Sohu shares dive after 26pc drop in earnings

PUBLISHED : Thursday, 03 May, 2007, 12:00am
UPDATED : Thursday, 03 May, 2007, 12:00am


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Shares in, the mainland's second-largest portal, tumbled 10 per cent in after-hours trading on the Nasdaq Stock Market after first-quarter profit fell 26 per cent and the company gave lower than expected guidance for second-quarter earnings.

Net income was US$4.46 million, or 12 US cents per share, compared with US$6.07 million, or 16 US cents per share, a year earlier and the 14 US cents per share market consensus of 14 analysts polled by Reuters.

Second-quarter earnings would be between 11 and 13 US cents per share, the company said, below market estimates of 18 US cents, according to Reuters.

The shares fell to US$22.93 in after-hours trading. They remain up more than 6 per cent this year.

Sales rose 8.8 per cent in the first quarter to US$33.08 million, in line with market expectations.

'The company met the top line of market estimate. But it missed the bottom line, because it is launching a new online game,' JP Morgan analyst Dick Wei said.

Sohu will start open testing of its first in-house development game, the free-to-play Tian Long Ba Bu, on May 9. The company is spending US$1 million this quarter on marketing the game and putting up more bandwidth and computer servers.

Second-quarter earnings might rise to between US$35.5 million and US$37.5 million, the company said, in line with the US$36.83 million average estimate of the Reuters survey.

Sohu's main business, online brand advertising, drove first-quarter revenue growth, with the segment's turnover increasing to US$23.52 million from US$16.67 million a year earlier. Revenue from the business may increase to US$25 million in the present quarter.

'Online advertising is growing fast in China, averaging 30 to 40 per cent per year, as people spend more time online and less time in other media, such as magazines,' Mr Wei said. 'Sohu is developing video content and video advertisements, which can attract advertising spending from television.

'The company also expects advertisement relating to the Beijing Olympics to start coming in the second half of this year.'

Sohu's other businesses were less impressive. Revenue from wireless value-added services, which have been hampered by China Mobile's measures to protect users since July last year, continued to shrink, to US$5.57 million in the first quarter from US$8 million a year ago.

The company's search engine, Sogou, also failed to prevail against stronger competitors Baidu and Google, with revenue dropping to US$ 2.08 million from US$3.4 million a year earlier.

Surfing more often

Online advertising is growing quickly in the mainland

In line with market expectations, first-quarter sales increased by 8.8 per cent to (US$): 33m