It's official, my fellow Americans. We are no longer the nation with the largest population of Internet users.
There are now 253 million Chinese citizens who routinely surf the Web, according to the China Internet Network Information Center. Nielsen Online pegs the American audience at 223 million.
It was really just a matter of time. China has 1.3 billion people, or roughly four times the population of the United States. It won't be long before India -- with 1.2 billion residents -- laps us, too.
Perhaps the most eye-opening aspect of stepping down to the silver medal podium is that China is really just getting started. Web use soared a whopping 56% over the past year in China, and 253 million is actually less than a fifth of the country's citizenry. It's a far cry from our country's more mature 71% penetration rate.
This naturally creates investing opportunities. Growth investors can't ignore the usage surge and the market penetration upside. Although China is restrictive, and many of its Web users who lack home or office connections are down to hitting the roughly 100,000 Internet cafes for access, this is a market that will grow exponentially as the economic boom continues.
A few ways to play the game
So where does an investor turn to get some skin in this game? Thankfully, there are plenty of fast-growing companies that trade on stateside exchanges. Here are a few:
It is often described as China's Google
(NASDAQ:GOOG)and with good reason. China's leading search engine's market share slice is roughly the same as Google's cut in the United States.
This week's quarterly report was a beauty. Revenue doubled. Earnings shot up by 87% and would have actually more than doubled if not for the company's overseas investment in its new Japanese search engine.
Given all this, why is Google's market cap 14 times greater than Baidu's valuation? Slow down there, grasshopper. There are good plenty of good reasons:
- Baidu's presence is only in China, despite its recent entry into Japan.
- Google is not only global, but actually China's second largest search engine.
- China's usage may have lapped the United States, but the actual spending power -- per capita -- is still years, if not decades, away from catching up.
This doesn't mean that a risk-tolerant growth investor should ignore Baidu -- it's an especially good way to diversify from the stateside malaise that has plagued Google and its peers in this softening ad market.
Sohu's Sogou search engine isn't as popular as Baidu or even Google, but the company offers another pure play on China's Web boom. The company reports earnings next week, and it should be a solid report if it follows Baidu's healthy lead.
Sohu did take a hit last month, when it warned that Internet advertising would grow by just 20% to 30% next year, after climbing by as much as 45% this year. However, the market still has a long way to go before it matures. Do you remember when the stateside market penetration ran at 19%? Was Google even public then?
As a bonus, Sohu is the official Internet company of the upcoming Olympic Games in Beijing. Even if many will prefer to see the games on television, Sohu is bound to be a hotbed of traffic as folks stay abreast of result throughout the hometown events.
China Finance Online
Serving up stock market subscription services is familiar territory for me, but China Finance Online is scoring big in China. When you couple China's Internet revolution with the stock market appetite for more than just hot tips on cocktail napkins, here's a company that is gracefully riding both trends.
Just take a peek at the company's most recent quarter. Even as the Shanghai market suffered its biggest quarterly hit in 15 years, China Finance Online saw its earnings nearly quadruple on a 177% spike in revenue. The market's turbulence actually helped the company land budding investors seeking premium due diligence.
There is no such thing as showing up too early. AsiaInfo moved to China in 1995, helping set up the Internet infrastructure for the country's major telecom carriers. Yes, AsiaInfo also has its hands in more ho-hum telecom services these days, but it's still there to beef up corporate IT solutions as Chinese companies go online.
AsiaInfo is no slouch. The company exceeded its guidance in last night's report, with profits more than doubling as revenue inched 42% higher in its latest quarter.
Just show up
Naturally there are many other ways to play the online boom. You have online gaming companies like The9
The point is that you can't ignore the news. We've been lapped, kid. As long as you can stomach the geopolitical risk of a hotbed country like China, there's a world of investing opportunities out there to explore.
Other ways to stamp your passport:
Baidu and Google have been recommended to Rule Breakers subscribers. Pick a newsletter -- any newsletter -- and the free 30-day trial subscription is on us.
Longtime Fool contributor Rick Munarriz is a fan of China's growth story but he does not own shares in any of the companies in this story. He 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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