Why Sohu Shares Plunged

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 Internet company Sohu.com (NAS: SOHU) sank 10% in early Monday trading after the company issued disappointing guidance for the current quarter.

So what: Sohu's first-quarter profit blew out expectations -- adjusted EPS of $0.61 versus the consensus of $0.48 -- but a weak second-quarter outlook is forcing analysts to lower their growth estimates yet again. In fact, management forecasts slowing brand advertising growth for the third straight quarter, suggesting that the economic headwinds facing Sohu aren't exactly letting up.   

Now what: Management now sees second-quarter adjusted EPS of $0.40 to $0.45, well below the average analyst estimate of $0.81. "The economic slowdown in China clearly had an impact on advertiser sentiment," said COO Belinda Wang. "Because of lackluster auto sales and the slowing real estate market, many automakers and real estate developers decided to defer their marketing plans." Of course, with the stock flirting with its 52-week lows -- now down more than 50% over the past year -- and trading at a cheapish forward P/E, much of the bad news might already be baked into the price.  

Interested in more info onSohu?Add it to your watchlist.

At the time this article 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.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story