Sohu Shares Plunged: What You Need to Know

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 online information company (NAS: SOHU) plummeted 15% on Monday after its current-quarter guidance disappointed Wall Street.

So what: Sohu's fourth-quarter results managed to top estimates, but a weak first-quarter outlook -- management sees about a 20% drop in brand advertising revenue -- is triggering fresh fears over the company's growth potential. Gross margins continue to shrink as well, fueling previous concerns about Sohu's long-term profitability.

Now what: Management expects first-quarter adjusted EPS of $0.50 to $0.55 on revenue of $219 million to $225 million, versus the consensus of $1.13 in adjusted EPS and a top line of $238 million. "For online advertising, our conscientious efforts in growing online video and search businesses are bringing strong growth in revenues, users and traffic," said CEO Dr. Charles Zhang. "In 2012, we aim to make [Sohu Group] even more dominant in China's Internet market." It's tough to buy that optimism given today's disappointing news, but with the stock now down about 50% from its April highs and trading at a single-digit P/E, Sohu might be cheap enough to take a chance on.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Sohu. 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 Fool's disclosure policy always gets a perfect score.

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