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2HRS2GO: a blind investment

Are you sure you want to be a strategic partner with Inc. (Nasdaq: CHINA)?

Wall Street seems certain, judging by today's increase in the stock price of the Chinese language ISP and web portal operator. But the Street might want to pause before wholeheartedly embracing's plans for expansion and acquisition.

Have an opinion on this?

Not that I'm criticizing anyone who decides to work with the online mouthpiece of a decadent regime best known for internal repression, official corruption, unfair trade practices, environmentally unsound projects, and laxity regarding intellectual property protection. There's little point in appealing to the consciences of businesses or investors.

But why partner with someone who might "inadvertently" use you as a short-selling opportunity? Consider this, from the Associated Press:

", an Internet provider with a much-hyped name, made a $1.9 million net profit in the second quarter after brokers inadvertently sold all of its stake in an Internet media company. had intended to sell part of its 3 percent stake in the Internet advertising firm 24/7 Media Inc. in June, but brokers inadvertently sold the whole stake, said's chief financial officer, David Kim.

"The stock then plunged 20 percent over the next three days, and bought back the shares it had wanted to keep ... 'It could have been just a hiccup in the market' Kim said. 'The sale was inadvertent.' "

Mistakes happen, but how do you mistakenly sell 600,000 shares of anything? puts all the blame on its brokers, but communication breakdowns are usually two-way affairs. Besides, it's difficult to take executives at their word; prior to the IPO, chief operating officer Peter Hamilton told Asian tech news website that "all three parts of our company make money."

Not counting the 24/7 stock shorting, reported a second quarter net loss of $2.2 million. A year ago the company lost $1.7 million, not counting one-time events. I suppose that constitutes money making -- for's suppliers.

But the market is taking seriously; shares of the company were up almost 20 percent at one point today. And it truly is blind, at least for individual investors, since there's no online information about the company.'s IPO prospectus wasn't an electronically filed S1 document with the U.S. Securities and Exchange Commission, but rather a paper 20F form.

An Internet company that doesn't file documents online. You'd find fewer contradictions if Larry Ellison bought a Windows PC for his personal use.

Speaking of contradictions, is clamoring for partners, even though previous ventures have gone nowhere. Plans for AOL Hong Kong have been repeatedly delayed, a venture with Pointcast dissolved entirely, and an intended China-wide intranet still hasn't come to fruition two years after Sun Microsystems and Bay Networks invested in it.

Wait, actually did start up an advertising venture with some company named 24/7 Me ... uh, never mind.

Market to Web content IPOs: Go away

This week's action summed up the current state of the IPO market. Enablers for e-commerce (or perceived e-commerce) or broadband -- desirable, as demonstrated with the favors showered upon Agile Software Corp. (Nasdaq: AGIL) and Netro Corp. (Nasdaq: NTRO)

Everything else -- who cares?

Many portfolio managers and investment advisors have long shunned content and focused on the infrastructure game by focusing on fields such as networking equipment, network management software, and e-commerce applications. The basic argument is simple enough: put your money in something that can grow with the overall Internet. It's the Sell-Picks-To-The-Miners theory.

That philosophy implies you won't find any gold in the hills. But if that pessimistic view is true, isn't it just putting off the inevitable collapse? If the miners discover there are no riches, the pick salesmen have no customers. And then what do you do with all those infrastructure stocks?

If you do think there's gold in the ground, why limit yourself just to the stocks of companies whose routers, switches and applications you most likely do not and never will work with directly? If you follow the Invest-In-What-You-Know theory, most Internet investors would almost have to limit themselves to content companies, such it's content that most people deal with on a regular basis.

Analysts like BancBoston Robertson Stephens' Keith Benjamin and Merrill Lynch's Henry Blodget believe in betting on the current big names, and they're probably right. But some little guy is going to pop through the IPO waters. There just aren't any on the horizon right now.

Other issues:

  • Inc.
  • (Nasdaq: KOOP) Doh! The Wall Street Journal reports ABC News medical correspondent and director Dr. Nancy Snyderman must repay the medical website more than $53,000 because her husband violated IPO lock-up rules by selling shares within a month after the offering. Not that I blame him for wanting to cash in before the momentary blaze faded.

    Broad technology indices looked to close the week on a mildly upbeat note. With two hours left in regular trading, the Nasdaq Composite Index was up 12.75 to 2634.18, the S&P 500 up 7.88 to 1331.47, and the Dow Jones Industrial Average higher by 87.70 to 11051.54. 22GO>