Chinese Internet Companies Face an Uncertain Future
China may have the world's largest number of internet users, close to 600 million -- but that is only 44 percent internet penetration compared to United States’ 81 percent. And analysts agree there is tremendous room for growth, as the number of internet-users in China increase rapidly.
Baidu (NASDAQ: BIDU), China’s leading search engine, has gained 64 percent year-to-date. Other giants such as Qihoo (NYSE: QIHU), Sohu.com (NASDAQ: SOHU) and Tencent (OTC: TCEHY) gained 182, 40, and 68 percent year-to-date respectively.
The recent rally in Chinese Internet stocks, however, is starting to stall -- on concerns that the growth potential was initially overvalued.
“The story is there but the prices have run a little bit ahead of fundamentals,”Jan de Bruijn, head of Asian equities at Lion Global Investors in Singapore, said in an interview with The Wall Street Journal.
de Brujin added the initial gains were “built on hope,” and for there to be a continual development, there would need to be “more evidence of monetization going ahead.”
Dispite companies like Baidu, Qihoo and Tencent posting solid results, the earnings season started off shaky for the Chinese Internet companies -- as Sohu.com reported a loss for the third quarter and forecast an even bigger loss for the fourth.
The report caused the Sohou.com shares to plummet 16 percent on Tuesday.
Due to Sohu.com’s lackluster performance, many investors have withdrawn from the sector, causing a significant stall in the rapidly rising stocks.
However, on Thursday of this rocky week, shares of 58.com (NYSE: WUBA), a Chinese counterpart to Craigslist, soared more than 45 percent in its New York Stock Exchange debut. 58.com will be first among the line of Chinese Internet companies that will aim to jump into the U.S. stock market. And it may serve as a strong indicator of the future of Chinese Internet companies within the U.S.
© 2015 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.