Monday, April 28, 2008

Sohu.com (SOHU) Crushes Estimates - Up 15%

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I believe in my earnings preview my exact quote was "I don't own enough of this Chinese rocket ship". Let me reiterate... I don't own enough.



Sohu.com (SOHU) crushed estimates... $0.55 actual vs $0.37 estimate, and yet another guidance boost to boot (obviously). All the growth drivers continue to look rosy, and the gaming side of the business is simply growing exponential. My only fear has been some sort of slowdown post Olympics, but I suppose that is a matter for another day. I began this position in early February [Feb 5: Initiating Sohu.com "Starter" Position] near $46. Obviously with the stock now north of $71 (+54% in under 3 months), I (repeat all together) don't own enough. At the time I wrote:

Analysts currently peg $1.54 for 2008 estimates, but Sohu.com already commented that they will beat next quarter's $0.32 by $0.11-$0.13, so that already takes us to $1.65-$1.67 full year territory. The one risk with this name is the Chinese Olympics should drive advertising business for the next few quarters, but then the hand wringing will begin about what drives business afterwards? That's a perception issue but the internet is very young in China and this is a cheaper way to play the online ad market than the very well known (and dominant) Baidu.com (BIDU). Sohu.com is still a bit player (tiny bit player) - but a tiny bit of a growing pie is still growth. As for the gaming side of business, well it is a wildcard to me.

Here are some details from the earnings report
  • Chinese online media, search and gaming company Sohu.com Inc. (SOHU) on Monday reported a surge in its first-quarter profit, helped by strong advertising revenue growth as the Beijing Olympic games approach. The company also expects second-quarter earnings and revenues above Wall Street estimates.
  • The company's GAAP net income for the first quarter was US$ 21.56 million or US$ 0.55 per share, higher than US$ 4.47 million, or US$ 0.12 per share, a year earlier. GAAP net income increased 383% year-on-year and 43% quarter-on-quarter. On a non-GAAP basis, excluding share-based compensation expenses, the company's net income rose to US$ 25.1 million, or US$ 0.64 per share, from US$ 7 million, or US$0.18 per share, in the prior-year quarter.
  • On average, ten analysts polled by First Call/Thomson Financial expected the company to report earnings of US$ 0.37 per share.
  • The company's quarterly revenue totaled US$ 84.8 million, a 156% rise from last year's US$ 33.1 million. According to the company, the revenue exceeded the high end of company's guidance by US$ 16.3 million. On a sequential basis, the revenue growth was 30%. Wall Street analysts projected revenues of US$ 69.33 million.
  • Advertising revenues climbed 36% to US$ 34.76 million, while non-advertising revenues jumped 570% to US$ 50.1 million. Brand advertising revenues were US$ 33.2 million, up 41% from the same quarter last year and 3% from prior quarter.
  • Online game revenues increased 24 times year-over-year and 71% from prior quarter to US$ 41 million, driven by US$ 38.9 million revenues generated by its role-playing game Tian Long Ba Bu.
  • Looking ahead, Sohu estimates second-quarter non-GAAP earnings per share between US$ 0.72 and US$ 0.75. The company also projects total revenues in the range of US$ 93 million - US$ 96 million for the quarter. (this compares to $77M and 44 cents by analysts)
So I need to buy more on the next pullback. Great quarter. Probably the best non fertilizer quarter I've seen thus far this season.

Other pure play names in the Chinese gaming space are reaping benefits today i.e. Giant Interactive (GA) +12%, Shanda Interactive (SNDA), and Netease (NTES) +8%

Long Sohu.com in fund; no personal position

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