Sohu.com, China's third-biggest internet portal, received a lukewarm reception from investors on its first day of trading on Nasdaq. The shares closed unchanged at $13, even after the company cut back the price by 31%. The response mirrors the reception given two weeks ago to rival Netease.com. Still, China's portal wars are just beginning and sentiment could quickly change, analysts say.
Beijing-based Sohu sold 4.6 million shares at $13 to raise $59.8 million. It had hoped to raise as much as $87.4 million, over-optimistically raising its price less than two weeks ago to between $16 and $19 from an earlier range of $13 to $16. Last month Netease.com, China's second-biggest portal, sold 4.5 million American depositary receipts for $15.50 each. The ADRs have since fallen to $12.50.
By comparison, shares of Sina.com, the country's leading portal, have risen 31% to $27 since they began trading in April. "The market tends to give a much higher premium to the number one player in any market," says Tim Sun, an analyst at BNP Prime Peregrine.
That's a premium that may not be justified, Sun and other analysts say. Although China's three dominant portals look similar their growth prospects are different, and size today doesn't necessarily mean size tomorrow. The future is wide open in China's young internet market. Even so, some clues on the respective prospects of the three major portals can be gleaned from their origins, which are crucially different, analysts say.
Sina developed its reputation as a news site and its content continues to draw audiences from China, Hong Kong, Taiwan and the United States. It has roughly 27 million page views a day and six million registered users. Sina has subsequently developed its community, e-commerce and search engine functions.
Netease began as a community site, bringing together users through chat rooms, online auctions, e-mail and instant messaging. It later developed into a portal offering content and search engine functions that direct users to the web. The company has an average 20 million page views a day and five million registered users.
Sohu started off as a search engine, modeling itself on Yahoo! of the US. It originally called itself Sohoo. Like its rivals it emerged into a broader portal, with content and community functions. It has an average 18 million page views every day and three million registered users.
While each has moved into the other's original territory their ability to expand the add-ons will vary, analysts say. It will be easier for Sina and Netease to develop the search engine functions central to Sohu than for Sohu to top the community services offered by Netease or the breadth of content provided by Sina. And over the long term, the community-based strengths of Netease could provide a greater springboard for growth than the content or search functions of its rivals, analysts say.
"Generally, community-focused business models deliver a much higher value proposition to the end user than one-way content traffic such as news or one-dimensional interaction such as a search engine provides," says Antonio Tambunan, an analyst at Deutsche Bank in Hong Kong. "This user interaction forms the perfect base for brand-affiliated users so coveted by online advertisers who are always looking for 'proven audiences'."
Chatting class
Some 30,000 users can be found chatting on Netease at any one time รป 20% to 30% more than chat on Sina or Sohu. Netease users have created 13,700 discussion forums and post 20,000 news items themselves each day. Still, Netease lags Sina and Sohu in its marketing. That is reflected in its flat share price, analysts say.
"Netease should be thought of in the same league as Sina," says BNP's Sun. "I think once analysts start to put out reports on the company and investors understand it better there will be a lot of upside to the stock."
Right now all three companies are barely out of the starting gate and much could be affected by advertising or canny acquisitions. In 2000 Sina plans to spend up to $30 million on advertising, while Sohu and Netease each plan to spend around $15 million. Competition is also emerging from the 500 or so domestic portals in China and will be heightened by the entry of international rivals such as Yahoo!.
