BofA Merrill Lynch maintains Sohu buying rating: 77 USD for Target price

Sina Science and technology news Beijing time of July 30, Bank of America Merrill Lynch released a study today to maintain the Nasdaq:sohu's share rating in the "buy" (purchase) unchanged, while its target price raised to 77 U.S. dollars.

The following is a summary of the contents of the report:

Surfing and advertising growth bring in action

Supported by the second quarter of 2013, we raised Sohu's target price to $77, mainly because:

1) We have set a new target price for the nasdaq:cyou (Sohu), which is currently holding 67% of the tour net of Sohu's gaming subsidiary. Mainly because the tour network announced the launch of the new "Tianlong eight": We will tour the net 2014 fiscal year and 2015 per share earnings forecast increase by 5% and 11% respectively and raise its value per share to $45 trillion, which means the total value of Sohu's net share is $1.6 billion, worth $41 per share, higher than the previous 24 dollars;

2 The value of Sohu non-gaming advertising business has increased, these include video advertising and search advertising, Sohu advertising business is growing rapidly, search advertising business is closer to the break-even: based on the cash flow discount method, Sohu is not game advertising business value of 36 U.S. dollars per share (the cash value of 10 U.S. dollars, The discount rate is 10%, the final growth rate is 3%, higher than the previous 35 U.S. dollars per share.

Situational Analysis: Search as a separate sector for valuation

As Sohu stated, the company is exploring various options for the Sogou sector, including but not limited to finding more strategic investors. We expect some market participants to value the Sogou as an independent department in the next few years, rather than as a small profit contributor to Sohu's non gaming advertising business.

Baidu (Nasdaq:bidu) and Qihoo 360 (Nyse:qihu) and other companies such as the price and sales revenue Ratio (p/sales) is 11 times times, and we will halve this number, as the Sogou price and sales revenue ratio of conservative expectations, In order to reflect the Sogou in the current development phase of the balance of profit and loss status. According to this calculation, we expect the Sogou department's value of 1.2 billion U.S. dollars, 2013 of the fiscal year sales are expected to reach 198 million U.S. dollars. This means that Sohu 70% of the total value of the dog's shares of 840 million U.S. dollars, a share of 22 U.S. dollars, but the cash flow discount method calculated value should be reduced.

Second-quarter results in line with expectations, but Sohu's advertising business outlook is good

Sohu's second-quarter revenue was $339 million, operating at $64 million trillion, in line with Wall Street analysts ' expected $334 million and $66 million trillion. Sohu's U.S. depository receipts for each share of 0.56 U.S. dollars, higher than the average Wall Street analyst expected 0.49 dollars. Sohu expects a third-quarter revenue of $358 million to $370 million trillion, exceeding the average Wall Street analyst's expected $355 million trillion, mainly because of strong advertising growth. Sohu Advertising business growth in part driven by the "good voice of China" video content.

We will be the Sohu fiscal year 2014 and 2015 revenue forecasts respectively up 2% and 4%, and its 2013, 2014 and 2015 fiscal year earnings per share increase by 2%, cut 10% and increase 10%, The reason is that the growth in the advertising business is expected to offset the increase in game investment spending in fiscal year 2015 in fiscal year 2014.

Target price base and risk:

Based on the classification and total method, we will increase Sohu's target price to 77 U.S. dollars, these include: 1 based on the cash flow discount method, the value of Sohu Portal business is 36 U.S. dollars per share (cash value of 10 dollars per share, the discount rate is 10%, the final growth rate of 3%); 2 Sohu from the holding network 67% The shares are worth 41 dollars per share.

The risks of a cruise list price include: 1) anti-addiction system; 2 consumer market: Online advertising market will face inevitable structural landslide; 3 regulatory measures: Regulatory measures on Web content and wireless services may have negative consequences, and macro policies for real estate developers and financial institutions may also have indirect implications 4 competition from television and telecommunications companies: non-market competition from telecom operators and television companies will have a negative impact on Sohu; 5 Innovation: If Sohu cannot innovate and keep pace with start-ups, the development of business models and technologies may pose a threat; 6 old games tend to mature, At the same time the lack of new popular games; 7 video cost; 8. The network is investing in new projects, its performance may fluctuate; 9 the long-term strategic position of the search subsidiaries is uncertain. (Tangfeng)