Sohu’s Blowout Earnings: IPO In Store for Video? 搜狐发喜报视频业务或上市

By newsdoug on November 1, 2011

Sohu (Nasdaq: SOHU), a perennial second-place finisher to Sina (Nasdaq: SINA) in China’s Internet portal space, has just posted quarterly earnings that look quite impressive, showing its video business is fast becoming a major industry player and its online search may finally be gaining traction after years of struggling. Of course the one potential dark cloud over all of this may be China’s looming Internet bubble, which could abruptly halt the rapid growth for both of those businesses when it comes, probably around the middle of next year by my estimation. But first the good news. Sohu reported that revenue for its video segment more than doubled for the quarter, making it China’s second largest player, behind only Youku (NYSE: YOKU). (company announcement) Like Youku, Sohu has been a leader in the video space by signing some big licensing deals to offer content from the major Hollywood studios. It also has an advantage over independent video companies like Youku and Tudou (Nasdaq: TUDO) because it operates a more diversified Internet business, allowing it to leverage video over more of its other channels. Given the business’ rapid rise, Sohu must surely be thinking of spinning off video for an IPO as soon as the business turns profitable, possibly as soon as the second half of 2012, much the way it spun off its lucrative Changyou (Nasdaq: CYOU) online game business several years ago. After years of struggling, Sohu’s online search engine Sogou also appears to have finally gained some traction, with revenue soaring 244 percent in the quarter to $18 million, to take around 2.2 percent of the market. Those numbers are clearly still quite modest, but Sohu forecast that revenue would grow another 14 percent quarter-on-quarter to around $21 million in the fourth quarter. Of course all the growth could come to a screeching halt if and when China’s Internet bubble bursts, which would put a chill on advertising revenue. Sohu itself hinted at possible early signs of such a slowdown, forecasting brand advertising revenue would see little or no growth in the fourth quarter from the third. But for now at least, the company seems to be riding high on China’s Internet boom.

Bottom line: Sohu’s latest results show strong gains for its search and especially its video business, with the latter set for a possible spin-off and IPO as early as the second half of 2012.

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