Chinese Net Growth Hits Wall
Updated from 10:42 a.m. EDT
The Internet is one of the fastest-growing industries and China is one of the fastest-growing economies. Put them together and what do you get?
You might think you'd get the fastest-growing industry of them all. And someday, you may be right. But for now, the mythical land of hyper-growth known as China's Internet sector remains a distant prospect -- and the road leading there is proving to be a bumpy one indeed.
As the leading Chinese Internet companies report earnings for the first three months of 2005, a frustratingly familiar pattern is emerging: Ad-supported content and wireless services, areas where many believe the greatest long-term potential lies, continue to suffer from regulatory setbacks and relatively slow growth. Other areas, like games and online travel, are performing much better, but the stocks are trading at dizzying valuations.And hints from companies indicate the second quarter will bring more of the same. As a result, many of these names are down for the year. Among Chinese portals, Sina (SINA) is down 12% and Sohu.com (SOHU) is off 5%. Shanda Interactive Entertainment (SNDA) and NetEase.com (NTES), two leaders in Chinese Internet games, are down 22% and 5%, respectively. Travel site Ctrip (CTRP) has fallen 8%. Wireless company Tom Online (TOMO) has lost 23%, while jobs site 51Job (JOBS) is the worst performer of them all, dropping 74%. A series of obstacles kept revenue and profit from rising at most of these companies, ranging from government hobbling of emerging wireless services, slower-than-expected growth in new Internet users, and a bottleneck of Internet access points in cafes and elsewhere (commonplace as many Internet users can't afford PCs). Sina, perhaps the most closely watched of Chinese stocks and, at more than $2 billion, the one with the largest market cap, posted its first year-on-year profit decline since it first posted a profit in late 2002. Sina's first-quarter net income fell 36% after the Chinese government banned television and radio ads promoting Sina's fortune-telling service through text messaging. The fortune-telling service had been one of Sina's most promising lines of business. Meanwhile, at Sohu, which is often translated into English as "search fox," earnings continued to be hounded by government crackdowns in the past year on spam, pornography and phantom charges for text-messaging -- moves that have slowed the growth of new media in China. Sohu's profit slid 44% to $5.7 million, in line with what analysts had been bracing for, but the company did indicate that wireless revenue and ad spending could improve in 2005. Companies have spent the past few quarters working around the regulatory barriers and focusing on new areas of growth less likely to face them. "Wireless business has turned the corner," Sohu CEO Charles Zhang said in a conference call announcing first-quarter earnings, "indicating we have left last year's transitional and regulatory issues behind us."
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV