China: Online Potential

11/12/2004 12:00 am EST


Donald Straszheim

Chairman and CEO, Straszheim Global Advisors, LLC

Donald Straszheim, former chief economist for Merrill Lynch, now runs Straszheim Global Advisors, an independent research boutique focused on investment opportunities in China. Here, he looks at stocks poised to benefit from Chinese Internet growth.

"SINA (SINA NASDAQ) provides an array of services in the online media and value-added service industry in China and for Chinese communities worldwide. It also provides news and content, travel, shopping, games, mobile value-added services and online community-based services. Regulatory issues are always important in China, which makes this stock highly volatile, offering high risk and high reward. Based in Shanghai, the firm is run by a highly entrepreneurial team. Our earnings per share estimate for the year is $1.75 and our target is $60 by October 2006.

" (JOBS NASDAQ) is a leading online recruitment Web site in China. From our contacts, it appears to be widely recognized as the cream of the crop in China. Online recruiting in China’s cities is more dominant than it is in the US and is just killing newspaper advertising. also provides other human resource management services. The stock had an IPO in the US at $14 on September 29. is not for the faint of heart. But for the believer in online recruiting, we believe in in China. Our target price is $40 by October 2006.

"Through subsidiaries and contracts with company affiliates, (NTES NASDAQ) operates an interactive online and wireless community in China. It provides Chinese language content. Revenues come from fees and charges for online games and wireless value-added and other fee-based services. Its 44% profit margin is among highest in the industry. Beijing based, with $1.28 billion market cap, the company has a young management team that is highly entrepreneurial. Revenue was up 50+% last year. The stock is not especially pricey when compared to its US competition. Our target price is $60 by October 2006.

"Electronic Arts (ERTS NASDAQ), is the US video-game giant, with a strong management team in a growing market. Over the last two years, sales up were up 71% and earnings were up 419%. Game fans love their products. ERTS plans to expand into China’s online gaming market. China should be the world’s largest online games market by 2007. ERTS intends to build an online development studio in China, hiring 500 people. The firm expects to generate $1 billion in annual revenue from Asia by 2010. Total revenue last year was $3 billion. The stock is volatile, but we see it as a good, relatively safe grower. Our target is $60 by October 2006."

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