Why Sohu Shares Sank

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese web-portal Sohu.com plunged 10% today after its quarterly results and outlook disappointed Wall Street.

So what: The stock has soared in 2013 on bullishness over Sohu's online video segment, but today's second-quarter revenue miss -- $338.90 million versus $340.27 million -- coupled with in-line guidance is forcing analysts to rein in their enthusiasm a bit. And while online ad revenue spiked 49% over the year-ago period, year-over-year operating expenses also jumped 43%, suggesting that Sohu's competitive environment remains particularly intense.

Now what: Management now sees third-quarter revenue of $358 million-$370 million, in line with the average analyst estimate of $362 million. "In the first half of 2013, we invested intensively in some key initiatives for video, search, games and mobile," said Co-President and CFO Carol Yu. "I am confident the momentum will continue into the remaining months in 2013 and beyond." Of course, with the stock still up about 90% from its 52-week lows and trading at a forward P/E of 20, I'd wait for an even more a pullback before betting on that.

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The article Why Sohu Shares Sank originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Sohu.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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