SINA Corp (SINA), Baidu.com, Inc. (ADR) (BIDU): These Internet Service Providers Have Upside Potential in China

After a solid first quarter that presented a decent balance between in-house developed and licensed games and consistent increases in online advertising revenue, Citigroup upgraded its recommendation from a neutral to a buy and the stock price continued to rise, now trading close to an all-time high. Nevertheless, valuation-wise, the shares are still cheap and long-term prospects are promising.

Analysts expect an annual EPS growth rate around 13% for the next five years, a conservative calculation given the company’s size and market presence and the fast-growing internet demand in the China. The firm’s high in-house research capabilities should drive growth even further in the years to come. By creating games that adapt to ever-changing gamer preferences, increasing loyalty among users, the company should retain and even widen its market share.

Moreover, profits should keep increasing while costs should drop and margins increase on the back of constant development of expansion packs and innovative marketing initiatives that help games keep running, played, and monetized. Furthermore, the licensing agreement established (and recently renewed) with Activision Blizzard, Inc. (NASDAQ:ATVI) for the exclusive operation of the popular game “World of Warcraft” in China should prove substantially beneficial, increasing the firm´s traffic and revenue.