NYTimes writes that the bubble may burst soon:
Founded in the late 1990’s, the three Internet companies embraced e-commerce, online advertising and other revenue models but failed to turn a profit until 2002, when they began to provide Internet content, for a fee, to users of China’s nearly 200 million cellphones. On their phones, cellular subscribers can receive sports news, jokes or advice on their sex lives – and can even search for dates – all thanks to the portals. Each variety of service typically costs $3 a month, and each download costs an additional 3 cents, on average.
In Chinese cities, it is common to find people staring at cellphones on street corners. According to China Mobile Communications and China Unicom, the two state-owned telecommunications companies that monopolize the wireless market, 220 billion text and image messages were received by cellphones in 2003, roughly 10 percent of them originating from Internet portals. The telecommunications companies add fees to users’ bills for the Internet-generated content and keep roughly 15 percent of that money. The rest goes to the portals.
There are some differences in the portals’ approach. On the Internet, NetEase.com draws a large teenage audience with its abundant advice about dating. Sina.com attracts older visitors with frequent news updates, and Sohu.com appears to occupy a niche somewhere between.
But each is vulnerable to the state monopoly over the wireless phone industry, many analysts said. If China Mobile or China Unicom demands a larger share of wireless revenue, the portals’ profit could slide.
All three Internet companies say that they are trying to diversify their revenue sources. NetEase.com has already tapped into the market for online games, selling prepaid game cards, which permit access to its service. In the third quarter of 2003, it received 38 percent of its revenue from games.
Based on their price-to-earnings ratios, which are commonly used as a measure of value, the three portal stocks are richly priced. Last week, the ratios of the companies were 60 for SINA, 43 for Sohu.com and 48 for NetEase.com. By contrast, Yahoo’s P/E ratio was even higher, at 120 and eBay’s was 88. The average ratio in the Standard & Poor’s 500-stock index was less than 24.