What's wrong with me being a rich man?

Chapter 407 Mouse Exchange Meeting

As industry veterans, Yu Xing and Liu Wanying jointly reviewed the short-selling report on 360 issued by "Real Research".

360's stock price broke through a 52-week high after entering July, and yesterday's closing price was $50.2, with a market value of over $61 billion, making it a major target for short selling.

Moreover, this is not the first time 360 ​​has been targeted by short sellers. From November 2011 to March 2012, Citron Research, a well-known short seller, launched six consecutive short-selling attacks, attempting to suppress 360's stock price from various angles.

Citron Research has criticized 360's management, belittled its website navigation and web game revenue, and attacked the company for accounting scandals...

It can be said that 360 is the company with the most experience in fighting short sellers in China.

Therefore, the choice made by short seller A-Zhen this time is not logically advantageous.

—“360’s market value has deviated from the industry average. Its price-to-earnings ratio is 75, while Baidu’s is 30 and Tencent’s is 35. This market value is based on the market’s expectation of its dual-engine growth of ‘search + security’, but 360’s search business actually contributes less than 5% of its revenue.”

Liu Wanying read aloud this sentence from the report, then turned to Yu Xing and asked, "What do you think?"

“That makes sense. Putting aside future trends, Zhou Hongyi has mentioned the importance of search on many occasions, but his actual investment doesn’t quite match his statements,” Yu Xing said, adding, “But this is just an opinion and can’t effectively damage the stock price.”

Liu Wanying nodded slightly, carefully reading on, and soon noticed another explanation.

—“360’s Q1 financial report this year shows that revenue increased by 141% year-on-year, but the relevant data is inflated. The company recognized the revenue from navigation page advertising in one go, while the actual advertising cycle for advertisers is 3-6 months. This accounting treatment inflated short-term revenue.”

—"In order to maintain its market share, 360 spent at least $2 million on channel promotion in the first half of the year, such as the pre-installation market on smartphones in China, but this cost was not fully reflected in the Q1 financial report."

Yu Xing stared at the spot where Xiao Ying was pointing, especially at the description of the pre-installed market below, including the competitors Baidu and Tencent in the pre-installed market, as well as their similar products in security software.

He looked at it from left to right and muttered, "This thing... JD.com is a major client of 360. I've talked to Mr. Xu about the pre-installation market several times. This...this..."

Liu Wanying suppressed a laugh and said in a serious tone, "This short-selling report is not rigorous. Why didn't you include any citations? You should have included your name. It might have increased its persuasiveness. You, President Yu, are a number one figure in the industry."

Yu Xing shook his head repeatedly and looked down at A Zhen's explanation of 360's cash pressure, saying that its accounts payable and short-term borrowings totaled $8 million, and its cash flow coverage ratio was 1.5 times, while Baidu and Tencent's were 3.2 and 4.1 times, respectively.

The first part of this short-selling report is an attack on 360's financial data.

Yu Xing and Liu Wanying continued browsing and found that the report was quite well-structured. In addition to financial data, it provided a complete explanation of the development of the mobile security market, changes in competitors, and even the overall rise in the valuation of Chinese concept stocks.

Two of them are particularly noteworthy.

"Baidu is about to acquire 91 Mobile Assistant. The 'Baidu Security Manager' launched in April this year will strengthen its mobile entry point by leveraging app distribution, directly threatening 360's mobile security business."

"Tencent and Sogou are expected to reach a close cooperation within the year. Their combined search market share will compete fiercely with 360 Search, while the market share of Tencent QQ Browser and Sogou Browser will also put pressure on 360's browser."

Baidu's acquisition of 91 Assistant and Tencent's close cooperation with Sogou are all things that have not yet been officially announced.

“Ah Zhen’s news looks very real, but the problem is that both of these pieces of information are currently not publicly available,” Liu Wanying commented, taking a sip of her cold coffee. “Using non-public information for short selling is really suspected of being illegal.”

She changed her mind and added, "It violates Rule 10b-5 of the U.S. Securities Exchange Act by trading on non-public material information."

In the past, Guoshanfeng's short selling was almost always done through public channels. For example, he counted the screens of Fenzhong himself, and he bought Mitsubishi's engines through public channels for testing. There was only one instance where he was suspected of involvement with Alibaba's Alipay.

However, the focus at the time was mainly on Yahoo and Alibaba, and in judicial practice there is a distinction between "disclosing fraud" and "misuse of information," so the SEC did not launch an investigation into Guo Shanfeng.

The disclosure of these two pieces of information in succession from this "real research" is very likely to trigger this clause.

Yu Xing nodded slightly, and after reading the short seller's report, he flipped back and quickly skimmed through it again.

After he finished reading, Liu Wanying asked, "How did you feel?"

Yu Xing hesitated for a moment, then said with a somewhat strange expression, "Azhen and the others must have referred to Citron Research's short selling of 360, but as I read this, I don't know if it's just preconceived notions, but this report sounds more like an investor analyzing a project."

Upon hearing his words, Liu Wanying quickly reviewed the document again and couldn't help but laugh, "Yes, now that I'm reading it, I feel like I can hear President Xu's voice speaking in my ear."

Short selling by overshooting peaks tries to use concrete evidence of fraud to support their claims, and then analyzes the data around that fraud. However, while real research does discuss financial data, it focuses more on industry conditions and competitive landscape.

Others might not have noticed, but Yu Xing and Liu Wanying, with their extensive experience in short selling and frequent discussions about the pros and cons of industry investment, quickly recognized this "unprofessional" short selling.

In stark contrast to this unprofessional short selling, 360's stock price has been barely affected; the 0.35% drop since the opening is entirely within the normal range.

At the same time, Zhou Hongyi, who had extensive experience in fighting short sellers, reacted quickly and said disdainfully, "This rat who popped up out of nowhere is not worth mentioning. He's not even as good as a citron. There's nothing to say about him." Azhen launched an attack.

Ah Zhen's attack is over.

Yu Xing, observing this action which could hardly be called short selling, was somewhat at a loss for words.

Liu Wanying then posed a question: "What do you think of this analysis concocted by Mr. Xu? Can 360 become a target for short selling?"

“It’s not entirely unreasonable, but it lacks more compelling support. Things like Baidu’s acquisition or Tencent’s cooperation take time to show their effects,” Yu Xing pondered. “Moreover, the domestic smartphone market is developing so rapidly that any company that can be associated with this concept will rise along with it. 360 is not a suitable target at least at this stage.”

Liu Wanying thought it made sense and silently wrote this opinion down in her notebook.

Xu Xin and Li Song both thought it made sense and quietly wrote it down in their notebooks.

The following evening, feeling rather disheartened, they treated each other to dinner. Coincidentally, they saw Yu Xing's new video on Weishi and successfully arranged to meet two industry veterans.

During the meeting, neither Yu Xing nor Liu Wanying mentioned "real research"; one talked about cars, and the other about short and long videos.

Li Song couldn't help but mention the "big event" that happened yesterday.

This almost certainly confirms that these two are the ones behind the short sellers.

Yu Xing pretended to be taken aback when he heard the question, and asked in return: "Oh, you mean that yesterday? Was that short selling? I don't think so, there wasn't much of a commotion, it was like, well, like throwing a pebble into the sea, is there anything to talk about?"

Li Song's expression was somewhat stiff.

Xu Xin, however, frowned openly and said, "I've never heard of that organization before, but I've briefly looked at their report, and it doesn't make no mistake. Mr. Yu, what do you think of 360's future development?"

“The world is too big, and there are too many organizations I’ve never heard of. I wonder where they’re hiding, like rats in the dark.” Yu Xing casually stated his position, then added, “As for 360, there’s a very important problem that I don’t know if they can solve.”

Xu Xin perked up and asked, "What's the problem?"

"When we were making Ad Buster, we didn't really think it was that technically difficult," Yu Xing said seriously. "Are any of the things 360 is doing on mobile devices now that have very high barriers to entry? It can make security software, and Tencent and Baidu are doing that now. It can make mobile app stores, and in the future, won't Huawei, Xiaomi, and Vivo make their own app stores?"

"No matter how powerful 360 is, can it stop hardware manufacturers from eating their own food? It has invested a lot of money in the pre-installation market from last year to this year, but hardware manufacturers can choose not to spend that money because they can get more profits if they do it themselves. This kind of conflict of interest is inevitable."

Yu Xing concluded by saying, "Why did the 'Ad Buster' software develop so quickly? Because there are just too many ads. This kind of thing isn't sustainable. Domestic policies may be slow, but they're not nonexistent. They will definitely be regulated, which is a very important issue."

Xu Xin and Li Song couldn't help but exchange a glance.

"I feel that 360's stock price is inflated," Li Song said somewhat indignantly.

Yu Xing shook his head, disagreeing with this view. He then brought up what he had discussed with Xiao Ying, saying that the timing was not right and going against the trend would make it difficult to cause any damage.

Xu Xin was quite convinced after listening and exclaimed, "It's people like you who are working on the front lines of the industry who see things clearly. 360's competitiveness will be weakened, but not at this stage."

Liu Wanying then laughed and said, "That makes sense. That short seller's report looks like a disagreement, not short selling. It's inexplicable."

A sense of embarrassment flashed through Xu Xin and Li Song's minds simultaneously.

Yu Xing poured himself a glass of wine, shook his head dismissively, and said, "They're all rats, nothing to talk about, especially this little rat, he can't even do short selling properly."

Liu Wanying glanced at the big rat's disdain, then at the two silent little rats out of the corner of her eye, and with a smile, brought up another minor rule violation.

Upon hearing this, Xu Xin was shocked. After calming herself down, she asked, "Mr. Liu seems to be quite knowledgeable about this?"

“Yes, I did look into it. When the media reported on that mountain climbing incident in China, I was curious and looked into it.” Liu Wanying answered just as frankly. “This time, when I saw this ‘real research,’ I felt that something was off, but I’m not sure how it was defined.”

She laughed and said, "These kinds of short-term scams are quite fun. It's even more interesting if you don't make any money, get investigated and sued, and end up in jail."

Li Song remained silent, head down, drinking his wine. Short selling is unprofessional; tears streamed down his face...

Xu Xin paused for a few seconds before offering a sincere assessment: "The actual research is far inferior to that of Guo Shanfeng."

It's far better to cross the mountain peak; it's simply... a lowly rat.

(End of this chapter)