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Profits Predicted for Portals
The three NASDAQ-listed Chinese portals -- Sohu, Sina and Netease -- should shift their focus to long-term and large-scale operations because they have achieved or are close to profitability, business executives and analysts said last week.

"My next goal is to make Sohu a respected and prosperous business for 100 years," said Sohu.com's Chief Executive Officer Charles Zhang on Friday.

The company announced on Wednesday it harvested a positive EBITDA (earnings before interest, tax, depreciation and amortization) of US$77,000 and a positive cash flow of US$35,000 in the period.

It has become the first among the three biggest Chinese portals to achieve a positive pre-tax profitability.

Sohu's prices on the NASDAQ rose by more than 13 per cent on Wednesday, compared with the NASDAQ Composite's 1.6 per cent rise.

According to an industrial source, Sohu's major competitor, Netease.com, may even go further and announce full-scale profitability when it releases its financial results for the second quarter soon.

A Sina.com executive also said the company would report a "much-better-than -expected" result for its fourth financial quarter ending on June 30, due to harvests from the World Cup finals. That would accelerate its steps to profitability scheduled later this year.

However, analysts also urged the "Big Three" to expand their operations after achieving profitability.

"Sohu's annual revenues are US$20 million, so profitability is at a very small scale compared with US counterparts America Online or Yahoo," said Wang Ran, chief executive officer with China E-capital Co Ltd, a major financial consulting firm to information technology ventures.

Sohu's Zhang, in preparation for expansion, formulated a strategy for the company: Corporate and consumer business.

Sohu's corporate business mainly refers to Sohu's online advertising operations.

Despite doubts of Sohu's ability from some analysts to achieve sustainable advertising growth after the World Cup, Zhang said his company will still achieve US$3.3 million online advertising revenues in the current quarter, slightly lower than the second quarter's US$3.36 million.

"We have acquired a considerable sum of backlog advertising orders for the third quarter," Zhang said.

Meanwhile, Sohu's success during the World Cup has raised enterprises' consciousness of the Internet as an important media, and 81 per cent of Sohu's advertising clients in the second quarter were domestic companies.

In the area of consumer business, the short messaging service (SMS) for mobile phone users, an online store and the recently launched subscription service Sohu Online (SOL) will become three pillars, Zhang said.

SMS, which contributed to more than half of Sohu's non-advertising revenue, will continue to grow together with the increase of China's mobile phone users, while the online store business will also continue to be in the fast lane, as "we do not encounter any strong competition in this area at present," Zhang said.

The SOL business, launched last Monday together with the Internet service provider SRIT Technology Co Ltd, will enable subscribers to surf SOL websites free of advertisements and provide a free e-mail box, online education games and music, if they access the Internet via SRIT's dial-up system.

Sohu will integrate online stock trading services with SOL at a later date, as its online trading service platform Sohustock.com, formed with Wuxi-based Guolian Securities in April, will begin operating this quarter, though it still needs to get approval from the China Securities Regulatory Commission to conduct trading services.

"Sohustock will provide financial information at its initial stage, and the real harvest will come at the end of next year," Zhang said.

(China Daily July 22, 2002)

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