Thursday, May 31, 2007

Global Sources (GSOL) Q1 Result and Alibaba’s new business initiative

GSOL delivered a very strong Q1 result. Revenue and Net Income increased by 16.4% and 48.1% respectively, that were mainly due to significant increase in exhibition revenue from a semiconductor show in China.

We can also see from the numbers below, the increase in opex was 9.1% which was much slower than the 16.4% grow, such strong operating leverage resulted in an impressive 48.1% net income growth.

For the first half of 2007, GSOL has revised revenue guidance upward that represents an increase of about 16% comparing to 1H 06.

In my last story on GSOL, I said the coming listing of Alibaba will give a strong push to GSOL share price due to a revaluation of GSOL’s online business. Here I want to do a further comparison between the two companies.

Since Alibaba is a private company, information about its business is very limited. However, we can still do our analysis using some unconventional approaches.

First of all, to understand a company’s new business direction, one very effective source of information is to check out its recruitment advertisment to see what sort of people it is hiring. I found that Alibaba is currently is hiring the following Hong Kong based positions:

Manager, Buyer Services & Development

Based in Hong Kong, he/she will be responsible for the acquiring, planning and managing the relationship for Big Buyer's account.

* Acquire active International Buyers to marketplace
* Increase mindshare and brand presence in International markets through the establishment or partnership & alliances

Senior Copy Writer

Based in Hong Kong, he/she will be responsible for creating all English-language content in all buyer programs for The individual have to work closely with the other business units to ensure that any buyer facing materials will be adhering to the branding and strategy of the company.

From the positions it is hiring I would interpret that Alibaba is trying to expand its international buyer user base.

As I have mentioned last time, Alibaba is the largest B (domestic)-To- B(domestic) trading site in China. However, I would expect the service fee Alibaba is charging must be much lower than that of Global Sources because GSOL is doing B (domestic)-To- B(international) and it is intuitive that you can charge more if your site can attract international buyers.

To attractive a truly international mix of buyers, English language is an obvious requirement, and hence Alibaba is also hiring a Senior English Copywriter !

So I would say Alibaba is planning to increase its service fee by improving the quality of those buyers who are sourcing products from its site.

As both Global Sources and Alibaba are providing services through internet, another trick to verify my interpretation above is to check out the visitor sources to their sites. can provide very good web site visitor profile information and I’ve extracted related reports for both and below:

As we can see from GSOL’s web visitor profile above, 72.6% of its visitors are coming from outside of China. That confirmed GSOL's business model that it is focusing on international buyers who procure from Chinese manufacturers.

On the other hand, Alibaba is having 61.6% of its web site visitors from within China, this also confirmed that Alibaba currently is mainly linking up Chinese buyers with Chinese manufacturers.

So is Alibaba’s new business initiative a threat to GSOL?

My view is that it will take Alibaba a considerably long period of time to develop such business:

  1. GSOL has been doing B (domestic)-To- B(international) for 35 years, it would take a long time to build up such user base and it is not easy to switch those buyers from one service to other.
  2. GSOL provides a truly integrated service in addition to online catalogue, as we can see from its income sources above, it is also a famous trade show organizer in the region. One significant barrier to exhibition business is the ability to secure popular exhibition venue. For example, GSOL has already entered into a long term lease with the Asia World Expo that gives it a very strong competitive advantage.
  3. We all heard about the recent toxic toothpastes which were manufactured in China. What buyers care about is the creditability of suppliers, to ensure information provided by those suppliers are correct, GSOL would send its sales rep to physically visit all of its clients before their product information are posted to GSOL’s online catalog. According to GSOL company information they visit over 40,000 clients every month.

I will maintain my long position in GSOL and anticipate a revaluation of GSOL that likely would happen when Alibaba officially launches its IPO.

Disclosure: I have a long position in GSOL


Anonymous said...

For the datas from Alexa, I 'd like to make some comments. GS is more international. I do agree with u.
But the traffic of is much larger than GS. So, the number of Alibaba visitor from abroad, can be calculated from the Alexa, is actually larger than GS.
In addition, GS is more likely a traditional trading company than Alibaba.
However, Alibaba, with the partnership with Yahoo, focus more on the promotion of the international site.
You mentioned the 35years history of GS. Compared with young,venture capital engined Alibaba, I think it might be a weakness in the stock price performance, rather a comparative advantage.
Further, the revenue of Alibaba from its B2B domestic site,actually must be a large amount already.The service charge is 2300RMB for per premium member.

At last, I 'd like you to recommend a good slogan for my site ( to replace the current slogan Intelligent Investor.
My purpose of the site is to pick and gather together the best blogging stock analysis of many excellent bloggers.Much like , but will be less commercial-oriented.
I am a college student.
Thanks a lot.

Zhong Siwei 鍾思維 said...

You are right that Ali's web traffic is much higher than that of GSOL, in fact it's almost 10x higher as indicated from Alexa.

From what you said I guess you are a Chinese studying overseas? In that case you might also know about the history of Ali, it was providing service free of charge untill in recent years that it started charging a fee. I have no idea how much of its customers are paying such fee vs. GSOL has been charging since day one.

I've no doubt that Jack Ma has created his and also Ali's reputation in the internet space and its attraction of web traffic, but at the end it's all about profitability and growth that determine a firm's share price. I've no idea of that until Ali publish its prospectus.

In my view YHOO was a total failure in China otherwise YHOO China would not end up in the hands of Mr. Ma. The 'help' from YHOO in promoting int'l customers is theoretical and may be good sales pitch for i-bank ECM people. At the end I would say 'show me the money'. As of now the fact is there is not any US internet company who can make a successful inroad to China yet. Can YHOO/Ali be the first one? Let's see.

I don't know Jack Ma nor any GSOL management personally, my impression on them is purely from public information I can access, including GSOL webcast, Jack Ma's public appearnce when he talked about his strategy etc.

Nowadays it's not about counting eyeballs, I'll only look at bottomline numbers, nothing else.

Finally, Yes, GSOL is in a very traditional biz, in fact that's why I've so much confident on it. As long as it can make profit who cares? I would say the return/risk of GSOL is much better because it is in such a traditonal biz while can leverage internet at the same time.

And don't forget my investment thesis on GSOL is purely because I forsee a revaluation opportunity due to the Ali listing effect.

At the end GSOL or ALi is the real winner I don't really care.

三潭印月 said...


Tdctrade 和 Globalsources 都差不多..期刊加網頁要11000HKD 左右. 而Alibaba 給我的最低消費報價是10張相, 349USD. 相比之下,便宜好多. 我覺得會從Tdctrade 和 Globalsources 手上拉走吾少客戶.

Tdctrade 和 Globalsources 的買家Inquiry 數量少些, 但質素好. 而Alibaba的 Inquiry 多好多,但要小心部分買家的單好細.
如果公司是生產消費品的,适合在 Alibaba 做廣告.

Globalsources 的電子展都滿檔,但客流根本没法和Tdctrade 的電子展比較.

Alibab 的平台提供的服務,例如即時通訊,買家功能等更能吸引用家使用.

Zhong Siwei 鍾思維 said...



三潭印月 said...

Mr. Zhong,

我很認同你從公司招聘的方向來分析公司動同. 的確,alibaba 開始提高在香港市場銷售價格,要求客人選用更多相片的套裝.

原先GSOL是在上海搞的,去年才移師亞博. 由於TDC 的BOOTH 供不應求,GSOL可以說沾了不少光. 至於為什麼TDC電子展比較好,展覽接單成效,位置,名氣,到訪人流等等都是很重要因素.


我覺得有些奇怪的是GSOL收購8292 慧聰網的控股權.