China Internet Consumer Demand Remains Healthy, Buy 58.com (WUBA), Qunar (QUNR) - Pacific Crest

Pacific Crest analyst Cheng Cheng thinks investors should buy pullbacks in 58.com (NYSE: WUBA) and Qunar (NASDAQ: QUNR). He is also positive on Youku Tudou (NYSE: YOKU), Baidu.com (NASDAQ: BIDU) and Alibaba (NYSE: BABA). Comments follow a trip to China and conversations with companies and industry contacts. These conversations suggest internet consumer demand remains healthy in China, said Cheng, and he sees pullbacks as opportunities.

"We believe the industry has not slowed down due to recent macroeconomic trouble or stock volatility. We are coming away from our trip incrementally more positive around WUBA, QUNR, YOKU and 0700-HK. We are also positively biased on BIDU and BABA. We believe the recent sell-off in the China Internet space has created compelling buying opportunities. Specifically, WUBA and QUNR are our highest-conviction picks heading into the Q2 earnings period," said Cheng.

"Our conversations with advertising, e-commerce and companies exposed to online services suggest healthy Internet consumer demand in Q2 despite recent market volatility and macro-related concerns from investors. None of the companies we talked to have seen a slowdown in activity or demand from the recent Chinese market volatility," continued the analyst.

"WUBA and QUNR have both pulled back roughly 20% from peak values roughly 1-2 months ago despite increasing momentum around their core businesses, we would view both as high conviction picks heading into the Q2 earnings period," he added.

Pacific Crest has Overweight ratings on 58.com, Alibaba, Baidu, Qunar, Tencent. Youku Tudou is rated Sector Weight.

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