Morgan Stanley maintains Sohu stock reduction rating

Beijing time July 28 afternoon news, Morgan Stanley today released a study to maintain the Sohu (Nasdaq:sohu) Stock "reduction" (underweight) rating.

The following is a summary of the report:

Strong AD performance: Sohu's second-quarter advertising revenue rose 49% to 218 million dollars, in line with our expectations. Brand advertising revenue growth of 33% per cent (the company's guidance forecast for year-on-year growth of 30% to 35%), to 133 million U.S. dollars (about the total revenue of Sohu 33%), mainly from the network video and 17173 advertising business strong performance. Search and other revenues rose 84% to $85 million (about 21% of total revenue, above 14% a year ago), benefiting mainly from increased traffic and commercialization.

Online gaming business is weak: Online gaming revenues are down 9% to $154 million (about 38% of total revenue, less than 50% a year ago), 3% below our expectations and less than the company's mentoring forecasts (down 1% to 4%). Revenue growth slowed mainly because of "Tianlong eight", "the Divine Comedy" and "Pinball Hall" and other flagship games mature.

Profit margin: Sohu's second quarter total gross profit margin of 58%, the year-on-year decrease of 8%. Online advertising gross profit margins fell 4% to 44%, due to reduced brand advertising gross profit margins (due to the increase in content and bandwidth costs, so the year-on-year decline of about 11%), but the growth of the search gross margin to some extent offset the trend (because of the cost of traffic in the revenue in the percentage of decline, So the data grew by about 6% per cent year-on-year. Due to the increase in personnel costs, net game gross profit margin fell 6% year-on-year. Operating profit rate is 15%, less than 14% a year ago, mainly because of the increased investment in online gaming business (swim).

Third-quarter earnings outlook weak: Sohu expects third-quarter revenue to grow 16% to 20% (427 million to 442 million dollars) Year-on-year, below our initial forecast (455 million US dollars) and analysts ' average (452 million US dollars), a year-on-year increase of about 23%. We expect brand advertising revenue to grow 19% to 23% year-on-year, but we expect sogou revenue to grow 76% to 84% year-on-year. Online gaming revenues could fall 1% to 2% year-on-year. The company expects a net loss of $29 million to $33 million for NON-GAAP (non-US GAAP), which is attributable to Sohu in the third quarter, to a total diluted loss of 0.75 to 0.85 dollars per share. (Ding Macro)