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Have China's Net stocks hit a great wall?
From CNN Technology Correspondent Kristie Lu Stout
SHANGHAI, China (CNN) -- China's Internet portals have enjoyed a dramatic run on Wall Street, with shares in companies like Sina and Sohu.com trading over 25 times their lows of last summer. But will the good times continue? Given China's unpredictable business climate, analysts are asking whether China's runaway Net stocks have hit a great wall. Charles Zhang, CEO of sohu.com, is at ease in the media spotlight, even at 6,000 metres (19,600 ft) where a few months ago he braved Mount Everest. "When I started the climb, Sohu's stock price was still very low," he says. "But when I came back from the climb, the price went very high." Since April, company shares have climbed three-fold. A once fledgling dotcom, Sohu is now a profitable Nasdaq darling, thanks mainly to SMS mobile messaging. Sohu bills users for mobile content by adding charges to their cell phone statements, and dominant carrier China Mobile handles all the billing and collection, even though the bulk of the returns goes to the site. More than 50 percent of Sohu's revenues are from mobile messaging, and rivals Sina and Netease.com have also enjoyed the SMS boost. But there is a hitch. "China Mobile could change the terms of the deal," Managing Partner of BDA China, Duncan Clark says. "Right now, they give about 85 percent of value-added content revenues to the portals. They could try to change that deal."
China Mobile is also pushing its own brand, M-Zone -- a youth focused mobile data brand. The company is also purchasing handsets directly and setting specifications, and is learning from the portals. Another concern -- and one that has always haunted China dotcoms -- is the government's grip on the Internet. Several months ago, about 3,000 cyber cafes were closed in what the government called a national safety campaign. It's a risk of the Internet business in China where a Web café could be open one day and closed the next. Today, the campaign has gone wireless. Under pressure from Beijing, China Mobile is cracking down on sexy and pornographic content, and has suspended billing arrangements with some portals to make them clean up their acts. That hasn't stopped Sohu from pitching racy mobile splash screens off its front page. It's a bold move by a player certain of its standing with China Mobile. Sohu's Zhang says he has absolute confidence the alliance will continue for the next five years, but isn't taking any chances. Sohu and its rivals are now racing to diversify into the next big thing that has nothing to do with mobile phones -- online gaming.
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