Morgan Stanley maintains Sohu reduction rating

Beijing Time November 3 Evening News, Morgan Stanley published a research report today to maintain the Nasdaq:sohu shares of the "reduction" rating.

The following is the full report:

The third quarter, Sohu revenue to meet expectations, the loss is better than expected. Total revenue rose 17% to 430 million dollars year-on-year, up from 16% to 20% per cent year-on-year. The loss of $0.61 per share to the full dilution of the US GAAP is better than the 0.75 to 0.85 U.S. dollars per share of previous forecasts, as well as analysts ' average projected losses of $0.82 per share.

Advertising business in line with expectations

Total revenue in the third quarter rose 40% to 247 million dollars, in line with our expectations. Brand advertising revenue rose 19% Year-on-year (the previous forecast is 19% to 23%), to 149 million U.S. dollars, accounting for about 35% of Sohu's total revenue. This is mainly due to the growth of video advertising revenue. Search and other advertising revenue rose 88% to $98 million, accounting for 23% of total revenue, up from 17% in the same period last year. This is mainly due to pay-per-click and per-click price increases.

Sogou Business

Sogou total revenue growth of 17%, year-on-year growth of 86%, reached a record 106 million U.S. dollars, the first breakthrough of 100 million U.S. dollars, and the third consecutive quarter to achieve profitability. Positive marketing enhances Sogou's brand awareness and increases the participation of mobile-end users. In the second quarter, mobile search traffic increased by about 20% per cent on a month-on-month basis, while the new Sogou mobile Input method is still the top-ranked free mobile application in the Chinese version of iOS App Store.

Weak online gaming business

Online gaming business revenue fell 7% to 150 million U.S. dollars, accounting for 35% of total revenue, lower than the same period last year 44%, lower than our expectations of 7%, but also lower than the previous notice Sohu (2% to increase 1%). The decline was mainly due to the maturity of the flagship web game and the weakening of the commercialization of "Tianlong eight" after the difficulty of the game was reduced.

Weak margins

Overall gross margin of 56%, down 8% year-on-year. The gross profit margin of internet advertising business fell 1%, to 48%. This is due to a drop in the gross profit margin of branded advertising (which is down 5% per cent year-on-year due to increased content and bandwidth costs). This, however, was partly offset by increased gross profit margins for search ads (which rose 4% per cent year-on-year, due to a drop in traffic availability and bandwidth costs to total revenue). Due to the increase in personnel costs, as well as large multiplayer online games and mobile gaming licensing costs rose, the net business profit margin fell 10% year-on-year. Operating margins were 9%, down from 14% in the same period last year. This is mainly due to the larger investment in the game business.

Quarterly revenue forecasts are in line with expectations, but profitability is less predictable

Sohu expects fourth-quarter revenue to rise 15% to 20% Year-on-year, to 442 million to 462 million U.S. dollars, in line with our projected $445 million trillion, but below analysts ' average estimated $464 million. Sohu estimates that brand advertising revenue will increase 18% to 22% Year-on-year, to 145 million to 150 million U.S. dollars, and Sogou's revenue will increase from 68% to 75%, to 118 million to 123 million U.S. dollars. Online gaming revenues are likely to fall 4% to 10% year-on-year. Due to the cost of mobile gaming operations and the uncertainty of the timing of these games, Sohu did not disclose the profit outlook for the quarter. (D-Gold)