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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

AsiaweekTimeAsia NowAsiaweek story

DECEMBER 17, 1999 VOL. 25 NO. 50


Asiaweek Pictures
Heady Days of Internet Investing
Nasdaq values each customer of Korea's Thrunet at $67,000
By ASSIF SHAMEEN

At first blush, the experience of South Korea's 11th-largest Internet service provider on the U.S. Nasdaq market defies logic. Thrunet Korea, trading under the auspicious ticker symbol KOREA, has quadrupled in price in its first three weeks as a listed company. It is the first-ever Korean company to trade its stock on the American over-the-counter exchange, and its market capitalization exceeded $6 billion at one point last week. This despite the fact that Thrunet had just 91,000 customers in September, which implies that Nasdaq is valuing its customers at $67,000 per head. And you thought the values of U.S. tech stocks were crazy. America Online, the biggest ISP in the United States with 18.7 million subscribers, is capitalized at about $150 billion, or roughly $8,000 per customer.

Of course, Thrunet expects to grow its subscriber base substantially in coming months and years. But there is more to the company's expensive stock price than its own ambitious plans. Thrunet is clearly benefiting from the country's growing cyber-center reputation. South Korea can legitimately claim to be Asia's largest and most dynamic market for Internet-crazy individuals and companies. Two of every five South Koreans have regular access to a computer - the highest rate in Asia. Out of a total population of 47 million, there are currently about 4.6 million Internet users, a number expected to increase 25% to 35% annually for several years. The nation is also the region's fastest growing market for e-commerce and online advertising. Online stock trades represent 40% of all transactions on the Korea Stock Exchange - the highest proportion in the world. Analysts expect the proportion to be half of all trades online by the middle of next year and 70% in three years. Merrill Lynch projects that online advertising will reach $350 million annually by 2005.

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Heady Days of Internet Investing
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Having bid up the prices of domestic tech stocks to sky-high levels, U.S. investors now seem keen to do the same for Asian companies. Thrunet is the fifth Asian Internet company to list on Nasdaq. China.com went public in July and is now trading more than six times above its initial offering price of $20. Internet Initiative Japan began listing on Nasdaq in early August at about $23 a share; it closed recently at nearly $125. And India's second-largest Internet service provider, Satyam Infoway, went public at $18 per share in October and closed recently at $157 a share. The only Asian Internet play to have stumbled even a little is Singapore's Pacific Internet, which began listing in February at about $20 per share, rose to $104 within a few weeks, and is now trading at about $50.

Next year is likely to see an explosion in the number of Asian companies seeking a Nasdaq listing. But they'll be hard-pressed to do as well as the 1999 crop. The fact that Thrunet's 10-million-share initial offering drew bids for 220 million shares suggests that the dearth of Asian Internet plays fueled the stock's dramatic increase - and how a flood of new supply could depress prices. Two Korean companies to watch in 2000: Dacom's Cholian, which has 1 million online customers, and Hanaro Telecom, which has teamed up with U.S. giant Lucent to offer broadband Internet access. That pair is among a handful close to reaching agreement on a New York listing.

Since Thrunet is the first from South Korea to list in America it can revel in this "first mover" advantage to build its image and with some of its $182 million from the IPO buy market share. The company's strategy has been clear from the start: Spend millions on marketing and top-shelf investment bankers as opposed to service and equipment. The company has earned not many customers but a boat-load of hype - now transformed into Nasdaq value. Thrunet specializes in high-speed cable Internet links and says it is uninterested in competing for the plain-vanilla Internet user. It is experimenting with datacasting and video-on-demand, which it sees as the kind of high-value services that justify its stock price. It will face plenty of competition. Dreamline has signed up 10,000 customers in just two months of chasing the same market Thrunet has targeted for the last three years. Another potential problem: Thrunet's optical fiber network is owned by Korean Electric Power, which is planning to divest itself of about 8% of Thrunet stock by the end of next year. The could result in a big cost increase for Thrunet.

The kinds of prices being paid for shares of Thrunet and other Asian Internet plays have made for some unlikely winners. Obscure Korean computer-maker Trigem Computer, which invested about $30 million in start-up capital for Thrunet, is now the biggest shareholder with a stake worth about $900 million. Trigem had been losing money in its core business. Microsoft is the second-biggest shareholder. Its initial investment of about $50 million is, on paper, now worth more than 10 times that amount. In the current environment, the rich are getting richer, but so are a few lucky punters. We've been here before.

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