Sohu.com Inc (
surged 12.35% ($8.37) to close at $76.13 on Sep 18, after the
Internet service provider announced that its subsidiary Sogou
paid a special dividend of $301.0 million.
Sogou paid the special dividend from a $448.0 million investment
it received from Tencent. Sohu Search received $161.2 million,
while other preferred shareholders, China Web and Photon,
received dividend of $0.96 million and $0.43 million,
Most recently, Sohu and Tencent Holdings Limited announced a
partnership, under which Tencent invested $448.0 million in cash
to acquire a 36.5% stake in Sogou (Sohu's search business), which
can be increased to 40.0% in the future.
Tencent's Soso search related business and certain other assets
will be merged with Sogou. Sohu will hold the controlling
interest in Sogou, which will continue to operate as a subsidiary
The Sohu-Tencent partnership will improve Sogou's competitive
position against market leader
Baidu Inc. (
Qihoo 360 Technologies (
, which ranks second in both PC and mobile search market going
Tencent's strong mobile user base will boost Sohu's mobile search
traffic. Sogou will become the default search engine for
Tencent's mobile browser. Tencent will also promote Sogou's
mobile input method on mobile platforms such as mobile QQ and
The partnership will boost Sohu's user base and market share,
which will further improve monetization efficiencies over the
long term. Sohu expects Sogou to grow at a faster rate in 2014
based on the synergies from this partnership.
We believe that Tencent's investment will improve Sohu's
liquidity, which will help it to invest further on developing
video and other services. We believe that Sohu's innovative
product pipeline and monetization efforts by selling mobile ads
on video for
iPad will drive top-line growth going forward.
However, continuing investments in product development will keep
margins under pressure in the near term. Despite higher spending
and the recent partnership, we believe that market share gain
will be difficult in the near term due to stiff competition in
most of its operating markets.
Currently, Sohu has a Zacks Rank #5 (Strong Sell).
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