Sohu Is Good to Go for the Long Run

Chinese online media company (NAS: SOHU) came out with decent results in the fourth quarter. However, its low first-quarter forecast -- in the range of $219 million to $225 million, which is below analyst expectations of $238.2 million -- brought the stock down by more than 15%.

Although the Street may not be in Sohu's favor right now, this just may not be reason enough for you to write off the company yet.

Reasons to be positive
Sohu's net income declined by almost 40%, but this was due to a one-time impairment charge on its previous acquisitions. Without this one-time cost, net income in the fourth quarter rose by 24% to $54.3 million.

China has significant market potential with increasing number of Internet users, which has recently exceeded the 500-million mark. With Google yet to gain a strong foothold there, Sohu -- along with Baidu (NAS: BIDU) which has a market share of 78.3% -- has plenty of room for growth. At the same time, growing adoption of the company's Sogou browser resulted in an amazing 248% increase in revenue from the segment on a comparable-year basis.

Exploiting opportunities
Sohu's efforts to grow its business have obviously paid off well. In the previous year, it acquired licenses for 400 movie titles from News Corp.'s 20th Century Fox. Sohu has also been profiting from its online gaming division, Changyou (NAS: CYOU) , due to the popularity of MMO games such as Tian Long Ba Bu and DDTank, the latter being one of the top-ranking Web-based games in China. Its gaming division recorded a 33% rise in revenue for the full year to $435 million.

The Foolish bottom line
While China's economy is slowing down, Sohu's still projected to grow by about 8.1% this year compared with 9.2% in 2011. I don't think 8.1% is that bad.

So, Sohu's revenues might take a hit in the near term, but the secular rise in online advertising powered by the growing number of people going online would ensure future growth for the company. Sohu should make it in the long run.

So, don't forget to stay up to speed with the latest on Sohu's performance by adding it to your watchlist. It's free and lets you stay on top of the latest news and analysis for your favorite companies.

At the time thisarticle was published Fool contributor Keki Fatakia does not hold shares in any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of and Baidu. 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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