All Eyes on Focus Media

In a week many will remember as the one in which China was humbled, one unlikely winner may be Focus Media (Nasdaq: FMCN  ) . A day after the Shanghai exchange shed nearly 9% of its value, China's advertising agency announced that it would be acquiring online advertising pioneer Allyes. The cash and stock deal is valued at $225 million initially, though performance incentives may push the value up to $300 million.

Allyes was gearing up to go public later this year. Tuesday's market scare may have been the final blow that sent it tumbling into Focus Media's waiting arms.

Allyes is a giant in Internet advertising. Its AdForward platform is used by several dot-com heavies like SINA (Nasdaq: SINA  ) and leading auction site Taobao. The company's SmartTrade offering is a popular performance-based advertising network, akin to ValueClick's (Nasdaq: VCLK  ) Commission Junction affiliate marketing service.

The future may not necessarily belong to Allyes. If China follows the same path as the United States, it will ultimately be the search engines like Baidu (Nasdaq: BIDU  ) and Google (Nasdaq: GOOG  ) that dominate the online advertising market. Focus Media will be a good suitor in that sense, expanding the sponsor pool for Allyes.

Focus Media obviously won't mind the high-margin potential of online advertising. Its current model entails installing televisions in various areas, like stores and buildings, with a large amount of pedestrian traffic. It then sells the sponsored slots to advertisers. It works -- especially in a country with 1.3 billion residents walking about -- but Focus Media was a natural to take the next step into cyberspace.

Its network of 124,000 flat-panel display units, 99,700 posters, and 200 outdoor LED displays is prolific but limited to physical expansion. The heavy lifting is a lot easier on the Web now that Focus Media simply has to wait for China's population to continue its online migration.

It may not be as easy as that, but it's good to know that Focus Media made the most of a tumultuous moment earlier this week. Risk-tolerant investors may want to think about doing the same thing.

Baidu is a recent selection in the Rule Breakers growth-stock newsletter service. SINA is a Motley Fool Stock Advisor recommendation.

Longtime Fool contributor Rick Munarriz has been to mainland China just once, but he's longing to brush up on Mandarin and give it another go in the future. He does not own shares in any of the companies mentioned in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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