Sohu seeks investors to drive growth

Mainland web portal looks for investment in its search engine unit to catch up with rivals

PUBLISHED : Tuesday, 21 May, 2013, 12:00am
UPDATED : Tuesday, 21 May, 2013, 4:00am


Related topics owner of the mainland's third-largest web portal, is seeking strategic investment for its Sogou search unit to compete with Baidu for internet users and advertising.

The company is also looking to buy larger video websites to provide content, said chairman and chief executive Charles Zhang.

Sohu, founded by Zhang as one of the first-generation internet start-ups on the mainland in the late 1990s, is seeking acquisitions and partnerships as it lags behind Baidu in search and Youku Tudou in online video growth. Zhang aims to strengthen the company as an internet media and entertainment provider targeting consumers watching video and using applications on their smartphones and tablet computers.

"None of the business units at Sohu are showing big growth," said Deco You, a Beijing-based analyst at internet consulting firm iResearch. "Only when the search engine reaches a certain scale, can they realise its commercial value."

Sogou accounted for 5.4 per cent of search-engine queries on the mainland in the fourth quarter, placing it in third place. Baidu had 82.3 per cent and Qihoo 360 Technology 8.2 per cent, according to data compiled by Bloomberg Industries.

Sohu's web portal lags behind Tencent's and Sina, according to data compiled by Bloomberg. The stock has gained 34 per cent this year.

Zhang, who has a PhD from the Massachusetts Institute of Technology, took a sabbatical to address some personal issues and was away for about a year until January.

"I missed out on some things, but that's life," said Zhang. "My goals in life have changed, and work is very important now."

In the past year Baidu and Alibaba, the mainland's largest e-commerce company, have made acquisitions to grow. Baidu said this month it will buy PPS Net TV's internet video business for US$370 million and combine it with another video unit the company agreed to acquire last year.

On May 10, Alibaba announced the US$294 million acquisition of a 28 per cent stake in Beijing-based mapping company AutoNavi. And last month, it agreed to pay US$586 million for about 18 per cent of Sina Weibo, a Twitter-like service.

Sohu is now exploring social media opportunities on mobile devices.

The company "has to produce the best quality content either text-based, picture-based, or video motion picture-based, and at the same time it has to have channels," said Zhang. "Sogou is very important, it is an access and a channel."

Sohu had cash and short-term investments of about US$951 million at the end of March, according to data compiled by Bloomberg.

"Strategic growth costs money," Zhang said. "US$1 billion is not that much."

The company last month posted first-quarter profit that beat analyst estimates on higher online advertising sales. Net income rose 14 per cent to US$23 million.

Second-quarter revenue will be between US$333 million and US$342 million, Sohu said on April 29.

"Online video is now in a high-growth period, but competition is also very fierce," Zhang said.

China had 564 million internet users at the end of last year, up 10 per cent from the year before, according to the government-run China Internet Network Information Centre. That is greater than the population of any country except India.