Morgan Stanley to maintain Sohu reduction rating target price reduced to 50 U.S. dollars

Beijing time November 5 Evening News, Morgan Stanley published a study today to maintain the "reduction" of Sohu (Nasdaq:sohu) stock rating, and the target price cut to 50 U.S. dollars.

The following is the full report:

Sogou's positive and mobile business development is offset by the transformation of game business and the predictability of poor profit margins. We maintain the "reduction" of Sohu stock rating, and the new target price of 50 U.S. dollars.

Maintain the "reduction" rating, the target price reduced to 50 U.S. dollars

We will increase Sohu 2014-2016 revenue forecast by 1%, and the 2014 per share losses are expected to be reduced from 5.75 U.S. dollars to 4.91 U.S. dollars. However, since Sohu is expected to invest more in the video business and Sogou, especially on the mobile side, we will reduce the 2015 diluted earnings forecast from USD 0.53 to $0.50. We will have a more positive view of Sohu stocks after we see better profitability predictability.

Third quarter revenue to meet expectations, narrow losses

Total revenue rose 17% to $430 million a year earlier, and the company's previous forecast grew 16% to 20% per cent year-on-year. The steady revenue growth of the ad business (up 40% per cent year-on-year) has been positive, but the weaker-than-expected revenue from gaming operations (down 7% per cent year-on-year) has had a negative impact. Without the US GAAP, the net loss was $27 million trillion, down from $34 million in the second quarter, with a loss of $0.61 per share, better than the company's previously expected loss of 0.75 to 0.85 dollars per share. This is mainly due to a dip in marketing spending less than expected.

Stable advertising business, weak gaming business

Brand advertising revenue grew 19% from a year earlier, with previous forecasts rising 19% to 23% per cent year-on-year. This is mainly due to the growth of online video advertising revenue (up 40% per cent year-on-year). Auto, FMCG and real estate is the first three major sources of advertising, each industry advertisers contributed to the brand advertising total revenue of about 20%. Search and other business revenues rose 88% to $98 million year-on-year. This is due to the number of pay-per clicks and the increase in price per click. It is noteworthy that Sogou's revenue reached a record 106 million U.S. dollars, an increase of 86%, and a third consecutive quarter to achieve profitability (the third quarter does not follow the United States General accounting standards of the net profit of 6 million U.S. dollars). On the other hand, the third quarter of the online game business revenue fell 7%, the previous forecast of the year-on-year decline of 2% to 1%.

Poor profitability Predictability

Due to the uncertainty of the mobile gaming business and the timing of the game release, Sohu did not provide a profit outlook for the fourth quarter. In the third quarter, gross gross margin fell 8% to 58% year-on-year. The profit margin of the brand advertisement business and the net swims business is weak, but the high gross profit margin of the search advertisement business has brought up to some extent. Operating margins were 9%, down from 14% in the same period last year. This is mainly due to higher salary costs, as well as the increase in the promotional costs related to Sogou and gaming business.

Quarterly revenue outlook meets expectations

Sohu expects fourth-quarter revenue to rise 15% to 20% Year-on-year, to 442 million to 462 million dollars, in line with our initial estimate of $445 million, but below analysts ' average estimate of 464 million dollars. 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 business revenues are likely to fall 4% to 10% year-on-year. (D-Gold)