Chinadotcom earnings not up to scratch

In this story: 'A very difficult quarter' Feeling the burn Xinhua sell-off RELATED STORIES, SITES

By Kristie Lu Stout
CNN.com Writer

HONG KONG, China (CNN) -- Asian Internet giant Chinadotcom reported lower than expected fourth-quarter revenues Thursday after delaying the announcement for nearly a month.

Chinadotcom's December quarter revenues were $34.4 million, off from $36.5 million the previous quarter. The company also warned revenues would fall at least 25 percent in the current quarter.

Formerly a top Internet stock pick in Asia, Chinadotcom has turned supporters into skeptics with the announcement delay, reports that key shareholder Xinhua plans to sell part of its stake, and weak portal performance.

Excluding one-time charges, its operating loss in the December quarter was $22.7 million, compared with $10.5 million a year ago.

Net losses for the quarter totaled $133.2 million, or $1.30 a share, compared with a $13 million loss, or 15 cents a share, the previous year.

'A very difficult quarter'

QUOTE "The possible delay of reaching profitability is a key thing, and investors won't like that." - David Cui, Merrill Lynch

Chinadotcom expects revenues in the current quarter to drop 25 percent.

"This will be in particular a very difficult quarter," said Chinadotcom chief financial officer Daniel Widdicombe on CNN's Asia Business Morning broadcast.

The company has also backed away from its commitment to reach break-even cash flow by the end of 2001.

"Now they are saying 'given the uncertainties, it's hard to say that now,'" says Merrill Lynch Internet and software analyst David Cui.

"The possible delay of reaching profitability is a key thing, and investors won't like that."

Chinadotcom shares tumbled 12 percent to $3 on the Nasdaq yesterday, plunging 95.8 percent from its 52-week high of $78.

Feeling the burn

The company's businesses in both Internet consulting and portal Web sites have been hit hard in recent months.

Chinadotcom is feeling the burn of reluctant online spending and a general economic slump that has also rocked the market caps of Internet consulting companies like MarchFirst, and portal companies like Yahoo!

The delay in announcing results has also damaged investor confidence in Chinadotcom.

In an email circulated two weeks ago, 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," Gupta added.

Chinadotcom's Widdicombe says the delay was due to a benign business process.

"We've had a very full and extensive audit… it was a review that took a long time."

"That's old news now that the results are out."

Market talk suggests that before the earnings release, Chinadotcom was debating with its auditors on the recognition of its booked advertising revenue.

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.

Xinhua sell-off

The Asian Internet giant has been grappling with another share price bombshell -- the news that key shareholder Xinhua News Agency plans to sell off part of its stake.

Two weeks ago, 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.

Xinhua is continuing the sale of 1.41 million shares, but has announced it does not plan to sell additional parts of its investment.

With Thursday's earnings announcement, Internet measurement firm Iamasia is directing the spotlight on Chinadotcom's ability to build a strong audience in its portal business.

According to Iamasia, Chinadotcom sites attract an audience that is only one-third the size of those of fellow Nasdaq-listed China portals Sohu.com, Sina and Netease each.

The home audience reach of Chinadotcom's portals on the mainland is a mere 17.1 percent.

Chinadotcom is now focusing on its Asia-wide Internet solutions side of the business to drive revenues, a tough pitch to make in Asia.

"Companies in the Asia Pacific cautious about spending in Internet integration," admits Widdicombe.

"However we know that they have to spend it. They said that will have to spend it."

"We will go through a difficult period but we're here for the longer term and the market will recover."

Alarm bells for Chinadotcom
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Netease reports heavy losses
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Chinadotcom
Sina
Sohu.com
Netease

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