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Different Performances of Chinese Dotcoms
The Chinese Internet industry has seen bitter sweet days of late, with two NASDAQ-listed Chinese portals facing diametrically opposite market conditions.

Sohu.com Tuesday trumpeted its best performance ever for the second quarter of 2001, while Netease faces delisting after failing to file its expected annual financial report.

"The financial results of Sohu in the second quarter show investors that the company is on a clear road to profitability,'' Sohu CEO Charles Zhang said. "If you think about the static and negative states of our rivals, you will understand how great Sohu's second-quarter performance is.''

The Internet portal reaped US$2.9 million in revenue, up 17 percent from the first quarter, according to its financial report. The pro forma net loss was US$3.3 million, down 22 percent from the first quarter.

It is quarter to quarter comparison.

For the listed company, it should hand the quarter report to the public.

Furthermore, the bitter days for the dotcom companies came from the beginning of this year, so it is more convincing to show the quarter reports to demonstrate that Sohu did very well under the difficult environment.

The company also expanded its revenue channels, with income from non-advertising sources rising to 23 percent of the total from 15 percent.

Sohu also predicted its revenues would grow to as much as US$3.4 million in the third quarter, and non-advertising revenue would account for about 30 percent of the total revenues.

"We have kept growing at a double-digit pace for the past three and four quarters, and we will try to remain at such a speed in the next quarter,'' the CEO said.

While Sohu is happy with its financial results, Netease didn't have such a good showing.

The company issued a statement on Monday saying it received a notice from the NASDAQ stock market that Netease would be delisted because the company failed to submit an annual report to the NASDAQ and the US Securities and Exchange Commission.

Netease said it would request a hearing to get more time for the financial report in hopes of avoiding delisting.

Netease issued announcements on May 8 and June 11 that said a probe into its 2000 revenues was ongoing. The figure may be US$3 million, about one-third of the company's posted revenues in 2000.

Analysts worry the Netease situation may portend troubles for Chinese dotcoms on the NASDAQ.

"If Netease can't give a reasonable answer to its incorrect reporting, it will be a big blow to investors' confidence in the governance of Chinese portals,'' said Charles Li, a Beijing Internet legal expert.

Another expert warned: "Netease may be subjected to heavy fines and lawsuits from investors, but what is more important is that Chinese Internet portals should examine themselves carefully and avoid similar troubles.''

But Tom.com CEO Sing Wang urged a broader look at the Chinese Internet business.

"The whole industry is still attractive to foreign investors and, in the long run, its prospect should still be good,'' he said.

(China Daily 07/25/2001)

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