After years of losses, China's three biggest Internet portals are making a sharp turnaround, posting their first profits and turning into a rare bright spot on the slumping NASDAQ.
Investors can thank China's love affair with the mobile phone.
The services still have to contend with China's low incomes and slow adoption of online commerce. But the turning point came when China Mobile, its biggest mobile-phone company, introduced a system last year called "micropayment" that lets portals share in revenues for wireless Internet access.
Now NetEase.com Inc, Sina.com Inc and Sohu.com Inc can charge users who visit their Web sites via short message services, or SMS -- brief text messages sent on mobile phones. The portals get about 1.5 yuan (20 cents) each time a mobile user downloads information or games.
"These guys are getting fat off the crumbs off China Mobile's table," said Steven Schwankert, an industry expert in Beijing.
And analysts say that unlike Western markets, which are considered saturated, China still has plenty of room for more fast growth.
China had 200 million mobile phone subscribers by the end of December, and the number is rising by 4 million a month, the government says. China Mobile says users sent 80 billion SMS messages in 2002, up from 15.9 billion in 2001.
NetEase became the first to turn losses around, eking out a US$4,600 profit for the three months that ended in June.
Sohu said it made US$112,000 for the three months ending in September -- its first under US accounting standards. Sina says it expects to report a profit for the year.
Investors have responded by driving up the stock prices of the Chinese dot-coms.
NetEase was the tech-laden NASDAQ's biggest gainer last year as its share price skyrocketed 1,661.5 percent to US$11.45 -- far from its nadir of 69 cents in October 2001.
Sohu was the NASDAQ's fifth-biggest gainer, soaring 433.3 percent to US$6.40 a share. It had traded as low as 87 cents in April 2002. Sina leapt from a low of US$1.40 in April to US$8.43 by the middle of last week.
China's Internet start-ups listed on NASDAQ in mid-2000 at the height of the Internet boom, raising a huge pile of cash.
But all saw their share prices plummet as losses mounted. At one point, NetEase was threatened with removal from NASDAQ after it missed financial reporting deadlines.
Hu Xiaodong, manager of a Chinese investment fund, said he started to notice the turnaround last year, about the time China made its debut appearance in the soccer World Cup in South Korea. Soccer fans piled into sports sites to follow the team.
"There was a big jump in revenues, but it gained momentum and continued to climb after then," said Daniel Mao, chief executive at Sina.com.
Transmission speeds have been rising, from below 9.6kb per second in the summer to as high as 30kb per second by November. Mao said that, because the amount of data is necessarily smaller than that which would be received by a PC, Web surfing is fast enough to be "bearable."
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