Sohu.com: China's online leader
From games to Web searches, the company is a proven play on the Chinese Internet market.
Sohu.com (SOHU) employs custom software to ease the input of Chinese characters and it's Sogou.com search engine stores more than 10 billion Web pages. But when it comes to making money, Sohu.com is all about the games.
The company reported earnings of $308 million in Q1 and online gaming contributed $167 million of that total, representing a 32% increase from year-ago levels.
Part of the reason for the company's success in the online game world is Changyou.com, a leading game creation company that was spun off from Sohu.com in 2007, but maintains strong ties with its former parent.
Strong content and attention to freshness has kept revenue growth strong for Sohu.com, with seven straight years of top-line growth of at least 19%. Revenue growth in 2012 was 25% and Q1 growth hit 36%.
SOHU hit $109 in April 2011, but a 15-month slump dropped the stock to $34 last July. Four months of base-building at that level gave way to a strong rally in December that pushed the stock to $50, which formed resistance for another four months.
A cup formation that began in late January (and formed a handle in early April) led to a strong rally beginning in late April, that gathered momentum (and volume) in May.
We think SOHU is a very solid bet, a stock of a proven company with competent leadership and big opportunities as games and search expand into the fast-growing mobile segment in China.
This is a pure China play, and a buy at a good price (we think you can buy here, though a dip back toward $60 is possible).
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The company is scrambling to protect its equities arm, which could face declining volume and revenue as competitors close the gap.
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