SOHU beats on strong advertising revs; wireless revs show some promise (1Q05 earnings)

| About: Inc. (SOHU)

Sohu (ticker: SOHU), a Chinese portal and e-commerce company, beat Q1 2005 EPS estimates by $0.01. Details:

Q1 Results:
(all percentage changes and comparisons are year on year, unless stated otherwise)

  • Total revenues decreased 8.5% to $23.7 million versus guidance of $22.5-$23.5 million. Consensus of $22.98 million.
  • Advertising revenue increased 34.8% to $14.9 million versus guidance of $14.5-$15.0 million.
  • Ad revenue breakdown: $12.1 million in brand ads and $2.7 million in sponsored search.
  • Ad revenue was 62.6% of total revenue.
  • Non-advertising revenue decreased 41.0% to $8.9 million versus guidance of $8.0-$8.5 million.
  • Wireless revenue declined 51.3%, but generated 28% sequential growth.
  • Non-advertising revenue is derived from wireless services, online games and e-commerce.
  • Non-ad revenue represented 37% of total revenue.
  • Gross margin was 68% versus 67%.
  • Operating expenses increased 59% to $10.7 million.
  • Op ex increase due to LT growth investment, sales and marketing, consolidation of expenses.
  • Operating margin of 23% down from 41%.
  • Net profit fell 47.8% to $5.7 million.
  • Fully diluted EPS of $0.15 versus $0.27 - versus guidance of $0.14-$0.16. Consensus of $0.14.


  • In February 2005, SOHU repurchased 885,605 shares of common stock, thereby
    completing a stock repurchase program representing 6% of the total shares outstanding.
  • At March 31, 2005, cash and marketable debt securities balance of $128.7 million.

Q2 2005 Guidance:

  • Total revenue of $25.0 - $26.0 million. Consensus of $25.8 million.
  • Advertising revenue of $16.5 - $17.0 million.
  • Non-advertising revenue of $8.5 - $9.0 million.
  • Fully diluted EPS of $0.17 - $0.19. Consensus of $0.17.

Charles Zhang, Chairman and CEO of SOHU:

....We are pleased to report these first quarter results. Despite seasonal
weakness in online advertising due to the Chinese New Year holidays in
February, advertising and sponsored search sales performed strongly relative
to our expectations. Wireless business has turned the corner with quarterly
sequential revenue growth exceeding our expectations, indicating that we have
left last year's transitional and regulatory issues behind us. As a result, we
believe SOHU's first quarter results put us on firm ground for a good business
year. I am particularly pleased to note that quarter-on-quarter sponsored
search revenue achieved some growth while search traffic doubled.

Comment: Advertising revs grew slightly on a sequential basis. This is due to seasonality. The good news for SOHU? Ad revs grew 35% year-over-year.

And a wireless recovery? Surely, more than one quarter of growth is required to make such a statement. We will have to wait and see.

SOHU's Stock Market Performance: