Can Sohu Keep Up With Baidu and Qihoo 360?
Sohu.com will release its quarterly report on Monday, and the Chinese Internet company has seen its shares rise to two-year highs recently. With most U.S. investors having decided a long time ago that Chinese search giant Baidu had already won the search-engine wars in the emerging-market country, the success of up-and-coming Qihoo 360 came as a huge surprise and refocused attention not only on Qihoo but also on Sohu and its No. 3 search platform, Sogou.
Sohu has a history of staying out of the limelight among Chinese tech stocks. Although Sohu is well diversified with presence in search, video, and the online-portal space, rivals such as Baidu, Youku Tudou, and SINA have captured greater shares of those respective markets. Still, Sohu has definite appeal for companies seeking to compete in those areas, and that's exactly what happened to push the company's shares up recently. Let's take an early look at what's been happening with Sohu.com over the past quarter and what we're likely to see in its report.
Stats on Sohu.com
Analyst EPS Estimate
Change From Year-Ago EPS
Change From Year-Ago Revenue
Earnings Beats in Past 4 Quarters
Source: Yahoo! Finance.
Will Sohu earnings start rising again?
In recent months, analysts have cut their views on Sohu earnings, cutting third-quarter estimates by 20% and full-year 2013 and 2014 projections by about 10%. The stock, though, has soared, climbing almost 20% since late July.
Sohu's second-quarter earnings report didn't help start things off well for the Internet company. Investors had gotten excited about the prospects for the company's online video business to provide overall growth, but Sohu failed to meet revenue estimates for the quarter and failed to give particularly optimistic guidance for the third quarter. Growth of nearly 50% in online ad revenue was encouraging, but an almost equal rise in operating expenses showed just how competitive the industry is and how challenging it will be for Sohu to keep growing.
But what sent Sohu soaring was news that Tencent Holding had taken a stake in the company's Sogou search engine. Previously, rumors that Qihoo 360 might buy Sogou to boost its own market share in the Chinese search market seemed to jibe with Qihoo's success in challenging Baidu's search dominance. But last month, Tencent paid $448 million for a 36.5% stake in Sogou, hurting Qihoo's stock but helping Baidu as investors saw the continuing fragmentation of search also-rans helping to support Baidu's leadership position.
Since then, Sohu and Qihoo 360 have been at odds. The CEO of the Sogou division accused Qihoo of removing Sogou as users' default browser selection, while Qihoo 360 countered with allegations of its own. Regardless, the path forward for Sohu involves making the most of its new strategic position and seeking to keep up with Qihoo's growth.
In the Sohu earnings report, watch to see what impact the Tencent acquisition has had on search market share. With the company already having reported a sizable gain recently, further jumps in share could help Sohu defeat Qihoo 360 and set its long-term sights on Baidu.
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The article Can Sohu Keep Up With Baidu and Qihoo 360? originally appeared on Fool.com.Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends Baidu and Sohu.com and owns shares of Baidu. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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