"Netease only released its first quarter report for 2001, which may be restated due to misreporting, and after four months' isolation from the public, investors have no idea of how the company is running, so they will have to wait for something that can restore their confidence," said Lu Weigang, a famous Internet columnist.

Lu also pointed out that Netease's price is still below US$1 and since the NASDAQ will resume its delisting rule for those stocks below US$1 for more than 90 days, the coming several months will be a very critical period for the financial report-troubled Chinese web business.

"The best way to raise its prices is to give investors a good result of its operation and timely revelation of financial reports," he said.

Fang Xingdong, an Internet expert concerned about the future of Netease, also emphasized the importance of a timely and updated financial report for Netease.

"It is very clear that when the situation improves, William Ding, Netease's founder and biggest shareholder will continue seeking to sell stakes, so the company must convince buyers of the healthy operation of the firm with an up-to-date report," Fang said.

Netease said in May it had found some mistakes in its revenues in the first quarter of this year and then in June, it expanded the investigation into the 2000 financial report.

On July 19, the firm was warned by the NASDAQ of a possible delisting due to inability to submit its financial results in 2000.

Netease revealed its restated financial status on August 31, which said its revenues in 2001 dwindled to US$3.7 million from the previous US$7.9 million, while its net losses expanded from US$17.3 million to US$20.4 million.

The company's trading was suspended on the US stock market on September 4 and after a long appealing process, Netease finally returned to the trading list again, but with a warning from the NASDAQ, which requires the Chinese company to submit its 2001 financial result before July 1.

Besides the urgency to release a report which shows Netease's operations in the past year and the first quarter of this year, Netease is also facing a big challenge - how to make up its losses in the past eight months since May.

"Before, we usually compared Netease with its NASDAQ-listed portal peers Sina.com and Sohu.com, but now it seems that Netease has been much behind the other two after the series of accidents last year," Lu said.

Although Netease's acting Chief Executive Ted Sun denied that the financial report affairs did real harm to the company's revenues, it is almost universally believed that many advertising clients of Netease.com went to its competitors like Sina.com and Sohu.com. Even worse is that the image of Netease as one of the "Big Three" Chinese portals was also undermined during the past year.

"I do not believe Netease will have any chance to catch Sina or Sohu in the field of portals," said an anonymous analyst.

However, many analysts and Netease's senior executives believed the company might become a leader in online entertainment, which is one of its three major business scopes together with portal and wireless applications.

The business released its first self-developed gaming program the "Westward Journey Online" on December 28 and vowed to bring forth a new height for the Chinese Internet and gaming sectors.

Ding said his firm would release another two online gaming software programs this year and import foreign gaming software into China.

The firm believed China would have 4.2 million online game players in this year and the market will reach 1 billion yuan (US$120 million).

(China Daily January 12, 2002)