Internet Companies Set Their Sights On China

Internet Companies Set Their Sights On China
David Ng, 08.22.05, 10:21 AM ET
Merrill Lynch noted that Internet stocks in its coverage universe have underperformed over the past two weeks, down 4.6% versus a relatively flat S&P. E-commerce stocks were all down slightly, with Priceline.com (nasdaq: PCLN - news - people ), IAC/InterActiveCorp (nasdaq: IACID - news - people ) and eBay (nasdaq: EBAY - news - people ) experiencing the widest declines.

The research firm said the Internet sector is showing increasing focus on China, with Google (nasdaq: GOOG - news - people ) signing on three advertising product resellers in China, and speculation in the press that Google was interested in acquiring Baidu, the Chinese Internet portal. Yahoo! (nasdaq: YHOO - news - people ) recently announced it will acquire a 40% stake in Chinese e-business site Alibaba.

In other sector developments, Merrill said Google's new $4 billion public offering will only result in minor dilution to earnings per share of approximately 1% in 2006.

The research firm said acquisition activity remains robust in the sector. Time Warner (nyse: TWX - news - people ) unit AOL and Google made small mobile software and technology acquisitions, while ValueClick (nasdaq: VCLK - news - people ) acquired FastClick, and The New York Times Co. (nyse: NYT - news - people ) acquired Indeed, a job search engine.

Elsewhere in the sector, Merrill initiated coverage of Expedia (nasdaq: EXPE - news - people ) with a "neutral" rating, citing an uncertain margin outlook given industry trends and Expedia's investment plans for technology enhancements, customer affinity programs, Europe and corporate travel. The research firm reiterated "buy" ratings on IAC/InterActiveCorp and eBay. It maintained "neutral" ratings on Google and Priceline.