Pacific Crown Securities today released research report to maintain a flat rating on Sohu shares with the industry

Pacific Crown Securities today released a study to maintain the "flat" rating of Sohu (Nasdaq:sohu) shares.

The following is the full report:

In the game business, Sohu is still satisfied with the strategy of investment before the revenue. We will remain on the sidelines until the impact of game investment, particularly on revenue growth, is better predictable.

First-quarter results and second-quarter performance forecasts are worse than expected due to higher spending

Sohu's first-quarter revenue and second-quarter revenue forecasts were higher than expected, mainly because of strong search performance. The first-quarter revenue was $365.3 million, and the median revenue outlook for the second quarter was $404 million, which was higher than our projected $361.5 million and $397.8 million. However, continuing spending on gaming platforms has led to a loss of 1.26 US dollars per share for non-US GAAP, above our estimated $1.11 trillion. Sohu is expected to continue to invest heavily throughout 2014, rather than our previously projected reduction in investment.

The development of search business, network video business may face adversity

Sohu's search business continued to grow in the first quarter, keeping the chain flat in a seasonally weak quarter. We expect Sohu's search business to perform well in the second quarter due to the number of searches and price increases. However, due to recent Alibaba (rolling information) investment in Youku, we believe that the online video market will be more competitive and lead to higher content costs.

Maintain the "neutral" view of Sohu

While it is tempting to look at Sohu's current valuations in terms of a partial valuation, we recommend a wait-and-see attitude to Sohu until it sees more clearly the impact of the gaming business investment. Although the search business is developing, we think it will be offset by the disadvantage of the network video business. We cut the performance of Sohu expectations, and that the current valuation of Sohu shares reasonable.