Chinese Portals Keep Soaring

Only among Chinese Internet companies can a stock more than sextuple in value over the past year -- and still look like an underachiever.

That frightening thought was spotlighted Monday by chinadotcom's CHINA announcement that it had settled various claims with major shareholder AOL Time Warner AOL. The Hong Kong-based software and Internet/wireless portal company, which rose about 2% Monday to trade at $12.80, is now up 580% from its 52-week low of $1.89 per share.

Meanwhile, portals Sina SINA, Sohu SOHU and NetEase.com NTES -- each of which was trading below $2 a year ago -- were all trading north of $35 Monday. (NetEase.com is slated to report second-quarter financials after the market closes Monday.)

The gains illustrate that as U.S.-based Internet companies have enjoyed their own run-up over the past year -- Yahoo! YHOO, for example, has tripled in price -- the mood has gotten infectious.

Certainly, the Chinese Net stocks have shown revenue growth and improving bottom lines. But valuations are high enough to give once-burned U.S. tech investors reason to pause.

In the second quarter ended June 30, for example, Sina's revenue jumped to $26 million from $8.6 million one year earlier. The company posted earnings according to generally accepted accounting principles of $7.1 million in the quarter, or 14 cents per share, compared with a $1.9 million loss one year earlier.

Using the Thomson First Call consensus expectations for 2003 -- which exclude amortization of intangibles, stock-based compensation and other items -- Sina has a price-to-earnings ratio of 58 times. Sohu is trading around 53 times earnings, and NetEase.com is at 43 times. In comparison, Yahoo! trades at 92 times GAAP earnings.

As far as chinadotcom is concerned, AOL Time Warner may have decided the time was ripe to get out. AOL had warrants to buy 18.5% of chinadotcom's total outstanding capital at the price of $5 per share -- warrants that were set to expire in July. Monday's agreement canceling the warrants gives AOL the ability to sell its long-held stake of 6.8 million chinadotcom shares, according to chinadotcom. An AOL spokesman didn't immediately respond to a request for comment.