Commentary

The Myth Of Uncertainty With Chinese Portals

Tech Market WatchBy Perry Wu
This week Sina.com (SINA) issued its fourth quarter earnings release and it provoked quite a reaction. First the good news: For the fourth quarter, Sina's revenues grew by 49% year-over-year, total ad revenues grew by 41% year-over-year, and total gross margin held steady at 68%.

But there was bad news and here's how Sina summed it all up in its press release this week: "..there is greater uncertainty as to these financial projections at this time than there has been in recent prior quarters"

Don't you just love this word "uncertainty"? If there ever is a euphemism in the financial world, this is it. From the beginning of life on this earth, there has always been uncertainty about the future. That is an inescapable fact.

There was uncertainty about Sina's future when the company started several years ago (as with any start-up). There was uncertainty last year about what the future would bring for Sina (just like for any company). And there is uncertainty now about Sina.

There is uncertainty about what the future will bring for you, dear reader. And there is uncertainty about my future. Like Woody Allen, I don't mind dying, I just want to know where it will happen so I won't go there.

Why doesn't Sina just be honest and call it like it is? This is not a problem of uncertainty, this is a problem of pessimism. Or better yet, this is a problem of Sina knowing that the gig might be up. The brief window of benign regulation that has existed in the Chinese Internet world the last few years is closing. And Sina can sense it. And so can investors. Perhaps that is why Sina's stock price was hit so hard this week with Sina's announcement.

Now to some more interesting parts. First, Sina's battles with China Mobile (as discussed in my earlier columns) are clearly having an effect. Revenues from Sina's IVR service declined from US$1.7 million in the third quarter to a mere two hundred grand in the fourth quarter.

And beginning in 2004, China Mobile made a big push to get its SMS services popular by advertising on TV and radio. But just as this was starting, China's State Administration of State Administration of Radio, Film and Television ("SARFT") ruled that ads promoting "fortune-telling" services were prohibited. Unfortunately, many of Sina's ads push "fortune-telling" so this will have a major effect on Sina's operations. Even Sina admits this.

So what else does Sina say?

"This move by SARFT really caught us off guard," Hurst Lin, Sina's co-chief operating officer said. "We don't really have an insight into why these moves were taken… I suppose its part of the periodic edicts that get handed out to the industry."

So Sina was shocked to find that the Chinese regulators could actually exercise its power at will and decide to ban "fortune-telling" ads from Sina's websites. To think that Chinese regulators might actually not care too much about some Chinese Internet company that happens to be listed in New York; to think that the Sina shareholder might not be foremost in the regulators' collective minds.

Please.

Fortune-telling has for decades been a slippery business endeavor to promote in China on the grounds it encourages superstition. I will not get into the mystical aspects of it, but trust me when I tell you that the when my friends' parents in Beijing or Harbin go to a fortune-teller, they do so with much care because they know that the business is not too kosher in the Middle Kingdom. Real-life fortune-tellers work with dominoes, cards and sticks to prophesize and they operate in an environment where they know their shops may be shuttered at any moment because of the "pseudo-science" of their profession. They are careful, no doubt, and their businesses spread by word of mouth, not by television or radio ads. So why has Sina been so bold to promote a product most of its mainland Chinese staff should know is already on an uneven footing?

I am starting to think that Sina's executive team has an "Us Versus Them" mentality when it comes to investors. The company appears to be dishing up a new short-term panacea each quarter to show that they can still boast high growth. Their real problem (and this goes for Sohu.com, Netease.com, and Tom.com) is going to be how they expect to still be doing business in another 3-5 years.

In any case, even with the cheapening of Sina's stock price, the stock is still not cheap. The market value of the company is still over US$1 billion. With such "uncertainty", this kind of price tag is still too rich. Maybe I should try out that fortune-telling service to get a peek at Sina's next strategy.

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.

Leave a Reply

Your email address will not be published. Required fields are marked *

Send this to a friend