Monday, February 16, 2009 (SOHU) Continues Growing at Solid Pace

With all the government interventions and general hysteria last week, there was not a lot of time to get to a bevy of earnings announcements. I'll try to put some interesting names still showing some solid growth metrics in a horrid global economy up on the site early this week - this pathetic market has all been about government this, government that - game the CNBC news announcement here, or sell the Washington D.C. link there. There used to be a time when companies & their metrics actually mattered. We'll throw a smattering of "old school" company specific matters up during this break in the action.

First up is Chinese gaming/portal/search company (SOHU). Price wise the stock is just about exactly the same spot it was during it's last earnings release [Oct 27, 2008: Quadruples Profit, Raises Guidance, Announces Share Buyback... and gets a 4% Pop] - for now $50 appears to be a ceiling. I'm not so concerned about the ad revenue drop since Q3 2008 was huge due to's prominence in Olympic sponsorship. The company is debt free with a nice cash balance... still can't attract much interest since most of the "investing" nowdays is flocking to hot money trades that last 2-5 days, based on "thesis" and then exiting to the greater fool. However, one of my favorite mutual fund managers - Will Danoff of Fidelity Contrafund (FCNTX) is the largest fund owner of this company. [Sep 9: Will Danoff in Kiplinger's Magazine] I continue to like Perfect World (PWRD) in the pure play gaming side - but the stock has done nothing for a long time - so until it shows signs of life that last longer than 5-6 days we are not involved.

Via Investor's Business Daily
  • China's No. 1 Web portal, Sohu, on Monday reported fourth-quarter profit that handily beat analyst views, but its sales outlook this quarter lagged views amid slowing online ad sales and slower growth in games. Sohu (NasdaqGS:SOHU - News) ended the December quarter with a per-share profit of $1.45 -- helped 10 cents a share by a change in China's corporate tax code -- vs. 39 cents in the year-ago quarter. Analysts polled by Thomson Reuters expected $1.16, excluding the tax gain. Revenue rose 86% to $121.6 million. Analysts had expected $120.9 million.
  • While the company continues to ride the growth of the still-nascent online ad market in China, it's scrambling to add more offerings to its online games business as revenue growth from its big fee-based games begins to slow.
  • For the first quarter, Sohu said it expects revenue of $111.5 million to $115.5 million, below the $117.4 million consensus estimate of analysts polled by Thomson Reuters.
  • In the fourth quarter, Sohu's online ad sales jumped 38% from the year-earlier quarter, as advertisers continued to spend money on the portal following the Summer Olympic Games in Beijing. Still, ad revenue fell 9% from the third quarter.
  • Sohu continues to reap the benefits of working with customers such as auto and real estate companies, which are shifting their ad budgets from offline media to online destinations, Belinda Wang, Sohu's chief marketing officer, said during the conference call.
  • But the advertising business isn't the chief concern, says Tian Hou, an analyst for Pali Research. "I would not worry about the advertising side. I would worry about the games side," she said. Sohu's games business has revolved mostly around one game, "Tian Long Ba Bu." In the quarter, Sohu reported online game revenue of $58.4 million, up 143% from a year ago. TLBB produced $53.5 million of that revenue, also up 140%. But that online game revenue was up just 7% from the third quarter. A year earlier, fourth-quarter game revenue had jumped 89% from the third quarter. Sohu, though, did say it plans to expand TLBB to Malaysia and Singapore later this year.
  • And the company is developing new games, though it's not slated to release its next game, "The Duke of Mount Deer," until the fourth quarter.
  • The lack of new games and flat gaming sales growth pose a challenge for Sohu, Hou says. "Because the new game will not kick in revenue until Q4, the company has to maintain growth during the next three quarters," she said.
[Jul 28, 2008: - Another Hit Earnings and Gaming Unit IPO Spinoff]
[June 23, 2008: - Analysts Rush to it's Defense]
[Jun 20, 2008: Sees Ad Revenue Slowing in 2009]
[Feb 5, 2008: Initiating Starter Position]
[Feb 4, 2008: Also Impressive]

Largest mutual fund owners of by share ownership are
  1. 6.3% - Fidelity Contrafund (FCNTX)
  2. 1.6% - Fidelity Disciplined Equity (FDEQX)
  3. 1.0% - American Century Vista (TWCVX)
  4. 1.0% - Fidelity Advisor New Insights (FINSX)
  5. 0.7% - Vanguard Small Cap Index (NAESX)
No positions

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