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China’s Nasdaq-listed stocks suffer from policy adjustment |
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Written by Administrator
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Friday, 18 August 2006 |
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BEIJING, August 18 (InfoChina) – China's Nasdaq-listed Internet companies are growing at slower paces because of the Chinese government’s adjustments on wireless VAS (value-added service), as shown in their interim financial reports unveiled one after another recently.
Looking into the future, analysts predict that online advertisement, mobile search and e-commerce will be the growth points of Chinese Internet market.
• Improved performance Vs. Lower stock prices
Although the Internet companies maintained growth in revenue and profit, their stock prices mostly dropped after the financial reports were publicized.
Netease (Nasdaq: NTES) is the third largest integrated portal website in China, dealing with online game operation, online advertisement service and wireless VAS. Its total operating revenue and profit grew by 38% and 40% respectively in the second quarter of 2006, but its stock price fell by 11% after the report was issued.
In a breakdown, its revenue from online games rose by 41.4% year on year, and the peak concurrent user population of its hottest game hit a record-high 1.31 million in the period. Thanks to the World Cup 2006, Netease enriched its contents while increased online advertisement charges, making its online advertisement income rise by 11.7% quarter on quarter. In contrast, its revenue from wireless VAS and other services grew by only 4.0% quarter on quarter.
KongZhong (Nasdaq: KONG), as one of China's largest wireless VAS providers, suffered more from tightened control on VAS. Although its total operating revenue continued a 16-quarter-around growth to hit a record 30.07 million U.S. dollars, the revenue from 2.5G service, which accounts for about 50% of the total revenue, actually plummeted quarter on quarter. In terms of its 2G service, KongZhong posted a revenue surge of 63% as against that in the previous quarter, thanks to the acquisition of Sharp Edge in Jan.-Mar. 2006.
Tom Online (Nasdaq: TOMO) concentrates on portal website and wireless service. Its stock price dropped 6.8% after its interim report came out. The company posted a revenue growth of 3.1% year on year, while its profit dropped by 3.2%. Of the amount, its revenue from wireless revenue accounted for 91.2% of its total in Apr.-Jun. 2006, only 0.5% more than that in the previous quarter, but its revenue from online advertisement service grew by 111.7% year on year and 43.9% quarter on quarter.
• Policy adjustment will continue
Internet analyst Lu Bowang attributed the decreased stock prices of these Chinese Internet companies to: 1) market’s over-high expectations on their performance; and 2) and their relative inexperience in adapting to outside changes including policy adjustment.
China’s Internet companies are generally young and rose fast over the years, with little experience in dealing with setbacks. Since China’s Ministry of Information Industry announced the industry-wide “housecleaning” and telecom major China Mobile Ltd. (NYSE: CHL) and China Unicom Ltd. (NYSE: CHU) raised their profit-sharing ratio with wireless VAS providers, these companies began to suffer their overdependence on a single business product.
Zhou Yunfan, board chairman and CEO of KongZhong, reveals that the company was compelled to reduce stuff to cut costs, promote efficiency and maintain earnings. Wang Leilei, CEO and executive director of Tom Online, predicts that the market regulation will continue to cast impacts on the company’s wireless VAS sector in the next several quarters.
• Online games face new round of policy adjustment
Compared with wireless VAS providers, Internet companies operating online games continued their boom.
According to company financial report, The9 (Nasdaq: NCTY) generated 99% of its net revenue from the operation of its hottest online game, “World of Warcraft”. Its net profit was 43% higher than the first quarter, while its operating revenue grew by 360% year on year and 21% quarter on quarter. Because of the higher-than-anticipated performances, The9’s stock price rose 11% after it unveiled the report.
But Lu Bowang sees the boom temporary, as the industry by far still stays clear of policy chances, likening the suffering VAS providers to “overturned carts” in front of China’s online game operators.
The operation modes of online game companies are also worrying, Lu said. Take Netease for example. The user population of its new game dropped by 60-70% immediately after the company began to charge. Under that context, Ding Lei, CEO of the company, concluded that game operators should constantly upgrade the games with new contents so as to extend their live spans.
Lu predicts that companies concentrating on online advertisement, mobile search service and e-commerce have larger growth potential.
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Last Updated ( Friday, 18 August 2006 )
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China Stock News