Sohu Profit Beats Estimates; Company May List Online Games Unit
By John Liu
July 28 (Bloomberg) -- Sohu.com Inc., operator of China's third-biggest Internet portal, posted profit that increased more than analysts estimated, led by online advertising and games.
Second-quarter net income jumped sevenfold to $40.2 million, or $1.02 per share, from $5.7 million, or 15 cents, a year earlier, the Beijing-based company said today. Profit was 45 percent more than the highest of six analyst estimates compiled by Bloomberg. Sohu also forecast third-quarter sales that exceeded analyst projections.
The online games division's revenue jumped about 12-fold, enabling the company to begin plans to list its Changyou.com unit that operates the ``Tian Long Ba Bu'' game. Sohu said a spinoff would help it focus on its online advertising business that competes against Sina Corp. and Tencent Holdings Ltd.
Listing the games unit ``sounds like a good thing for the company, which will let Sohu concentrate on its advertising business,'' said Dick Wei, a Hong Kong-based analyst with JPMorgan Chase & Co. who recommends buying Sohu shares. ``They had a pretty good set of numbers.''
Sohu plans to file a draft registration statement for a possible initial public offering of Changyou.com with the U.S. Securities and Exchange Commission. The company hasn't decided how much money it may raise, how many American depositary receipts it may sell or when, it said today.
Online game revenue jumped to $47.9 million from $3.83 million, helped by ``Tian Long Ba Bu,'' a role-playing martial arts game introduced last year.
Beating Estimates
Revenue more than doubled to $102 million, exceeding the highest analyst estimate by $1 million. Third-quarter sales may be $112 million to $116 million, the Internet company said, compared with the $107 million median projection compiled by Bloomberg.
Sohu fell 1.7 percent to $82.82 in Nasdaq Stock Market trading on July 25. The shares have gained 52 percent this year, compared with a 2.2 percent advance for rival Sina.
Advertising sales in the second quarter rose 53 percent to $43.4 million as companies including Adidas AG and Sony Corp. paid more for Internet commercials before next month's Olympic Games in Beijing.
Sohu's gross margin, or the percentage of sales left after deducting production costs, rose to 76 percent in the second quarter from 61 percent a year earlier, fueled by the ``Tian Long Ba Bu'' game, the company said.
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