By Perry Wu
The setting was JP Morgan's annual Asia Equity conference this past week. On the fourth floor of New York's Palace Hotel, Sina.com (Nasdaq: SINA) was to give more details on its currently fragile Internet business situation. Judging from the chatter in the room, Sina's presentation was probably the most heavily-attended in the conference. Not just standing-room only, there were actually more than ten people standing and not a few sitting on the floor of the conference room. After the recent epidemic of bad news about China Mobile's heavy hand slicing revenues and business plans, people were interested in Sina's situation.
The crowd was a mix of analysts, portfolio managers and probably a few short-sellers. It was the type of people who think it a sign of sophistication to say things like "that company's top line is too volatile" or "I doubt this company makes its numbers this quarter".
As the audience snacked on conference-provided granola bars and Fiji-brand bottled water waiting for the presentation to begin, several people leafed through Sina's presentation book. "My, what a surprise!" one exclaimed, all this glossy company information about Sina, but not one mention of the words "China Mobile".
At the appointed time of 4PM, Hurst Lin, Sina's Co-Chief Operating Officer, began his presentation. He began by conceding that the presentation was "canned" and generally the same old "propaganda". At least we know the opening of his speech was not conjured by a public relations professional.
Now comes the world according to Mr. Lin: Mr. Lin sees Sina's enduring competitive advantage in its diversity of businesses. While Sohu.com (Nasdaq: Sohu) and Netease.com (Nasdaq: NTES) are formidable competitors in the portal world, Sohu also has a strong position in the mobile wireless world. And while pure-plays like Linktone (Nasdaq: LTON) have businesses in the mobile phone content delivery business, they don't have portals and any real users of their own. Mr. Lin doesn't see that changing anytime soon.
Aside from the wireless business, Sina also sees a future in online auctions in China. The company sees eBay's success in the U.S. and would like to duplicate it. And how to duplicate it? Well, team up with Yahoo. It is safe to say that Yahoo's online auction site in the U.S. has been a failure, but that has not discouraged Sina. That's because in Japan, Yahoo's auction site has been a relative success. Like an expatriate, Yahoo goes overseas to be a star because it can't get a date back home. And Sina is eager to please. But Sina and Yahoo are going to soon be facing all the entrenched auction competitors in China and the government-run e-commerce plays starting to help small businesses. And with consumers' rights difficult to manage and legislate in China, my crystal ball tells me the entire Chinese auction industry is soon going to have some hiccups and potentially embarrassing lawsuits.
As if being a portal, an SMS provider, and an online auction house were not enough, Sina also sees itself as a regular expert in online games. The idea is to concentrate on "casual" games. While hard-core "role-playing" games attract an overwhelmingly male demographic, "casual" games attract females. And by having a more balanced demographic in its online games business, Sina believes this will more closely resemble the demographic in its portal business. I guess this makes sense to chauvinist armchair investors, but Sina's gamble on even casual games (let alone MMORPGs) is fated for failure because there are just so many other casual game operators in China. And more importantly, women in the rest of the world are starting to play all sorts of games besides casual games, and China will soon follow. Having a portal like Sina, Netease, or Sohu attempt to make games is like having McDonalds try to complement its greasy fare with haute French cuisine. We are exiting the "Chinese mobile bubble" and are quickly entering the "Chinese gaming bubble" where Japanese, Korean, and European game companies with decades of experience will continue to dominate over any half-baked plan a Chinese portal can muster. Games are like movies: thousands are made each year but only a handful become blockbusters and make money for investors.
If there was any news from the presentation, it was probably the alteration in outlook from the last conference call a few weeks ago, when Sina ran into problems with China Mobile. At that conference call, Sina mentioned that the decline in its SMS business would be offset by increases in its 2.5G business. Now, after two months, according to Mr. Lin, it turns out that the decline in Sina's SMS business is less than expected, while the increase in its 2.5G is also less than expected. Mr. Lin, therefore, seemed to imply that on a net basis, Sina's overall revenue was about the same.
With all of Sina's issues, the company is still valued by the market at close to a whopping US$1.4 billion. When asked directly during the Q&A whether Mr. Lin believed Sina was worth more than US$1 billion, the normally effusive Mr. Lin managed only a "no comment" response.
Was that embarrassment that I detected in his voice?
About the author:
Perry Wu is a writer and correspondent for ChinaTechNews.com and can be reached here at the site. Perry Wu does not hold any positions, long or short, on any of the Chinese or American company securities mentioned in this article.