China.com Answers One Question, But Others Remain
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The only question about China.com remaining on Tuesday is whether the Asian portal's stock price will go even higher before the trading bell rings.
As expected, China.com's IPO blasted off the Nasdaq launch pad Tuesday, opening at $45.75 - more than twice the $20 offer price set on Monday - and quickly rising to $66 per share before noontime, before falling back to $56.63.
Beyond Tuesday, however, the same larger questions remain about the company's chances of becoming both "the AOL of China," and a profitable company.
That China.com is one of the hottest recent IPOs is no surprise. Market size is one of the first things that professional investors consider when assessing a company, and China has a population of 1.2 billion, more than four times the number of people in the United States.
More important, IDC predicts there will be 181 million U.S. users by 2003, meaning the market will be closing in on maturity. Compare that to Asia, where IDC forecasts there will be only 100 million users, or less than 10% of the population, by 2003. That translates into years of market growth potential.
But there's hardly any guarantee that China.com will become a dominant player in the Asian market. Despite its enviable Web addresses - www.china.com, www.taiwan.com, www.hongkong,com and www.cww.com - the company generates only 100,000 hits a day. In contrast, market leader sina.com gets more than 2 million hits a day.
The main reason for this is clear. China.com is the online mouthpiece of the Chinese government (its content is screened by Xinhua, the state's official news agency). As such, it is not fully trusted, and not particularly interesting, especially when compared to what else is available on the Internet.
And it's what else that is available on the Internet that poses a risk to China.com investors. The Chinese government is not comfortable with the unprecedented information flow provided by the Internet, so the real wild card here is a potential government decision to restrict access to cyberspace. That could have a huge impact on the growth of China.com's audience and revenues, which were $3.5 million in 1998, against a net loss of $8.5 million.
Another factor working against revenue growth is the lack of credit-card usage in China. Credit cards are the driving force behind e-commerce, which many analysts believe will be the source of real revenue growth for portal sites.
Without that revenue stream, it will take a long time for China.com to grow into its $1 billion-plus valuation.
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