Tech Market WatchBy Perry Wu
Lots of cash can be intoxicating, especially if you're a Chinese Internet company. In fact, cash-toting Chinese Internet companies should almost be oulawed because investors have seen too often how newly-minted Chinese public companies have put their cash to awful use.

Take Shanda (SNDA) (please). First the company claimed it was a premier online games company, which it was and still is. But after Shanda went public and raised several tens of millions of US dollars of cash, the company, like a rich housewife with nothing better to do, suddenly decided it wanted to be a full-fledged portal, and started buying up shares of (SINA), the 'Yahoo of China'. So far the equity markets seem to have taken this in stride, and have not punished Shanda's stock price, but this benign reaction may not last.

But, there are exceptions to this type of behavior and eLong (LONG), the online listed Chinese travel agency and competitor to Ctrip (CTRP), has now proved this. For the past half-year, Elong has been on a roll. In December, IAC (IACI), the Diller-run American company, exercised its rights to purchase more of eLong's stock, flooding eLong's coffers with money (at last count, eLong had a bit more than US$100 million on its balance sheet). Even though this was sort of a sweetheart deal since Diller got his shares at a considerable discount to the market price, eLong will probably benefit in the future from Diller's contacts and deal-making.

Then we learned at the beginning of this month that eLong has used some money to purchase Shanghai Xinwang Computer Tech Company, one of China's major hotel consolidators, operating under the "Fortune Trip" brand name. Imagine that! A Chinese Internet company is actually using its capital to buy a similar business. Fortune Trip had total bookings of around 250,000 last year and essentially does the same thing as eLong. eLong's acquisition of this company is utterly rational; it takes a major competitor out of the picture and immediately adds highly usable call center and technology assets.

Separately, eLong has now entered into an agreement with, making eLong the exclusive travel site for Sina's portal. This makes a lot of sense for both companies because both companies can now concentrate on what they do best: eLong with its travel business, and Sina with its portal. Unlike Shanda, with its illusions of grandeur in trying to outdo Sina in the portal business, eLong has approached this deal in the right way by simply focusing on its travel business.

So until now, eLong has bucked the trend of other newly public Chinese Internet companies. It has stayed true to its core travel business and has resisted the temptation to use its money in foolish endeavors. But stay tuned: in the language of American baseball, this is a nine-inning game and eLong is barely out of the second inning.

About the author:
Perry Wu is a writer and correspondent for and can be reached here at the site. Perry Wu does not hold any positions, long or short, on any of the Chinese or American company securities mentioned in this article.


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