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China's booming online ad
sector
BEIJING - Although
China's online game and wireless value-added
service providers reported fantastic growth last
year, their future is far from certain. Nobody
knows whether the crackdown by government
departments and telecom operators against those
who cheat subscribers and spread illegal content
will ease or intensify. Online game operators have
also found the negative public reaction to game
addiction an obstacle to their business. In
contrast to the uncertainties and significant
growth accompanying these two businesses, online
advertising displayed the least risks and
steadiest growth in 2004.
Plain
sailing
Sina Corp, China's biggest online
advertising company, reported a 59% year-on-year
rise in its online advertising revenues to US$65.4
million in 2004. Sina's arch-rival Sohu notched up
an even more impressive 89% growth in its online
advertising revenue, hitting $55.7 million.
NetEase, the other top Chinese portal, saw its
online advertising revenue almost double from
86.18 million yuan ($10.41 million) in 2003 to
171.05 million yuan last year.
Wallace
Cheung, an Internet analyst with DBS Vickers
Securities in Hong Kong, said in a research report
that among the three major Internet sectors -
wireless value-added services, online games and
online advertising - the last is the smallest but
has displayed the steadiest growth in recent
years. The steady pace is attributed to higher
advertising rates, increased recognition of the
importance of the Internet as a channel for
publicity, and a boost from the Athens Olympic
Games.
Jim Sun, an analyst with
London-headquartered Evolution Securities,
predicted that online advertising - including the
use of search engines - should become one of the
biggest sources of revenue for the Internet
industry, alongside e-commerce. While advertising
and e-commerce currently account for only 20% of
the Internet industry's total revenues, that
figure will be a massive 80% by 2008.
But
intensified competition will have an impact on the
advertising business. According to DBS Vickers'
survey of major online advertising companies, most
listed companies expressed a great deal of concern
about rising content costs and increased
competition. The market is undergoing a structural
adjustment, said Sun from Evolution Securities,
pointing out that the influence of vertical
portals is on the up. "Sina's influence is highly
concentrated in its front pages or news channels,
while very few people look at its other pages,"
said Sun.
General portals like Sina, Sohu,
and NetEase, and vertical websites like Focus.cn,
Soufun.com, and PConline.com.cn, are likely to
link up, he predicted. Although Sina Corp spent
millions of dollars to purchase two wireless
value-added service operators over the past two
years, it mainly relied on organic growth in its
portal content and online advertising revenues.
This may put Sina at a disadvantage, as its
competitors have invested heavily in the area, Sun
said.
Sohu chief executive officer Charles
Zhang said his company has a portal matrix
composed of general portal Sohu.com, alumni
website Chinaren, game portal 17173 and
real-estate website Focus.cn, and is
well-positioned in the online advertising
business. Sohu had set its sights on becoming
China's biggest online media platform with a
combined strength in both general and vertical
portals, Zhang said last month.
NetEase
also teamed up in February with with another major
real-estate portal, soufun, to develop advertising
revenues from the real-estate sector, one of the
biggest advertising clients in China. But veteran
Internet industry observer Lu Weigang warned that
it would be very difficult for companies like Sohu
to challenge Sina's market lead as Sina has a very
strong brand among Internet users.
Booming e-commerce
Chinese
online human resource service provider 51job.com
has experienced a veritable roller-coaster ride in
the past six months, starting when the trading of
its American depository share began at $14 on
September 29 and rose to $55.55 on December 13.
The price fell to $15.95 recently. The company
also became the target of about 10 law firms in
class action suits.
All this started with
the company's profit warning in January that its
fourth-quarter results would not meet its previous
forecast as human resources managers' budgets ran
out in the second half of December. Its total
revenues in the fourth quarter were $14.5 million,
in the range of its revised forecast of $14.13
million to $14.6 million, compared with a previous
forecast of $16.9 million.
While 51job.com
remains mired in legal difficulties, the prospects
for e-commerce remain very promising. According to
Sun from Evolution Securities, e-commerce only
accounted for 8% of the Chinese Internet market's
revenues in 2003, with the share increasing to 11%
in 2004. Sun believes Shanghai-based Ctrip, the
country's biggest Internet travel service company,
will enjoy a bright future as more and more people
opt to shop online. Ctrip's revenues almost
doubled year-on-year to $40.3 million in 2004, and
its net profits also increased from $6.5 million
to $16.1 million over the same period. "Although
Ctrip's profit earning (P/E) ratio is already
quite high, it is actually safer to invest in high
P/E stocks because they have good potential and
less regulatory uncertainties," said Sun.
According to market research house
iResearch Co Ltd, the online travel service market
will grow from 610 million yuan in 2004 to 2.8
billion yuan in 2007. Henry Yang, president of
iResearch, pointed out that the e-commerce
business would enjoy rapid growth in the coming
years with the increasing number of netizens and
an improvement in the online trading environment.
The research house estimates the online shopping
market will grow from 4.5 billion yuan in 2004 to
29.6 billion yuan in 2007.
The scale of
the online job recruitment business will also rise
to 1.96 billion yuan in 2007 from 770 million yuan
last year. Chinese e-commerce service providers
such as recruitment firms Chinahr and Zhaopin.com,
and business-to-business service provider Alibaba,
are all posed to make their initial public
offerings in the next few years, trying to ride
the tide of e-commerce in the capital market.
(Asia Pulse/XIC) |
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