China online advertising underestimated

We were interested to see this long-ish post on the China Stock Blog from W.R. Hambrecht analyst James Lee. He believes that "recent checks indicated that the online advertising market could be once again underestimated in China" and has upgraded Sina Corp. as a result. He is targetting a share price of $45, about 30% over where it ended yesterday.

Lee notes "Advertising agencies we spoke with estimated that as much as 10% of ad dollars could go to the Internet, representing roughly 50% upside to our industry forecast ($1.3B vs. our $882M estimate)".

He also picks on Yahoo!'s planned exit from the mainstream portal business (on which we commented yesterday) as a plus for Sina. On Alibaba's decision for Yahoo! China he notes "makes sense given the company’s synergies with e-commerce sites such as Alibaba (B2B) and Taobao (C2C). After moving back and forth between portal and paid search, Yahoo China’s market share of online advertising revenues dropped from 9.5% in 2005 to 8.0% in 2006. Despite a smaller market focus, we believe that Yahoo! China will differentiate itself on the core strength of Alibaba’s e-commerce. We believe the company should build its search to facilitate e-commerce transactions in B2B, B2C and C2C results".

Update: for information on a more general report about online advertising, see the press release from Outsell that we have posted on our BSG News blog.