Alarm bells for Chinadotcom

In this story: Xinhua disposal plan 'Things could get worse' RELATED STORIES, SITES

By Kristie Lu Stout

HONG KONG, China (CNN) -- Hong Kong-based Internet high-flyer Chinadotcom, once the darling of Internet investment analysts, has joined the ranks of down-to-earth dotcoms.

Formerly a top Internet recommendation for the region, Chinadotcom has turned supporters into skeptics with reports that key shareholder Xinua News Agency plans to sell off part of its stake.

A failure to release results on schedule in addition to Xinhua's disposal plan is dampening sentiment in a company that was one of the few remaining Internet investment targets in Asia.

Xinhua disposal plan

Last week, Chinese state news agency Xinhua filed a request with the United States Securities and Exchange Commission for approval to sell 1.41 million shares.

The news agency sits on an 8.4 percent total stake in the Nasdaq-listed Chinadotcom, and has been regarded as the portal's line to Beijing.

QUOTE "We stress that things could get worse at the company before they get better." - Rajeev Gupta, Goldman Sachs

"If Xinhua decides to sell their hold, that would put pressure on the share price," ABN Amro Internet analyst Jahanzeb Naseer told CNN.com.

"But it should have limited downside."

Chinadotcom is declining to talk about Xinhua's move to sell off part of its stake in the portal.

'Things could get worse'

However, analysts say Chinadotcom's delay in announcing results is more disturbing. The company has been postponing its 2000 results for more than three weeks.

In a recent email circular, Goldman Sach's Rajeev Gupta said "Chinadotcom has delayed its December-quarter results release, which we find worrying."

"We stress that things could get worse at the company before they get better."

Goldman Sachs has reduced its 12-month share price target on Chinadotcom to $7 from $27.

Market talk suggests that Chinadotcom is debating with its auditors on the recognition of its booked advertising revenue.

"We're worried about the integrity of the numbers," Merrill Lynch Internet analyst David Cui told CNN.com.

A dotcom face-off with auditors is nothing new. There have been frequent debates in the industry over the booking of earnings, namely the booking of barter advertising deals where no cash is involved.

Barter ad deals are booked as both revenues and costs, with the net set at zero; the result is that revenues appear larger than they really are.

The Chinadotcom result postponement could also be due to a benign business reason, such as an acquisition deal that could be holding up an earnings report.

"But, they wouldn't let the market keep speculating," says Naseer. "I don't think it's good news."

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Chinadotcom

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