China portal hit by possible delisting

China portal Sohu.com faces a possible Nasdaq delisting

In this story: The sub-dollar zone Yahoo! shocker Lack of faith in online ads RELATED STORIES, SITES

By Kristie Lu Stout
CNN Writer

HONG KONG, China (CNN) -- China portal Sohu.com has fallen victim to tech-wary investor sentiment, trading dangerously below the $1 mark for the first time.

According to Nadaq listing rules, companies whose shares fall below $1 for 30 consecutive trading days face a possible delisting.

Shares in Sohu.com, as well as other top Nasdaq-listed China portals Netease and Sina, have fallen to record lows after a Yahoo! profit warning spurred a mass exodus from global dotcom stocks.

The sub-dollar zone

All three China net plays lost about 20 percent of their market capitalization last week, with investors questioning the viability of China portal business models.

Following news of the Yahoo! profit warning, Sohu.com plunged almost 20 percent on Thursday, with a further fall of 10 percent on Friday to finish the week at $0.84.

If Sohu fails to lift itself out of the sub-dollar zone, it could be moved down to the small cap market from the national market, or even further down to the over the counter market.

Sina and Netease are also trading within sight of $1. On Friday, Sina finished at $1.93 and Netease at $1.56.

"All of these stocks, if you look at their cash value, are all undervalued," says Sohu.com spokesperson Caroline Straathof.

"We think we are very undervalued," Straathof said.

Yahoo! shocker

Alarm bells sounded when Yahoo! announced that its first-quarter revenue results would be far worse than expected, prompting the resignation of chief executive Tim Koogle last week.

"The Yahoo! announcement was a big shock to everybody. It clearly did a lot of damage to portal companies around the world," says Merrill Lynch Internet analyst David Cui.

"There's a correlation between the Yahoo! warning and the fact that the China portals are all hit," says Web Connection Research consultant Frank Yu.

But in regards to Sohu's particular punishment on the Nasdaq, Yu adds, "I don't know why investors themselves are picking on that particular company."

Lack of faith in online ads

Analysts say that in addition to the Yahoo! announcement, a lack of faith in the online ad business has spurred investors to sell down the China portals.

"The American online ad situation does not reflect the one in China," says Sohu.com's Straathof.

"We see a lot of domestic Chinese companies are discovering the power of online Internet advertising as we approach China becoming a member of WTO."

Industry analysts are pessimistic about growth in China's online advertising market.

"Given the weak online advertising market, we suggest investors to remain cautious when investing in Chinese portal companies," say Merrill Lynch Asia Pacific Internet analysts David Cui and Matei Mihalca in a recent industry report.

Mainland portal sites Netease, Sohu.com, and Sina are all vying for control of China's limited $100 million Internet advertising market.

Last month, Sohu.com posted weak fourth quarter revenues. Scrambling for dollars in China's crowded online ad market, Sohu.com spent $2.07 million to generate $2.17 million in revenues with total operating costs doubling to $9.53 million.

Sohu.com says it's committed to breaking its dependence on online advertising as its main source of revenue.

"We are seriously targeting other sources as well," says Straathof.

"We don't want to be 100 percent reliant on online advertising."

Netease reports heavy losses
March 1, 2001
Yahoo! Asia top exec calls it quits
February 19, 2001
Sina ranks as top China portal
February 1, 2001
22.5 million Net users in China
February 19, 2001
Yahoo Japan sinks on parent's warning
March 9, 2001
Yahoo! sinks Net stocks
Mar. 8, 2001

Sohu.com
Sina
Netease

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