This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

A Dose of Reality Needed for China Fever

I have purchased products from DANG in the past and was exceptionally satisfied with both the price and the service, which I would say are equivalent to AMZN in every way. The difference is that AMZN pioneered a business model and secured a first-mover advantage, mastering logistics and eliminating bricks and mortar (along with its competition as well). This business model is no longer new or novel and can be studied by anyone in various MBA case studies.

A major reason why DANG is losing money at an increasing rate is that ecommerce competition in China is already fierce. While Americans like to think of DANG as the Amazon of China, the reality is that there are many "Amazons of China," but only one that is listed in the U.S. and familiar to Americans. Two such competitors are well-known 360Buy.com and Taobao. And for that matter, there is also the real Amazon of China -- Amazon itself. Yes, AMZN has its own site in China, Amazon.cn. On a strictly anecdotal basis, I have found that when people shop online, Taobao is by far the most popular site in China. If I were to make an AMZN analogy, it would certainly be Taobao over DANG.

One unfortunate disadvantage that DANG has is that some of its competitors sell pirated products, especially books (which are still the major seller for DANG). It is my understanding that DANG does not sell pirated goods, but for consumer who do their shopping online, they can easily compare prices and get effectively identical goods from DANG's competitors at a discount of usually around 75% to 80%. That is very difficult to compete with.

In short, DANG is not the AMZN of China, but investors are eager to believe that they are getting in early on a massive bargain. Average daily volume in December was less than 2 million shares per day, but there were over 6 million shares sold short. On Thursday and Friday over 10 million shares traded and the stock was up by 20% in two days alone. As a result, I attribute much of the recent run up to short covering, which obviously is not a sustainable factor in keeping the share price elevated. Following a run up of more than 80%, DANG is one I will be watching from the sidelines.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Rick Pearson is a Beijing-based private investor focusing on U.S.-listed China small-cap stocks. Until 2005, Pearson was a director at Deutsche Bank, spending nine years in equity capital markets in New York, Hong Kong and London. Previously, he spent time working in venture capital in Beijing. Mr. Pearson graduated magna cum laude with a degree in finance from the University of Southern California and studied Mandarin for six years. He has frequently lived, worked and traveled in China since 1992.

3 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,086.63 -26.91 -0.16%
S&P 500 1,987.01 +3.48 0.18%
NASDAQ 4,473.6970 +17.6810 0.40%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs