China portals face fresh challenges

November 20, 2000
Web posted at: 2:07 PM HKT (0607 GMT)

By Lisa Barron for ebizasia

Taiwanese Internet group Kimo has demonstrated the flagging fortunes of regional Web portals, selling out to US-based Yahoo! Inc. shortly after four of its Chinese counterparts reported significant third-quarter losses.

Yahoo! Inc. agreed to acquire Kimo from financial information firm Systex for an undisclosed sum just days after Nasdaq-listed chinadotcom revealed it had wiped out more than $US20 million in the third quarter of 2000.

In the same period, fellow Chinese language portal netease.com lost slightly more than $US5 million, Sohu.com posted a loss of nearly $US4.5 million and sina.com reported a $US6 million loss.

Jonathon Iu, an analyst at SG Securities, finds it a straightforward equation: the revenues aren’t coming for Chinese-language portals but the costs are still there, and stuck in the middle are the staff.

“You have huge human resources costs for salaries, wages and overheads. But the revenues from advertising just aren't coming in,” says Iu.

At the moment, electronic commerce is not generating the cash these companies had hoped for. So overseas competition is growing more intense, sometimes with additional local knowledge as in the case of the Yahoo-Kimo alliance.

Matt Adams, an analyst at investment bankers Credit Suisse First Boston, says: “This is very significant for some of the local players. Yahoo first of all on its own can easily be the spoiler in these games, can steal 10-20 million dollars of revenue in China. That could put the rest of them in to loss for quite some time.”

He adds: “At the current rates, you're looking at 2004 for full-scale profitability for all of them, some longer, some shorter. But that's what you’re looking at. It's a matter of years.”

In this investment climate, it does not seem likely that the share prices of any of the four portals will climb in the short term. All have lost between 60 and 70 percent of their value since July.

Yahoo! launches China site, defying uncertainty about ban

Chinadotcom
Sina.com
Sohu.com
Netease.com
Yahoo! Inc.
Kimo

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