The China Portals ("Chortals") of,, and have seen their stocks skyrocket from less than two dollars to well over 30 and 40 dollars. Even, the early darling of the world's "digerati" (how we hate that word), is chugging along with a slightly less-powered stock performance.

And that seems to be all it is actually–a performance. As watchers of the Internet in China, we admit that we would have no jobs unless upstarts like the Chortals continued to climb. And thankfully the Chortals bring needed recognition of the business and consumer climate in China to the rest of the world. But it's all a performance, and if you're a stock player this is your time to shine, but for long term investors, this is only a bubble.

Why? Well, let's look at Sohu's current financials and quickly dissect them. The first thing that pops out is that their market cap is now US$1.5 billion. Would you pay 1.5 billion for a company whose own financials show only 28 million of annual revenue (not even profit)? You'd have to be a wishful thinker to buy this stock–and you should NOT regret not having bought it before this spike in prices–no matter what Mr. Market's mood toward the company has been recently.

Looking deeper into their financials, 1.3 million of revenue is attributable to interest income. Without this money their net loss for '02 would have been double. This is because the money from their IPO that hasn't been used is still sitting in the bank getting interest. With all due respect to Sohu's CEO Mr. Zhang and the rest of the executive management, a chimp running the company could make this money.

Sohu is burning cash. From US$29 million at Dec 01 to US$18 million at Dec 02. Although for the period ending Mar 31, 2003, they appear to be increasing cash by 4 million. But this is just one quarter's results. During their conference call next week we'll know of more changes.

Finally, 5,843,966 of stock options remained outstanding at the end of the recent period. This represents one-sixth to one-seventh of total shares outstanding of 35 million. All these stock options were granted at exercise price much lower than the current stock price, so you can bet that many, if not most, will be exercised soon, leading to extremely high dilution of the stock.

And and are unfortunately in similar situations.

Hey, we like the Chortals. They keep us in business. But you better make your money now, while you can.


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