If you've been paying attention this earnings season. it's pretty clear that China's leading Internet companies have hit the wall.
You just can't tell that there's a problem by looking back.
Leading social networking website operator Renren (RENN +98.02%) and portal pioneer SINA (SINA +0.00%) posted better-than-expected quarterly profits last week, just as leading search engine Baidu (BIDU 0.83%) did earlier this month.
However, all three stocks suffered after offering up gloomy growth prospects for the current quarter.
- SINA took a hit on Friday after forecasting $132 million to $136 million in revenue for the new quarter. Putting this into perspective, that's less than the $147.7 million it reported in the third quarter and well short of the $152 million that analysts were targeting.
- Renren's third quarter was ugly, weighed down by a surprising 14% slide in online advertising. It, too, sees a sequential dip in revenue during the fourth quarter.
- Baidu's disappointing quarter also called for a sequential decline in revenue for the current quarter. Just like with SINA, Wall Street was initially holding out for quarter-over-quarter improvement.
Some online giants aren't even waiting that long to pull up lame. Shares of online gaming pioneer NetEase.com (NTES +0.13%) tumbled 18% last week after missing Wall Street's estimates for the third quarter.
The lone standout this month has been Sohu.com (SOHU 3.58%). The multifaceted Internet company is eyeing $288 million to $293 million in revenue this quarter after generating $285 million in revenue during the third quarter.
There is seasonality to Internet usage, but keep in mind that analysts were still originally looking for sequential increases at most of these companies before they scared the pros into thinking otherwise. When Chinese officials said that the economy of the world's largest nation was slowing, they weren't kidding.
Investors need to tread carefully in this realm. The valuations are ridiculously attractive, but the fundamentals are starting to crack.
