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Internet 2001: For International Portals, Grass is Just As Red

Remember all that investor excitement about those wide-open international mega-markets in China and Latin America? Back in 1999, aspiring portal companies and their backers were salivating at the prospect of capturing the online allegiance of millions of new Web surfers and shoppers in untapped and underserved markets.

Things haven't quite worked out as expected for the numerous international portals that went public in the past two years. In fact, rather than flexing their muscles in Asia and elsewhere, virtually every international portal player faces survival questions. That's because, like in the U.S., advertising revenues are down, and Internet penetration is much slower than expected.

Indeed, Merrill Lynch on Tuesday issued a gloomy forecast for the Chinese advertising market, slashing its forecast for 2001 to $80 million from $120 million.

In China, consolidation is coming fast. One Chinese portal, Netease.com, last week hired Goldman Sachs to find a buyer or merger deal. And in December, Chinese news media reported that Chinadotcom was seeking a multiple merger with Netease.com, Sohu.com and Sina.com. The companies denied the report, but that's the kind of climate that exists.

Sohu.com, meanwhile, announced in December that it would lay off 20% of its workforce after purchasing ChinaRen.com in a $30 million stock deal.

All of the China portals are losing money, too. Here are numbers from Q3:

Ticker           Company     Revenue   Net Loss  Per Share

   Chinadotcom  $36.5M    $20.5M    $(0.21)
    Netease.com    2.6M      5.0M     (0.01)
    SINA.com       7.2M     10.2M     (0.26)
    Sohu.com       1.6M      4.0M     (0.14)

What strikes me are the low revenue totals: less than $50 million between the four companies. Not exactly reflective of the huge potential of the China market. And when you factor in Merrill Lynch's new advertising revenue forecast - which I suspect might even be slightly optimistic - and it's hard to see how any of these companies will be able to grow in the coming year.

How about the pure Latin American portals? Even worse on a per-share loss basis, I'm afraid. Here are Q3 numbers for StarMedia Network, quepasa.com, El Sitio and AOL Latin America:

Ticker           Company     Revenue   Net Loss  Per Share

    StarMedia    $17.1M    $36.0M    $(0.54)
    quepasa.com    1.0M      7.9M     (0.45)
    El Sitio      11.0M     21.0M     (0.47)
    AOL L.A.       4.6M    100.1M     (2.93)

For investors, the bottom line is that these major international markets are still in their nascent stages, relative to the U.S., and not likely to support profitable portals in the near future.