Youku Tudou Inc (ADR) (YOKU), SINA Corp (SINA): Chinese Internet Companies You Should Buy this Month

According to CNNIC, the number of internet users in China is expected to reach 800 million in 2015, up from 564 million in 2012. The number of mobile internet users has grown at a rapid pace, going from 38% of total internet users in 2008 to 71% of total internet users in 2012. Three Chinese companies are taking various initiatives to benefit from this boom in Chinese internet usage and growing mobile traffic. How will each company’s initiatives affect their revenue?

Two signification collaborations for revenue growth

During the first quarter of 2013 Youku Tudou Inc (ADR) (NYSE:YOKU)’s daily video views on its mobile platform grew 50% quarter-over-quarter to 170 million, with 100 million active users. Last month, the company announced its collaboration with QUALCOMM, Inc. (NASDAQ:QCOM) to provide high quality video on its mobile platform. This collaboration brought about the latest H.265 technology, which will allow viewers access to high quality video from smart phones. This new technology will improve compression efficiency to 40%, compared to current H.264 technology, and hence is expected to increase the company’s mobile traffic by attracting new users to its high quality video content. It will also help the company to transmit these videos with less data bandwidth usage. Youku’s bandwidth cost was $25.93 million or 31.2% of total revenue in first quarter, and this new technology will keep this cost stable, against growing traffic.

In June 2013, the company announced a content-sharing alliance with SINA Corp (NASDAQ:SINA), a Chinese online media company. SINA will promote Youku Tudou Inc (ADR) (NYSE:YOKU)’s content on its micro blog website, Weibo. This website is among the most popular websites in China, similar to Twitter and Facebook. Youku Tudou will benefit from SINA’s 503 million registered users. Videos from Youku’s platform represented 47.7% of videos shared on Weibo, while videos from the Tudou platform represented 15.9% of videos, shared on Weibo. Youku also expects to increase mobile traffic, as 76% of Weibo’s daily active members use mobile devices to access the website, adding to Youku Tudou’s 170 million daily mobile views.

Youku Tudou Inc (ADR) (NYSE:YOKU) is expecting revenue growth due to these two collaborations, and it is expected that company’s revenue will increase to $3.11 billion in 2013, from $1.80 billion in 2012.

This alliance will help SINA Corp (NASDAQ:SINA) compete against Baidu.com, Inc. (ADR) (NASDAQ:BIDU), which on May 2013 acquired Shanghai-based company PPS for $370 million, thereby increasing its market share in online video sharing. PPS ranks number one in the category of peer to peer video streaming. Upon the acquisition completion, PPS online video business will merge with Baidu’s own platform iQiyi. This deal will bring significant growth to iQiyi’s current market share of 10% of online video sales. The combined entity will become China’s largest online video platform in both the number of mobile users and video viewing time.

China’s online video market is expected to reach $5.42 billion in 2016, up from $1.9 billion in 2012. Baidu.com, Inc. (ADR) (NASDAQ:BIDU) is expected to generate higher revenue from its market leadership position, contributing to overall company revenue, which is expected to reach $5.01 billion in 2013, from $3.58 billion in 2012. Apart from revenue growth, Baidu is also expected to save bandwidth cost, which will occur due to integration of iQiyi and PPS content delivery networks.

Revenue growth in advertisement with Alibaba

SINA Corp (NASDAQ:SINA) is expecting ad revenue growth from its mobile segment. It is adding new features to its Weibo mobile app regularly. These features include adding an improved messaging system, introduction of a new service, called Page, which facilitates discussion on trending topics among Weibo users, and provide information on restaurants located near the user. Mobile advertisement revenue increased to 34% of Weibo’s total advertisement revenue, up 42% quarter-over-quarter. Assuming that this share will remain the same in this year, it is expected that revenue from mobile will reach $47 million in 2013.

Earlier this year, SINA Corp (NASDAQ:SINA) and Alibaba announced a new Weibo-Taobao platform. In this, Weibo’s users will experience a new type of display for Alibaba owned Taobao’s products, including a detailed description of products making it easier to purchase products from Taobao directly. It will also facilitate integration of accounts on both platforms, therefore users can use either account to log onto both platforms. It is expected that this collaboration will bring $380 million in revenue to Weibo from advertising and social commerce services for the next three years. Out of this, it will see $30 million this year, and total Weibo ad revenue is expected to reach $137 million in 2013 from $51.4 million in 2012.

Conclusion

All three companies are expecting good revenue growth from their respective collaborations because of the growing number of internet users in China. Youku Tudou Inc (ADR) (NYSE:YOKU)’s collaborations with QUALCOMM, Inc. (NASDAQ:QCOM) and SINA Corp (NASDAQ:SINA) will benefit the company in both the mobile and PC internet market. Baidu.com, Inc. (ADR) (NASDAQ:BIDU)’s acquisition of PPS will increase the company’s market in the growing online video streaming market in China, thus creating revenue growth opportunity. SINA’s collaboration with Alibaba and introduction of new features in its Weibo mobile app is expected to generate good advertising revenue for the company. Looking at each company’s potential revenue growth opportunity, I recommend a buy for all three stocks.

Madhukar Dubey has no position in any stocks mentioned. The Motley Fool recommends Baidu and SINA . The Motley Fool owns shares of Baidu.

The article 3 Chinese Internet Companies You Should Buy this Month originally appeared on Fool.com.

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