Sohu puts 20pc drop for quarter down to costs

PUBLISHED : Friday, 03 August, 2007, 12:00am
UPDATED : Friday, 03 August, 2007, 12:00am, the mainland's second-largest internet portal, said second-quarter profit fell 20.4 per cent despite 14 per cent growth in revenue as expenses related to staff share options and marketing costs for a new online game soared.

Revenue of the Beijing-based company reached US$39 million in the quarter, beating an average estimate of US$36.3 million in a Bloomberg poll of analysts.

Profit reached US$5.7 million, above the consensus estimate of US$5.16 million.

Expenses related to staff exercising their stock options almost doubled to US$2.4 million from US$1.3 million a year earlier.

Excluding that, net income dropped 3.6 per cent to US$8.1 million, from US$8.4 million.

Marketing costs also climbed due to the launch of online game Tian Long Ba Bu in May. The game attracted 400,000 peak concurrent users and 209,000 active paying accounts, generating revenue of US$2.3 million in the quarter.

JP Morgan analyst Dick Wei expected the game to bring an additional US$6 million in revenue and US$2 million in net income per quarter, starting from the third quarter.

Sohu is competing with industry leaders NetEase, Shanda Interactive Entertainment and The9 for the mainland's growing games market. It has a team of 70 staff devoted to developing online games.

'Online games will be Sohu's long-term strategy,' chief executive Charles Zhang said.

Sohu's brand advertising revenue reached a record US$26.6 million in the quarter, up 38 per cent from a year ago and 13 per cent from three month earlier.

Mr Zhang said the increase was due to a pay-off from its investments in sport-related news coverage.

However, an analyst said the gain was helped by the overall growth in the mainland market.

'If Sohu's results are good, so too will be Sina's and Tencent's,' he said.

Sina Corp is the country's largest internet portal while Tencent Holdings is a leader in instant messaging with its platform QQ.

However, Sohu continues to struggle with its search engine, Sogou, in a market dominated by bigger players such as and Google. Sogou's market share dropped to 3.6 per cent from 8.2 per cent a year ago, according to researcher Analysys.

For the third quarter, Sohu's management estimates that total revenues will range between US$45 million and US$47 million.