"I am a little disappointed that Netease.com cannot maintain profitability in the third quarter because of the proposed compensation in the class-action law suit in the United States, but after that we will be able to shrug off the shadow of the re-statement of our financial results for the whole year of 2000 and we can concentrate fully on the development of our businesses," said Ted Sun, acting chief executive officer of the Chinese Internet company, yesterday after releasing Netease's financial report for the third quarter.

On August 31, Netease re-stated its financial results and its revenue figures were cut by 53 percent from US$7.9 million to US$3.9 million, while losses expanded from US$17.3 to US$20.4 million. The company was sued prior to the August financial disclosures by several groups of its investors claiming huge sums in compensation.

Yesterday Netease said it would pay US$4.35 million in compensation to settle the lawsuits, but that offer has still to be accepted by the plaintiffs and approved by the US courts.

In spite of the likely compensation payouts, the Internet portal said its revenues had almost doubled from the second quarter's US$4.6 million to last quarter's US$9 million.

The compensation issue led to Netease suffering losses of US$1.3 million.

The company's non-advertising revenues jumped to US$67.7 million from US$3.7 million in the second quarter.

According to Sun, Netease had 13 million short messaging service (SMS) subscribers and they sent an average of 6 million messages every day, compared with 1.7 million in January.

The company also expanded its paid mailbox user numbers from 10,000 subscribers in January to 180,000 by the end of September.

At the same time, the Internet company's advertising revenues also rose by about 22 percent, quarter-on-quarter, to US$100 million.

As to the prospects for this quarter, Sun believed that Netease will again head towards profitability, as there are no other one-off expenses afoot, such as the compensation payment in the third quarter.

(China Daily November 7, 2002)