Morgan Stanley maintains Sohu share reduction rating target 51 USD

Beijing Time July 29 Evening News, Morgan Stanley released its investment report today, maintaining the Sohu stock (Nasdaq:sohu) "reduction" rating, the target share price from 53 U.S. dollars to 51.50 U.S. dollars.

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

Brand Advertising/Search performance strong: The second quarter of 2014 fiscal year, Sohu total advertising revenue of 218 million U.S. dollars, an increase of 49%, mainly thanks to the brand advertising revenue year-on-year growth of 33%, search and other revenue growth of 84% year-on-year. Network video revenue rose 85% year-on-year, accounting for the total brand advertising revenue of nearly 1/3. The mobile platform contributes about 20% of total network video revenue, with total search revenue of 10% to 15%. Sohu estimates that the third quarter of the brand advertising revenue will grow 19% to 23% year-on-year, Sogou revenue will increase 76% to 84% year-on-year.

Online gaming business is still in the transition period: the second quarter of the net game revenue fell 9% Year-on-year, lower than the company guidance expected, mainly by the core game "Tianlong eight", "the Divine Comedy" and "Pinball Hall," the performance of the downturn caused. Sohu estimates that the third quarter's online gaming revenues will fall 1% to 2% year-on-year.

Recently faced with the pressure of profit margins: The second quarter of Sohu overall gross profit margin fell 8% to 58%. The advertising business gross profit margin fell 4% to 44% year-on-year, mainly by the brand advertising gross profit decline drag. Online game gross profit margin fell 6% Year-on-year, mainly due to the increase in staff costs. Operating margins were 15%, compared with 19% a year earlier. Sohu's recent profit margin is still low due to continued investment in surfing and online video business. Sohu estimates that in the third quarter, a share of the deficit will reach $0.75 to $0.85 trillion, while the second quarter of each share of the deficit of 0.88 U.S. dollars, the same period last year diluted earnings per share of $0.51.

Adjustment of performance expectations: We will sohu 2014 fiscal year diluted loss forecast from 5.06 U.S. dollars to 5.75 U.S. dollars, the 2015 fiscal year diluted earnings forecast from 0.60 U.S. dollars adjusted to 0.53 U.S. dollars.

Valuation: We continue to maintain the Sohu stock "reduction" rating, the target share price from 53 U.S. dollars to 51.50 U.S. dollars. (Li Ming)