The Chinese Internet space has been a fantastic growth story through the course of 2013. Shares of Best Ideas Newsletter portfolio holding Baidu (BIDU), Qihoo (QIHU), Sohu.com (SOHU), and Tencent (TCEHY.PK) are all up at least 50% year-to-date. What do all of these companies have in common? They all have exposure to China’s rapidly-growing Internet usage as well as the country’s Internet search market.
Though the US Internet penetration level has plateaued at 81%, Chinese penetration currently sits at 42.1%, suggesting the country has tremendous room to expand Internet usage and accessibility. An even more promising comparison, the US has over 250 million total users, while China already has 591 million users (and will likely grow to 800 million by 2015). Thanks to accelerated adoption of smartphones and other mobile devices, the 800 million user mark seems like an achievable figure.
As with the US in the 1990’s and early 2000’s, Chinese Internet companies are riding incredibly powerful secular trends to success. The only difference is that mobile devices have made accessing the Internet even easier, so penetration and usage are growing relatively faster.
Though we have a healthy level of skepticism regarding the growth of the broader Chinese economy, the factors driving growth at Chinese Internet companies should be powerful enough to combat any macroeconomic headwinds.