The Best Web Play in China

While the Chinese government seeks to slow its economy, the Internet business is booming. But it can be tough, Cramer said, finding a way to play it.

China’s supposed slowdown does not seem to be affecting Baidu, the “Chinese equivalent of Google,” whose share price grew by 227% over the past year. It did a 10-for-1 split yesterday, turning a $700 stock into a $70 one, but it’s likely still too expensive for the average investor. And it used to be that you could turn to Google for Chinese exposure, but the company recently pulled out of the country after accusing the government of censorship.

“So where does that leave us?” Cramer asked. “How about the most underappreciated play on Chinese Internet use in the market: Yahoo! .”

Aside of having full control of Yahoo! China, the Sunnyvale, Calif.-based company controls 44% of the Alibaba Group, which owns 70% of Alibaba.com, a leader in the Chinese e-commerce space. Alibaba Group reported a “fabulous” quarter today, Cramer said, and the company has a known presence on the Web. Two of its most popular properties – TaoBao and AliPay – are private, though, and analysts often don’t take them into account when they value YHOO.

So, “I am advocating that Yahoo! sell them,” Cramer said, to unlock that value.

Like eBay, Taobao is a place for buyers and sellers to connect directly. Taobao is half the size of eBay, however, but growing much faster, with $29 billion in gross merchandise as of December 2009. eBay’s gross merchandise totaled $59 billion in 2009, while Amazon Marketplace had $35 billion. AliPay is the Chinese version of PayPal, which facilitates more than 5 million online payments worth more than $176 million a day. It owns more than half of the online payments market. This should be worth $600 million to Yahoo!, Cramer said.

All together, Taobao, AliPay and other smaller assets combined with Yahoo!’s non-public China holdings are worth about $3.5 billion. Cramer thinks its value will only continue to grow.

“If China IPOs its underappreciated holdings in the People’s Republic,” Cramer said, “I think this stock, which is already worth buying thanks to the turnaround by CEO Carol Bartz, will soar.”

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