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Junky Start to Nasdaq Bodes Bad for Domestic Dotcoms
The recent dismal performance of Nasdaq-listed Chinese Internet companies, some of which verge on junk stock, is most likely to trigger a fatal round of dotcom bankruptcies in China, Chinadaily reported Friday.
The four Chinese-concept Internet companies, China.com, Sina.com, Netease.com and Sohu.com, suffered a continuous price decline on the Nasdaq stock market last week.
The lowest prices of Netease and Sohu hit the alert level of less than US$5 per share.
"There is no doubt that some of Chinese concepts will become junk on the Nasdaq if the market continues to go down, '' said Wilson Wan, vice-general manager of IDC China (International Data Corporation).
People are all worried about the depressing situation of Chinese concepts on the Nasdaq because they have been cited as the litmus test for the fate of domestic mass dotcom companies.
"Nasdaq's abandon is most likely to trigger a round of dotcom bankruptcies in China since those Internet start-ups originally gambled their futures on being listed overseas,'' said Wan.
China currently has more than 2,000 pure dotcom companies, most of which focus on content services.
The lack of ongoing capital support and limited moneymaking sources have already forced some Internet companies to go into bankruptcy since the second half of this year.
Although the misery is partly attributed to the adverse market situation on the stock markets, experts say China dotcoms' internal problems play a bigger role.
"It was a strategic mistake for many of China's dotcom companies to originally target the stock market as their only way to gain capital and to survive,'' said Johnson Chiu, vice-general manager with Oracle China.
Chiu said that many of China's Websites imitate the same business modes, famished for creatively value-added services.
He said the loss makings stem from two reasons, one is higher costs and the other lower profits.
China's dotcom companies have formed employee teams of more than 100 persons and have chosen workplaces in well-known office buildings though most of them had been established for less than a year.
A survey shows that a medium-sized dotcom company spends nearly US$300,000 a year for office rent alone.
The employee salaries, especially those for high-level managers who were hunted from other multinationals, is on average higher than the traditional companies.
"With such higher costs, the survival becomes more formidable as they have no way to make money,'' said Chiu.
Both Sohu.com and Netease.com released their second quarter losses of US$6.5 million and US$3.3 million last week.
Wan of IDC said foreign investors used to appreciate China's huge Internet market potential, in a contrast with the robust development of US market.
"But now, many investors are taking a practical attitude to China's market.''
China National Network Information Centre (CNNIC) recently reported the record number of Internet users with 16.9 million by the first half of 2000, however, this boon news had not yet largely promoted the stock prices of China concepts on the NASDAQ as expected.
Wan classified the fate of China's dotcom companies into four groups, saying that only the mammoth Internet portals and specialized websites can survive.
He said that the super Internet portals, including both content service and e-commerce operators, can survive through being listed on the stock markets.
Well-designed specialized websites, through a period of market cultivation, can finally be acquired by large Internet portals.
The medium-sized Internet portals and those small-and-worthless websites will eventually die.
"The medium-sized dotcoms are to list, while large ones are reluctant to acquire them with high prices,'' said Wan.
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