HONG KONG -- If
were as good at making profit as it has been at timing its stock offerings, the company would deserve to be at the top of every buy list in America.
Although it has no earnings to speak of, Chinadotcom is sitting on piles of cash. With $561 million at the end of the first quarter and a "burn rate" (the rate at which it depletes cash) of $3 million a month, the company has literally years to get its Web businesses right. Unlike companies that had hoped to acquire other firms using pricey stock, Chinadotcom can pay cash for whatever the New Economy finally decides is a viable Internet-related business.
Sitting on so much cash, the last thing the company needs to do is hard sell its prospects for earnings. "Give us a couple of quarters," COO Peter Hamilton told
. "We're well on the path."
And while the company's stock, currently just below 23, is way off its high of 78 reached in March, "the market correction is creating opportunities for us," says Hamilton. He may be right: How many other Internet companies have more than a decade of cash on the balance sheet?
The company may need much of that cushion. Anyone who thinks that being first mover on the Web in China is a passport to riches will be quickly disappointed by what Hamilton has to say. In China, "50% of the people using the Internet never used the Internet six months ago. So the idea that China is anytime soon going to be a major generator of revenue is still a bit misguided. 'Ambitious' perhaps would be the right word," he says.
Chinadotcom was first out of the gate to acquire the domain names for
. It was the first Chinese Internet portal to list on the
and managed to raise more than $80 million when it went public a year ago. When the going was still good, it raised an additional $282 million in a secondary offering in January. And in March, it got another $172 million when it listed its Hongkong.com subsidiary on Hong Kong's second board.
Today, the capital markets are not nearly as happy to fork over money. In the year to March, "suddenly you woke up and you were working in a fashionable industry. And then three months ago people stopped talking to us again," says Hamilton. The reason is that like most dot-com companies, Chinadotcom still makes no money, and declines to offer firm forecasts about when it will.
In fact, even some of Chinadotcom's business partners, like Web advertising company
, as well as insiders, including Chairman Raymond K. Chien, have filed with the
Securities and Exchange Commission
to sell shares.
Although Chinadotcom's three portals got most of the attention during its IPO last year, Hamilton says it was actually Chinadotcom's "Web solutions" business in China that generated the highest revenue last year.
The result: With operating revenue of just $20 million in the first quarter, Chinadotcom has a market value of $2 billion. By way of comparison,
has revenue 28 times that of Chinadotcom's but a market cap just nine times as big.
Hamilton cautions that his company has a long way to go to catch up to the business volumes American Internet companies are already recording. "Now, in Hong Kong, we have about 3 million page views a day on Hongkong.com, which to me is very, very small.
has 300 million page views a day."
What about the vast potential of China, an admittedly poor country, but an economy supposedly growing at 7% a year? For starters, consider that last year the electronic commerce market in China was worth $6 million, making this year's probable rise to $42 million seem less than impressive, even though it amounts to 600% growth.
Hamilton conceded that it would be all but impossible for China's market to reach $3.2 billion by 2002, as forecast by
International Data Corp
. In China, money generated from selling things over the Internet "is not there in any real sense today," he says. As for the "Web solutions" part of the business, having leapt from sales of $2.5 million two years ago to $12 million last year, China is still "at the picks and shovels" stage in Web construction, he says.
Is Chinadotcom worth buying? Not many analysts follow it, and because the official
Xinhua News Agency
owns part of the company, any analyst offering a negative opinion of the stock could incur the wrath of the influential news agency.
Merrill Lynch, which did not underwrite Chinadotcom, has an intermediate term accumulate rating on the stock, and does not forecast operating profit until 2002. At Monday's closing price, that gave Chinadotcom a forward price-to-earnings ratio of 133 times.
For those who bought the stock at its high and have hung on, that cash cushion must at least provide some comfort as they settle in to wait for real earnings.