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Get Ready for Chinese Internet Stocks
By Nellie Huang
EVER SINCE the days of Marco Polo, China has been looked at as the next great selling opportunity. Just thinking about all those
people without dishwashers or Gillette razors or Pepsi has been enough to make even the most levelheaded capitalist dream of
limitless wealth. Now here's an interesting statistic: Fewer than 1.5 million Chinese are on the Internet, a mere 0.1% of the
country's population.
That presents Asian entrepreneurs with a vast opportunity. And for investors, the action is just heating up as well. While there are
no publicly traded Internet companies yet, several firms are contemplating public offerings this year. And these companies are
hoping to raise more cash than they could on their local exchanges by shooting for a Nasdaq listing in the U.S. That will make it
easy for American investors to pick up shares. That's precisely what Singapore-based Internet service provider (ISP) Pacific
Internet (PCNTF) did in its successful $144 million IPO earlier this month.
There are three companies to keep an eye on: Sohu.com, an Internet portal similar to Yahoo! (YHOO); Sina.com, a
U.S.-Taiwanese portal (called Sinanet) that recently merged with a Beijing portal called Stone Rich Sight; and China Internet, which
launched the China Wide Web, a mainland Chinese ISP.
Sohu.com was launched a year ago, but unless you can read Chinese, don't bother visiting the Web site. The name sounds like
"search fox" in Chinese -- but the company recently had to change the way it spelled its name from Sohoo to Sohu, to head off a
potential lawsuit from Yahoo. Sohu was launched a year ago with backing from investors including Intel (INTC) and Dow Jones
(DJ), co-owner of SmartMoney.com. The company is the leading Internet portal in Asia, with what CEO Charles Zhang calls a 60%
share of Internet advertising dollars in the country. Then there's Sina.com, which was ranked the top Web site in China, according
to a recent survey conducted by a Chinese Internet company called www.163.com that took into account content, design and
traffic. (Sohu ranked third and Chinese Yahoo! ranked 10th.)
Rumor had it that China Internet had to put a $200 million initial public offering on hold earlier this year when new tech stocks hit a
slump, but China Internet has a lot going for it. In early February, it signed a deal with America Online (AOL) to offer a Hong
Kong ISP. That news came on the heels of deals to create and market Chinese-language content for privately held PointCast and
Netscape (NSCP).
The catch, of course, is that these companies aren't expected to go public until later this year. But what of Pacific Internet? At
$29.25 a share, the stock is trading close to its 52-week low of $26.25. But Pacific Internet has one thing that most American
Internet companies don't: earnings. For the first nine months of 1998, Pacific Internet, which has roughly 200,000 subscribers,
earned $6 million (U.S.) on $31.5 million in revenue. Moreover, it is quickly positioning itself as a multinational ISP in Asia -- the
only one such ISP in the region. It has a 41% market share in Singapore; it owns Pacific Internet Philippines, an Internet service in
the Philippines; and it has a stake in Hong Kong SuperNet, one of the largest Internet services in Hong Kong.
If China follows the pattern of the Internet sector in the U.S., Pacific Internet's growing reach is only a good thing for all the nascent
Chinese Net companies. As investors have seen with Internet stocks in the U.S., the success of one company's stock often breeds
the success of another as the entire sector catches fire.
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