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Troubles Ahead for Netease on NASDAQ
The halt of the listing of the Chinese Internet business Netease on the NASDAQ may only be the beginning of its troubles, some industry experts say.
Netease, one of the three largest Internet portals in China, was suspended from trading on Tuesday night by the US stock market. NASDAQ wants it to submit additional information on its financial status.
NASDAQ gave a list of questions to Netease about its annual financial report in 2000 and its improvements on the corporate governance.
Netease sources said the business had answered the questions and would send the answers back to NASDAQ. NASDAQ's judgment could come as soon as Friday.
The halt followed Netease's release of its 2000 annual report. The Internet company's revenues fell from US$7.9 million to US$3.7 million, while the net losses expanded from US$17.3 to US$20.4 million.
Some observers said they are worried about Netease's fate.
One local Internet analyst said it would be hard for Netease to explain to the NASDAQ hearing board why more than half of its revenues are gone.
Even if it succeeds, the company may be faced with severe punishments from the US stock market and lawsuits from its investors, analysts predicted.
The figures on the previous annual report released on March 1 might be regarded as misleading to investors, and those people are justified in getting compensated for the false reporting of Netease, one analyst said.
Shareholders' losses were estimated at US$5 million, and some analysts believe the damage to investors' confidence would be profound.
Another possible ending for Netease may be its delisting from the NASDAQ national market and its transfer to the Over the Counter (OTC) market, which is usually ignored by investors and stock analysts and has a much lower trading volume than the national market.
Meanwhile, since the per-share price of Netease has been below US$1 for more than 30 trading days, it will also face the danger of delisting for low prices.
According to NASDAQ rules, if the stock price of one business is lower than US$1 for 30 consecutive days, it will be given a 90-day period to raise the price above US$1 for 10 consecutive trading days to avoid delisting.
Introduction of new partners and Netease's performance in the first and second quarters will all be helpful to the rise of its stocks.
Co-operation with influential and strong businesses will help Netease regain investors' confidence, some analysts said.
But any real progress on acquisition deals must be based on a sufficient knowledge of Netease's true financial status, which may not be known for some time.
Analysts are expressing reserved optimism about the first six months of this year.
"Its performance in this period will not be as bad as that of last year and that will help elevate the confidence in Netease and raise its stock price,'' said Fang Xingdong, a famous Internet industry analyst.
With the lower revenue base of US$3.7 million, its revenues could grow rapidly. Investors would find that encouraging, Fang said.
Source: China Daily
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