On Sep 6, 2013, Zacks Investment Research downgraded
to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Sohu reported a better-than-expected second quarter result
beating the Zacks Consensus Estimate on both lines. Although
revenues jumped 18.8% year over year and 10.2% sequentially to
$338.9 million, earnings of 56 cents per share plunged 26.8% year
over year and 11.4% on a sequential basis.
Revenue improvement was primarily driven by strong performance
from the online advertising and online gaming businesses.
However, higher operating expenses dragged down overall
profitability during the quarter.
Reportedly, Sohu and another Chinese Internet services provider
Qihoo 360 Technologies (
had been engaged in active discussions regarding the sale of the
former's Sogou search engine business to Qihoo. However, the
talks broke down in mid-August.
Recently, Qihoo raised $550.0 million through bond sale, which it
may use for the same purpose. Although Qihoo has denied any such
intentions, we believe that this uncertainty will remain an
overhang on Sohu in the near term.
The Zacks Consensus Estimate for Sohu's third quarter of 2013 has
declined 38.2% (26 cents) to 42 cents over the last 60 days.
The Zacks Consensus Estimate for 2013 decreased 10.9% (28 cents)
to $2.30 per share over the last 60 days. The Zacks Consensus
Estimate for 2014 dropped 11.1% (41 cents) to $3.28 per share
over the same period.
Other Stocks to Consider
Not all Internet service providers are performing as poorly as
Sohu.com. We recommend Qihoo 360, which has a Zacks Rank #1
LinkedIn Corp. (
, both Zacks Rank #2 (Buy) stocks, are also looking good at
FACEBOOK INC-A (FB): Free Stock Analysis
LINKEDIN CORP-A (LNKD): Free Stock Analysis
QIHOO 360 TECH (QIHU): Free Stock Analysis
SOHU.COM INC (SOHU): Free Stock Analysis
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