Are e-commerce and Internet media shares good bets?

Dubai - Digital/mobile advertising growth rates beginning to accelerate and are a fabulous money-maker

Even as Amazon, Google and Facebook's meteoric rise mesmerise Silicon Valley and Wall Street, I am awed by the hyper-growth potential of the global e-commerce industry, demonstrated by Amazon's takeover of Souq.com after a bidding war with Emaar Malls. The mobile Internet and social media (800 million active users on Tencent's WeChat messaging platform in China!) are game-changers, as are mobile wallets such as Alipay in China, MercadoPago in Brazil or Paytm in India have created payment solutions for emerging markets.
Digital/mobile advertising growth rates have begun to accelerate and are a fabulous money-maker for a handful of Internet companies form the emerging markets listed on the New York Stock Exchange. India, China, Indonesia, Brazil, Mexico and Vietnam alone could add one billion more smartphone users in the next four years. China alone boasts 750 million smartphone users, half the population of the Middle Kingdom, even now. E-commerce by far superior to China's fragmented, archaic, expensive and limited-range brick-and-mortar retail industry.
Alibaba is unquestionably the most attractive e-commerce platform in the world other than Amazon.com. I talked to a buy side e-commerce analyst in the Bay Area who estimates that Alibaba's move to e-commerce/B2B market place platform is worth at least $110 a share Ant Financial is worth at least $8, Ali Cloud is worth $16, Digital Media and net cash is $5. This valuation paradigm suggests Alibaba shares could be valued by the stock market at $140. The Graham and Dodd deep-value DNA is my investment soul thus likes Alibaba below $100 a share, given its 35 per cent rise in the past 12 months. The SEC investigations into Alibaba's accounting will have an impact on the share price, which could be a buying opportunity for investors who share my valuation paradigm. Alibaba could well earn $4.50 in 2018. So one of history's most unique shares trades at a forward price to earnings ratio of only 22 times even though it can well deliver compound annual growth rate of 25-27 per cent in the next five years, powered by mobile, cloud and rural China hypergrowth. True, Jack Ma has eroded his credibility by spending billions in non-core areas, Chinese consumer growth could well be derailed by a property bubble collapse and potential SEC black swan mean downside risk to $80 a share.
Baidu has been a Cinderella compared to Alibaba, Tencent Holdings and Ctrip, stellar performers in the past six months. Despite the 100 per cent revenue growth rates in its iQiyi video portal, Baidu is expensive at 30 times earnings and trades at an unjustified valuation premium to Alibaba, despite a far less diversified business model more vulnerable to the Great Firewall of China. I would only reconsider Baidu's ADR if the shares fell below $150.
Russia's Yandex has risen 30 per cent from its early-2016 lows. Yandex is Russia's Google, with an unassailable market share in search/digital advertising on the Cyrillic Internet. Yandex is the most popular search engine in Russia and has a footprint in nine ex-USSR countries. Yandex shares still trade below its May 2011 IPO price of $25, a victim of Russia's financial trauma after the Kremlin invaded and annexed Crimea in 2014 and the Russian economy, handcuffed by Western sanctions, slipped into recession. For now, I expect Yandex to range trade at 18-24.
South Korean technology conglomerate Samsung Electronics is not an e-commerce or Internet media stock but its critical role in the global smartphone component and semiconductor markets makes it impossible to ignore for an investor in emerging markets. Samsung shares have risen 60 per cent in the past year, despite the political crises like the arrests of both the now-former South Korean president and Samsung's vice-chairman/dynastic heir apparent Jay Y. Lee for corruption. Samsung still trades at nine times forward earnings, despite its spectacular stock market performance in 2016-17 due to its fabulous earnings growth, strong free cash flow and rising dividend payouts.
Samsung also contributes 25 per cent of the GDP of Asia's most "broadband wired" society, making it the epicentre of one of global technology's most powerful and innovative ecosystems. There is no doubt in my mind that Asia's preeminent high-technology conglomerate will command a higher valuation multiple if corporate governance and shareholder payouts standard improve.
The writer is a global equities strategist and fund manager. He can be contacted at mateinkhalid09@gmail.com