China's Internet firms soar

By Elaine Kurtenbach
Associated Press

HONG KONG — After years of losses, China's three biggest Internet portals are making a sharp turnaround, posting their first profits and turning into a rare bright spot on the slumping Nasdaq Stock Market.

Chinese youths use the net portal Sina.com for a live broadcast of a press event announcing its new online game in Beijing this month. China's three main Internet portals are moving toward profits after years of losses. Associated Press

The services still have to contend with China's low incomes and slow adoption of online commerce. But the turning point came when China Mobile, its biggest mobile-phone company, introduced a system last year called micropayment that lets portals share in revenues for wireless Internet access.

Now NetEase.com Inc., Sina.com Inc. and Sohu .com Inc. can charge users who visit their Web sites via short message services, or SMS — brief text messages sent on mobile phones. The portals get about 20 cents each time a mobile user downloads information or games.

"These guys are getting fat off the crumbs off China Mobile's table," said Steven Schwankert, an industry expert in Beijing.

Analysts say that, unlike Western markets, which are considered saturated, China still has plenty of room for more fast growth.

It had 200 million mobile phone subscribers at the end of December, and the number is rising by 4 million a month, the government says. China Mobile says users sent 80 billion SMS messages in 2002, up from 15.9 billion in 2001.

NetEase became the first to turn around losses, eking out a $4,600 profit for the three months ended in June.

Sohu said it made $112,000 for the three months ending in September — its first statement under U.S. accounting standards. Sina said it expects to report a profit for the year.

Investors have responded by driving up the stock prices of Chinese dot-coms.

NetEase was the tech-laden Nasdaq's biggest gainer last year, as its share price skyrocketed 1,661.5 percent to $11.45 — far from its nadir of 69 cents in October 2001.

Sohu was the Nasdaq's fifth-biggest gainer, soaring 433.3 percent to $6.40 a share. It traded as low as 87 cents in April. Sina leapt from a low of $1.40 in April to $8.43 by the middle of last week.

China's Internet startups listed on Nasdaq in mid-2000 at the height of the Internet boom, raising a huge pile of cash.

But all saw their share prices plummet as losses mounted. At one point, NetEase was threatened with removal from Nasdaq after it missed financial reporting deadlines.

Hu Xiaodong, manager of a Chinese investment fund, said he started to notice the turnaround last year, about the time China made its debut appearance in the soccer World Cup in South Korea. Soccer fans piled into sports sites to follow the team.

"There was a big jump in revenues, but it gained momentum and continued to climb after then," said Daniel Mao, chief executive at Sina.com.

Transmission speeds have been rising, from below 9.6K bits per second in the summer to as high as 30K bps by November. Mao said that because the amount of data is necessarily less than what would be received by a PC, Web surfing is fast enough to be "bearable."

Moreover, the importance of wireless access has been growing for many after a safety crackdown on Internet cafés left many with less access to computers. Chinese authorities have closed more than 3,300 cybercafés this year for failing to meet fire codes or lacking required licenses.

Hoping to build on their success with online gaming and text messaging, the companies are exploring new options, such as online dating services and stock trading.

"SMS is still growing, and there's no indication it will slow down. But the companies are all looking for ways to branch out beyond SMS," said Nathan Midler, an analyst with International Data Corp. in Beijing.

Users of the China Mobile cell phones can opt for subscription services via one of the big Web sites that will select, for example, 15 top news items to transmit daily. They also can download pictures of celebrities, cartoons like "Dilbert," or an assortment of icons, including "Hello Kitty" and "Miffy."

Mao said such services are bringing in about $3 million per quarter. One of Sina's more popular ring tones features the calls of rare bird species.

"Users are crazy for those things," he said.