusted voice with investors and someone who has competently led the organization to its current position.
Whatever happened toTudou? The "YouTube of China" filed an initial public offering (IPO) and applied to trade on theNasdaqunder the symbol TUDO in the U.S. in early November. This was a week before its rival Youku(YOKU-commentary-Trade Now) did. Yet, we haven't heard from Tudou since. What's going on?
Initially, when both Tudou and Youku filed their prospectuses to do an IPO, many Western investors were wondering if Tudou wouldn't be the more successful of the two issues. Even though Tudou is No. 2 to Youku in market share currently, its reported numbers reveal that, unlike Youku, Tudou has been profitable in 2010. Tudou's offering will be led by Credit Suisse, which is very widely respected for its tech deals in China (although Youku was able to nab Goldman Sachs as its lead underwriter).
And even though Tudou was No. 2 in the market, it was close enough to Youku that many investors thought it was basically a dead heat between the two currently (different numbers have been bandied about, but it basically looks like Youku has 20% of the market while Tudou has 16%).
Few observers expected the type of successful IPO Youku received when it finally went public in December. The stock was immediately a hit and tripled its offer price. Critics quickly sputtered that investors were being irrational. One person called it the most overvalued stock in the universe.
While Youku has been highly volatile for the last month since its IPO, the price has held up - the stock is currently trading in the midrange of its public trading price (since its IPO). Partly, it has been supported by the recent news that Youku has struck a deal to stream the Hollywood movieInceptionover its service to subscribers. This deal fed into some observers who have said that both Tudou and Youku are more likely to become the future "Netflix(NFLX-commentary-Trade Now) of China" rather than another YouTube. With Netflix moving to focus more on streaming movies to its customers rather than mailing DVDs, you can see how theInceptiondeal would get people excited.
DETROIT (TheStreet) -- Eric Jackson met with management from China's biggest car company, BYD - a big investment of Warren Buffet's. They revealed they will start selling their electric cars in the US starting in Q1 of 2012.
The information on Breakout Performance reflects opinions by the authors and nothing contained in this publication should be interpreted as or deemed to be a recommendation to any investor to purchase, sell or hold any security. Any investment decisions must in all cases be made by the reader or by their investment adviser. Nothing contained here is intended as a solicitation.
The views expressed on Breakout Performance are solely those of the author or writers on this site.