By comparison, RENN has cash of $1.2 billion and a market cap of $1.4 billion. Effectively, money-losing RENN is valued at a tiny premium to its cash, while YOKU (which loses more money than RENN) is valued at four times cash. RENN currently trades below $4 but previously traded at $24 (a $9.4 billion market cap!) showing just how overvalued a stock can get, and just how far it can fall when investors tire of holding a "story stock" which continues to lose money.

In short, YOKU could have quite a long ways to fall. If there is upside in YOKU, it will only happen when the company announces a surprise swing to profitability and positive cash flow. Given the missed expectations that have become consistent in the past, it is unlikely that we see this in the next 2 quarters. YOKU's clear strategy is to price its competitors out of the market with respect to content and over the long term that may prove to be a successful strategy. But over the short term, I suspect that investors will lose patience with companies that continue to lose money and burn cash at an excessive rate (even when their platform is exceptional such as YOKU's).

Because it is a money-losing, cash-burning Internet company with a $2 billion market cap, YOKU is arguably the best short pick in the China space. QIHU is either tied for first place or a close second.

QIHU is also a $2 billion market cap company, but by contrast one which is just slightly profitable. QIHU makes all of its money by selling ads on its website and through revenue sharing with game developers on its website. As a result, from a financial standpoint, QIHU is directly comparable to ad giants SINA and SOHU. QIHU has reported a market share as high as 90% for its anti-virus software and over 50% for its Internet browser, but it should be kept in mind that these products are given away for free and the only benefit derived from them is the increased traffic they can direct to QIHU's website. In comparison to advertising competitors SINA and SOHU, QIHU is dramatically overvalued, as shown below.

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