The Co's CEO, Charles Zhang, has made bullish comments regarding web advertising revenues via online exclusive rights of the Games. When I delved into Chinese stocks recently, Sohu was definitely among the contenders I studied. I wound up with smallish holdings in Focus Media, Sina and Baidu, but that was before I realized Sohu got the Olympic connection.
Though other portals have formed an alliance to battle Sohu's exclusivity, it's a scenario worth exploring. Sohu broke through resistance to a new high on June 22 and hit $35 on July 16. Quite a ride since hitting a bottom of $20.94 on April 3. When I last took a closer look at the Co, it had a market cap of $1.2 billion. Profit margins (17%) and operating margins (16%) were good. So was return on equity (16%). Quarterly revenues? Pedestrian at 8%. Price to earnings ratio is 48, but forward P/E is not bad at 28. So what's the problem? Negative earnings (-26%) and stagnant EPS. So, I rated SOHU a B-.
The Olympics could change everything for the No. 2 portal in China. As Zhang said, revenues are already picking up. That should reflect in Sohu's earnings report due August 1. The stock, on a four-day tailspin, traded up to $32 in extended hours today, perhaps feeding off Baidu 's skyrocketing move.
Exactly how "exclusive" Sohu's Olympic Games rights will be is something we've yet to see. Is Sohu worth a buy?
Though I have a little SINA, I'm not a huge believer in portals, so my humble take is that Sohu is worth watching, not entering. I still lean toward Apple and Nintendo as better buys, and in China, Baidu before all else. At least until Alibaba goes public.
Disclaimer: Pupule Paul is a wee bit long SINA, FMCN, BIDU and AAPL.
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