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Chinese internet companies buffeted by slowing economy

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Chinese internet company Sohu.com ( SOHU , quote ) and its stand-alone gaming subsidiary Changyou.com ( CYOU , quote ) reported quarterly results April 30. While both companies grew year-over-year, that growth has slowed significantly since the end of 2011.

[caption align="alignright" caption="Scene from a Changyou game."] [/caption]

Sohu reported revenues of US$227 million , up 30% year-over-year and down 8% quarter-over-quarter. Net income was $41 million, down 26% year-over-year and 14% quarter-over-quarter.

Changyou reported revenues of US$136.8 million , a decrease of 1% quarter-over-quarter and an increase of 30% year-over-year. Net income was $66.4 million, up 1% quarter-over-quarter and 14% year-over-year.

While both companies exceeded analyst expectations, neither has fared well against the slowing Chinese economy. CEO Charles Zhang of Sohu acknowledged the problem, calling the company's results mixed. "Our brand advertising business got off to a slow start," he said, "mainly due to the early Chinese New Year holiday and the softening macroeconomic conditions in China."

Changyou CEO Tao Wang was more optimistic, highlighting progress in both massively multiplayer online (MMO) and web-based games. However, the company projects nearly flat revenues of $139.5 million to $143.5 million for the second quarter and a net income that may drop below $60 million.

With the macroeconomic headwinds against them, it seems likely that Chinese tech companies will be growing at each others' expense rather than meeting demand from an expanding market. Investors should be cautious, and watch closely when Spreadtrum ( SPRD , quote ) releases its results on Thursday.

Changyou gained 0.29% in trading April 30, closing at $29.22, while Sohu lost 7.51% to close at 51.57.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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