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.
Further, the growth rate for Internet usage in Asia is expected to
exceed that of the U.S. in the next few years. International Data Corp.
projects the number of Internet users in Asia will grow 322% by 2003,
while U.S. growth will be at a relatively sluggish 158%.
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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