Challenges for China’s Internet Companies

The Street writes:

As the leading Chinese Internet companies report earnings for the first three months of 2005, a frustratingly familiar pattern is emerging: Ad-supported content and wireless services, areas where many believe the greatest long-term potential lies, continue to suffer from regulatory setbacks and relatively slow growth. Other areas, like games and online travel, are performing much better, but the stocks are trading at dizzying valuations.

And hints from companies indicate the second quarter will bring more of the same. As a result, many of these names are down for the year. Among Chinese portals, Sina (SINA:Nasdaq) is down 12% and (SOHU:Nasdaq) is off 5%. Shanda Interactive Entertainment (SNDA:Nasdaq) and (NTES:Nasdaq) , two leaders in Chinese Internet games, are down 22% and 5%, respectively. Travel site Ctrip (CTRP:Nasdaq) has fallen 8%. Wireless company Tom Online (TOMO:Nasdaq) has lost 23%, while jobs site 51Job (JOBS:Nasdaq) is the worst performer of them all, dropping 74%.

A series of obstacles kept revenue and profit from rising at most of these companies, ranging from government hobbling of emerging wireless services, slower-than-expected growth in new Internet users, and a bottleneck of Internet access points in cafes and elsewhere (commonplace as many Internet users can’t afford PCs).

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Rajesh Jain

An Entrepreneur based in Mumbai, India.