First up is Chinese gaming/portal/search company Sohu.com (SOHU). Price wise the stock is just about exactly the same spot it was during it's last earnings release [Oct 27, 2008: Sohu.com 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 Sohu.com's prominence in Olympic sponsorship. The company is debt free with a nice cash balance...
Sohu.com 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.
[June 23, 2008: Sohu.com - Analysts Rush to it's Defense]
[Jun 20, 2008: Sohu.com Sees Ad Revenue Slowing in 2009]
[Feb 5, 2008: Initiating Sohu.com Starter Position]
[Feb 4, 2008: Sohu.com Also Impressive]
Largest mutual fund owners of Sohu.com by share ownership are
- 6.3% - Fidelity Contrafund (FCNTX)
- 1.6% - Fidelity Disciplined Equity (FDEQX)
- 1.0% - American Century Vista (TWCVX)
- 1.0% - Fidelity Advisor New Insights (FINSX)
- 0.7% - Vanguard Small Cap Index (NAESX)
1 comments:
An interesting sign that there IS activity in the real economy in China. I suspect that the clientele of Baidu are limited to those Chinese with both a computer and internet access. Though the number of Chinese with computers and internet access is large, the percentage of the population is still small.
The major displacement of workers ongoing in China is almost exclusively among the rural migratory class. This class never owned a computer and certainly never had internet access.
I would argue that online gaming in China is, on a proportional basis relative to the median Chinese income, a luxury item, and will be subject to the economics of luxury items. Louis Vuitton purses and Dom Perignon champagne sales are fairly consistent throughout the business cycle because the class of people that spend thousands on purses and hundreds on champagne are generally less impacted by economic downturns. Though admittedly, LVMH stock has not held up very well during this particular downturn (http://www.bloomberg.com/apps/cbuilder?ticker1=MC%3AFP)!
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