Hype and Hope Send China.com Stock Rocketing

A combination of Internet hype and hopes for the Chinese market triggered a threefold increase in shares of China.com Corp. on its first day of trading Tuesday in New York, giving it an instant market value of $1.38 billion.

The Hong Kong-based company’s memorable name and its standing as the only listed Internet gateway to the world’s fastest-growing market were all that investors needed to hear, analysts said: Shares soared from $20 to close at $67.11 on Nasdaq.

“It has been marketed perfectly in the U.S.,” said Duncan Clark, managing director of BDA (China), a Beijing-based Internet consultancy. “It has a strong name, and it’s the only game in town.”

There is less enthusiasm in Asia about China.com’s prospects, even after America Online snapped up 10% of the company’s shares last week, lending the fledgling company instant credibility.

On Tuesday, 11.6 million shares changed hands, making it the 14th most actively traded stock in U.S. markets.

“It’s the easiest IPO ever by a Hong Kong company,” said Andrew Look, a fund manager at Prudential Portfolio Managers Asia Ltd.

But analysts such as Clark say China.com’s strong marketing masks its weaknesses--thin content, a lack of localization and a record of poor follow-through by management. The prospectus declares that the company has a history of losses that will continue for the foreseeable future.

China.com lost $8.5 million in 1998 on revenue of $3.5 million, wider than its $4.1-million loss a year earlier on revenue of $509,000.

The numbers didn’t hamper investor excitement on Wall Street, however, as shares quickly took off.

China.com is a spinoff of China Internet Corp. (CIC), founded in 1995 and controlled by the Hong Kong branch of China’s state-run news agency Xinhua. The original intent was to create an “intranet” for the mainland called the China Wide Web, to extract the benefits of being wired without the porn and politics of the outside world.

But the Internet in China has grown faster than the government’s ability to control it, and CIC’s plan for an intranet oasis fell by the wayside.

China.com was born in 1996 and has four Web sites for greater China, offering news, chat rooms and now free e-mail. (The others are https://www.hongkong.com, https://www.taiwan.com, and https://www.cww.com). The sites are in Chinese and English.

But despite its advantages, China.com has failed to catch fire on the mainland. Its government affiliation may have helped it get established, but seems to hurt its appeal to China’s fast-growing Internet audience--mostly twentysomething single males--who are attracted to sites with more information, livelier news and racier chat rooms.

In the last six months, the year-old site has actually lost popularity, dropping from 17th place to off the top-20 list in the latest survey conducted by the China Internet Network Information Center.

On the top of the list is Sunnyvale, Calif.-based competitor Sina.com, which boasts 2.82 million page views a day, half from within China. China.com’s four sites total just 1 million a day, which means fewer ads and less revenue. But these numbers are volatile.

“At the rate the market is growing, positions can change very quickly. China.com could become a leader,” said Ted Dean, an analyst at BDA in Beijing. The consultancy’s just-completed report on the Internet in China forecasts that the number of Internet users there will explode from 2.1 million at the end of last year to 33 million in 2003.

Indeed, with at least $84 million to play with after Monday’s initial stock sale--4.2 million shares at the opening price of $20--China.com will be ripe for a successful reinvention.

Earlier this year, the company transformed its business model into three components, with a Hong Kong-based consulting and Web design firm and a New York ad company, 24/7 Media Inc., supporting the Web site.

The hope is that more blue chips like current advertisers IBM and Sony will come to the company to have their sites designed and hosted by the consulting group, Web Services, and then advertise on China.com through 24/7.