SAN FRANCISO
Sohu.com Inc.'s shares crept higher after the Chinese Web portal delivered slightly better second-quarter result than investors expected.
THE SPARK: Like many other Internet companies around the world, Sohu is reeling in more money as people spend more time online. Sohu's mix of video, gaming and search services has established it as one of the top websites in China's rapidly growing Internet market. Sohu's popularity enabled it to attract more advertising and sell more games in the April-to-June period, helping the Beijing-based company generate revenue of $199 million. That represented a 36 percent increase from last year and topped the average estimate of $189 million among analysts polled by FactSet.
Sohu's adjusted earnings share of $1.21 also exceeded analyst projections by 4 cents per share.
Management expects to build upon the momentum through the summer to deliver third-quarter revenue above analyst estimates. But higher marketing expenses are squeezing Sohu's profit margins so much that the company's earnings forecast for the third quarter fell below the analyst target.
THE ANALYSIS: Credit Suisse analyst Wallace Cheung believes Sohu's online video audience of 160 million people will help the company sell more ads to large companies looking to promote their brands in China. He also is encouraged by the strides the company has been making in Internet search, where it still remains far behind China's market leader, Baidu.com Inc.
Cheung upgraded his rating on Sohu's stock to "Outperform" from "Neutral" and predicted its price will approach $110 during the next 12 months. His previous price target had been $101.60.
SHARE ACTION: The shares gained $1.91, or 2.4 percent, to $81.05 in Tuesday's late afternoon trading.
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