T.h.capital maintains Sohu stock holding rating

Beijing time November 1 Evening News, investment company T.h.capital today issued an investment report to maintain the Sohu stock (Nasdaq:sohu) "Hold" rating.

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

Sohu revenue in the third quarter of fiscal year 2013 exceeded Wall Street expectations, but earnings per share were much lower than expected, mainly by the dog's special dividend. Sohu's quarterly guidance revenue is expected to be higher than Wall Street's expectations, but net profit will fall sharply as it invests in game marketing, buying licenses, buying video content, and integrating Tencent's unprofitable search. We believe that the decline in Sohu profitability will continue for some time, because the video business will still be struggling for profit, gaming business profits are also falling. While the search business may grow fast, it is not doing much to boost Sohu's profit growth. To this end, we continue to maintain the Sohu stock "hold" rating.

Moving from PC to Mobile: the net profit for the fourth quarter is expected to reach $18 million to $22 million trillion, well below the third quarter's $73.2 million trillion, as Sohu plans to invest 53 million dollars to promote new games and will spend about $10 million in 2014 to buy game licenses. Investment can maintain a certain level of revenue growth in a short period of time, but not back to the previous level, as markets are moving from PCs to mobile platforms. In the past two years, online gaming users have risen by about 4% in 2012, up to 3% this year, while smartphone users in 2012 have risen 18% this year to 19%. To this end, we believe that the growth prospects for the online gaming industry in the long run are bleak, as markets are moving from PCs to mobile platforms. Although there are still a variety of new games in the development, but can not make up the flagship game "Tianlong eight," the downturn. "Tianlong Eight" is currently aging, the third quarter active users fell to 31 million, the chain fell 14%, down 21%.

Video business continues to burn money: third quarter, based on non-US general accounting standards, in Sohu 41.1 million U.S. dollars net profit, 73.2 million U.S. dollars from the swim, 32.1 million U.S. dollars from other Sohu business, mainly for video. We expect video revenues to be about $41 million trillion, thanks largely to the success of the second quarter of the "good voice of China". As the program is over, we expect no significant traffic growth in the next few quarters. To this end, Sohu continues to purchase additional content. As a result, the fourth quarter video business is likely to continue to burn money.

Sogou is the only bright spot: Sogou and Tencent's cooperation is a positive cooperation, especially in mobile search. Through QQ and mobile browser, Tencent in the mobile market has a strong position, and this will bring traffic to Sogou, thereby promoting Sogou's market share and revenue growth.

Fiscal quarter Forecast: Sohu expects total revenue to reach $378 million trillion to $390 million trillion in the fourth quarter, and a median of 384 million dollars over Wall Street's expected $369.85 million trillion. Brand advertising revenue will reach 120 million U.S. dollars to 125 million U.S. dollars, the year-on-year increase of 46% to 52%. Above our expected 110.2 million dollars, an increase of 34% per cent. Sogou revenue will reach 68 million U.S. dollars to 70 million U.S. dollars, higher than we expected 56.2 million U.S. dollars. Online gaming revenues will reach $171 million trillion to $176 million trillion, and a median of 173.5 million dollars is slightly below our expected $174.5 million trillion. Based on non-US GAAP, each share is diluted to $0.30 to $0.35. Based on US general accounting standards, each share is diluted to $0.37 trillion to $0.45 trillion, well below Wall Street's expected $0.46 trillion.

Third-quarter results: Revenue for 368.3 million U.S. dollars, the year-on-year growth of 29%, the chain growth of 9%, higher than the Wall Street expected 364.6 million U.S. dollars, as well as our expected 356.7 million dollars. Brand advertising revenue of 124.8 million U.S. dollars, an increase of 60%, in the company's guiding expectations of the ceiling, higher than we expected 104.5 million U.S. dollars. Sogou revenue for 57 million U.S. dollars, an increase of 48%, higher than we expected 51.2 million U.S. dollars. NET game revenue of 161 million U.S. dollars, at the company's guiding expectations of the lower limit, below our expected 165 million U.S. dollars. Net loss of 1.69 dollars per share, and the company's guidance is expected to be 0.42 U.S. dollars to 0.47 U.S. dollars, Wall Street is expected to be 0.42 U.S. dollars, mainly by the Sogou 82 million U.S. dollars special dividend impact.

Adjustment of performance expectations: We will sohu revenue forecast for the quarter from 367.7 million U.S. dollars to 389 million U.S. dollars, the diluted earnings per share is expected to be adjusted from 0.31 U.S. dollars per share of diluted losses of $0.38. For the entire 2013 fiscal year, we have projected revenue from USD 1.398 billion to $1.4039 billion, and the diluted earnings per share from 1.82 US dollars to the diluted loss of $0.91 per share. As for fiscal year 2014, we have projected revenue from USD 1.6764 billion to $1.6997 billion, and the diluted earnings per share will be adjusted from $2.39 to $0.85.

Valuation: We continue to maintain the Sohu stock "hold" rating.