) gaming subsidiary
) recently agreed to buy 51.0% of the equity interests in mobile
technology developer MoboTap for $91.0 million. The company will
purchase a zero-coupon convertible bond for $30.0 million due in
five years, which, if converted, will increase its stake to 60.0%.
MoboTap develops Dolphin Browser, a popular free mobile browser for
) iOS and
) Android operating systems. The company has more than 100 million
users with majority based in the U.S. and Europe. The investment is
expected to boost Sohu's presence in the mobile browser market.
Sohu is expanding its mobile operations through continued
investments in products and technology. In the first quarter of
2014, mobile video traffic surpassed PC traffic. Mobile search
revenues contributed 12% of total search revenue. Mobile traffic
showed stronger momentum and exceeded PC during the reported
We believe that Sohu's innovative product pipeline and strong
traffic growth in the search, online video and mobile businesses
will drive top-line growth in the long run. Moreover, strong growth
potential exists in the online gaming business. Additionally, the
partnership with Tencent will boost Sogou's traffic, which will
further drive Sohu's top line, going forward.
Further, with continued organic growth and the support of Tencent's
vast online properties, Sogou's market share in PC and mobile
search is expected to expand over time. However, we believe that
there is still substantial room for Sogou to improve its search
However, Sohu is a relatively small player in the online
advertising market and continuing investments in product
development are necessary to expand its market share. This will
keep margins under pressure in the near term but strengthen the
long-term competitiveness of the company in China.
Despite higher spending, we believe that market share gain will be
difficult in the near term due to stiff competition.
Currently, Sohu has a Zacks Rank #4 (Sell).
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