Telstra’s Chinese acquisition to grow Sensis revenue

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Telstra’s Chinese acquisition to grow Sensis revenue

Telstra’s 55 percent acquisition of two Chinese Internet businesses will help it meet its ambitous revenue targets for its Sensis division.

On the 27 June Telstra announced it had acquired the controlling stakes in two businesses, Norstar Media and Autohome/PCPop, for an undisclosed amount. The two businesses are leaders in the fast-growing online auto and digital device advertising sectors, with both businesses cash-flow positive and headquartered in China.

Norstar was originally founded by Chairman Lan Jiang and operates an auto site - Che168.com - and digital device site - IT168.com. Autohome/PCPop was founded by young Chinese entrepreneur Li Xiang and operates the auto site -Autohome.com.cn – and digital device site - PCPop.com.

Combined with the 2006 acquisition of a 51 percent stake in one of China's real estate sites, SouFun, the majority stakes in the auto and digital device sites gives Telstra a strong strategic position in the Internet advertising market of the world's most populous nation, said Telstra CEO Sol Trujillo.

"Telstra now owns majority interests in three of the leading Chinese companies operating in the three key online advertising industry segments: real estate, auto and digital devices," he said. "Combined with our majority stake in China's number-one real estate website, SouFun.com, these acquisitions provide further high-growth opportunities for our buy, find and sell business - Sensis."

David Kennedy, Ovum research director, also believes the acquisition will help Telstra meet its ambitious revenue targets for its Sensis business, which will primarily be achieved through advertising sales.

“It would be very hard for Sensis to achieve these results in the Australian market alone,” he said. “This is why Telstra has targeted large markets with growth potential like China, where it can scale up Sensis' technical and operational capabilities and grow revenue and margins fast."

Sensis CEO, Bruce Akhurst, believes these acquisitions will allow Sensis to continue to leverage core capabilities and technology in a larger, faster-growing and less mature market than Australia, and in partnership with high performing and experienced local management.

"We will devote resources to delivering the highest quality content in the different segments, build a strong sales force to monetise traffic, invest in the brands to build awareness and continue to drive revenue while improving margins," he said.

While the price paid by Telstra was not disclosed, Trujillo said the acquisitions cost "less than half what we paid for 51 per cent of SouFun in 2006".

Trujillo claimed online advertising revenues in the Chinese auto segment are predicted to almost triple by 2012, rising from US$230 million this year to more than US$690 million in 2012. New car sales in China are already almost half that of the United States, with 7.2 million cars sold this year. China is expected to overtake the United States as the world's largest auto market in the next decade.

The online digital device advertising market is expected to triple by 2012 - up from about US$235 million this year to US$700 million. Last year, 48 percent of the Chinese population had access to a digital device. By 2015, that percentage is predicted to increase to 84.5 per cent, or 1.18 billion people, with sales totalling almost US$280 billion annually, he said.

Telstra stated in a media release that all four Chinese websites under the new Telstra ownership are consumer focussed. The auto websites providing detailed information about all aspects of buying a car. The digital device sites focus on products such as computers and cameras. All four sites provide advertising and listing services for manufacturers, retailers and dealers in these products. The businesses generate revenue primarily through online display advertising and product listing fees.

According to the telco, the two Internet businesses have been legally merged following Telstra's acquisition, with operational integration to occur over the next year to capitalise on core strengths and synergies. The current executive teams at both Norstar and Autohome/PCPop will maintain key roles in the merged business.
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