Profitable Netease

Netease is one of the three leading Chinese portals (with Sina and Sohu). Its been a remarkable turnaround story – a couple years ago, all three were being written off for dead. Now, all are raking in the money and profits. FEER writes about the secret behind Netease’s success and profits – “It’s managed to make money from its 96 million users”, via an increase in ad revenues, mobile data services and online games.

The biggest share [of revenue] — 48% — comes from mobile data services. Here’s how they work: Users go to the NetEase Web site and subscribe to have information, such as news or weather, sent to their hand-phones via short message service, or SMS. They can also download ring tones and icons, and subscribe to dating and SMS chatting services. Payment is deducted from the user’s mobile-phone account. NetEase keeps 85% of the revenue and China Mobile, the mainland’s biggest mobile-phone carrier, gets the rest. The system eliminates the problem of on-line payment in a country where credit cards are rare. “NetEase’s turnaround is clearly driven by its ability to charge via SMS and have a commercial relationship with its customers,” says Duncan Clark, an analyst with Beijing-based consultancy BDA China.

The result: “In August 2001 the Nasdaq-listed company’s stock price dropped to 53 U.S. cents, more than 96% below its initial offer level of $15.50…A reported $8.3 million net profit and 23% jump in revenues during the first quarter of this year has helped propel the stock price above $20. It closed at $26.67 on May 5.”

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Rajesh Jain

An Entrepreneur based in Mumbai, India.