The benchmark index of most-traded Chinese stocks in the U.S. fell to a two-week low, led by Youku.com Inc. and Baidu Inc., on speculation rising competition among Internet companies will boost costs and crimp earnings.
The Bloomberg China-US 55 Index fell 2.2 percent to 99.2, the lowest since Nov. 1. Youku, the biggest online-video site in China, sank 16 percent in New York, the most since September, after the company said Nov. 16 it lost a larger-than-forecast 7 cents per share for the third quarter. Baidu, nation’s most popular online search engine, declined 5.1 percent to a three-week low of $131.1.
Youku’s third-quarter losses were more than double the median forecast of 3 cents in a Bloomberg survey of seven analysts. The company is stepping up spending in bandwidth and marketing to fend off competition from Baidu, Tencent Holdings Ltd. and Sohu.com Inc. Youku expects revenue growth to slow in the fourth quarter, fueling speculation it will have to wait longer before posting its first profit since its December 2010 initial public offering. Shares fell to $17.24.
“The critical issue is the costs,” said Echo He, a senior China analyst at Maxim Group LLC in New York, who downgraded her recommendation for Youku to “sell” from “hold.” “The competition is intense and the priority of the company is to expand market share rather than to improve margins. We think the company will postpone its profitability to early 2013.”
The Shanghai Composite Index, which tracks the domestic bourse, lost 0.2 percent, on concern the central bank won’t loosen its monetary policy to offset the growth slowdown. The Standard & Poor’s 500 Index of U.S. stocks tumbled 1.7 percent on concern Europe’s debt crisis will worsen and lawmakers will fail to agree on plans to cut the American deficit.
Growth to Slow
Youku predicts revenue will increase between 90 percent and 100 percent in the fourth quarter, after surging 129 percent from a year earlier to 262.5 million yuan ($41 million) in the third.
China’s Internet companies from Sohu.com Inc., the country’s fifth-most visited website, to Renren Inc., a social-networking company, reported higher operating costs and lower profit margins in the third quarter. E-Commerce China Dangdang Inc., the nation’s largest online book retailer, this week said it lost 71 million yuan in the third quarter, partly due to “competitive pricing” and “promotion measures” such as coupons. Baidu has declined 9.4 percent since Oct. 28.
NetEase.com, China’s second-biggest online games operator, was the only Internet and technology firm that gained in the benchmark index.
It rose 4.1 percent to $47.58 as the company said Nov. 16 that third-quarter net income rose to 99 cents per American depositary receipt, beating the median forecast of 88 cents in a Bloomberg survey of seven analysts. Revenue increased to 2 billion yuan from 1.4 billion yuan, as online games such as “Heroes of Tang Dynasty” attracted players in the world’s biggest Internet market.
C. Ming Zhao, an analyst at Susquehanna International Group LLP, raised his target for NetEase to $62 from $60, saying the company has posted “outstanding results” for six quarters.
“NTES delivered another blow-out quarter and showcased a perfect bottom-up growth story in China’s maturing but huge game market,” Zhao wrote in a note.
Cnooc Ltd., China’s largest offshore oil company, declined 4.6 percent to $187.54 as oil fell below $100 a barrel.
China’s central bank said on Nov. 16 that it won’t give up its control on inflation as “the foundation of price stability is not yet solid,” dampening speculation that policy makers will loosen monetary policies any time soon.
The Shanghai Composite has fallen 12 percent this year after the central bank raised interest rates three times and lifted the reserve-requirement ratio to curb inflation. Stocks have also dropped on concern the European debt crisis will further slow growth in Chinese exports. The index is valued at 11.6 times estimated earnings, compared with a record low of 10.8 times on Oct. 21, according to weekly data compiled by Bloomberg.
The ishares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., dropped 2.5 percent to $35.28.
The Chinese yuan fell 0.1 percent to close at 6.3508 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency has risen 4 percent this year, the best performance among the 25 emerging-economy currencies tracked by Bloomberg.