Sohu (SOHU) generates advertising and non-advertising revenue. Advertising revenue originates from the branded ads on its web portal and related websites, its online video platform Sohu TV, and search revenue from Sogou Search. Non-advertising revenue originates from its Changyou unit (CYOU) and wireless value-added-services. Using sum-of-the-parts valuation, the fair value of Sohu’s stock price should be $95.25 based on FY2011E revenue.
Sum-Of-The-Parts Analysis
| 2011E Revenue ($mm) | Multiples (Price/Sale) | Fair Value ($mm) |
Ads |
| ||
Branded Ad | 243 | 5 | 1,215 |
Sohu TV | 43 | 12 | 516 |
Sogou Search | 58 | 10 | 580 |
|
| ||
Non-Ads | |||
Gaming | 432 | 3 | 1,296 |
Wireless VAS | 42 | 1 | 42 |
| SOTP | $ 3,649 | |
|
| SOTP Price/Share | $ 95.25 |
Key Assumptions
Revenue:
- Q1 and Q2 revenue are based on historical results. Q3 revenue estimate is based on mid-point of management estimate. Q4 revenue estimate is based on historical yoy growth rate for the quarter.
- Sohu TV revenue is assumed to be 15% of total advertising revenue after consulting with industry analysts.
Multiple:
- Web Portal: Half of Sina’s 14x forward P/S, due to 2011E revenue, is slightly above half of Sina’s 2011E revenue.
- Sohu TV: On par with peer average, which includes Youku and Tudou?
- Sogou Search: Half of Baidu’s forward P/S. Could be conservative due to higher revenue growth rate.
- Online Gaming: Assume to be Changyou’s 3x P/S.
- Wireless VAS: Assume to be on par with that of Sky-mobi (MOBI), which provides similar wireless VAS in China.
- SOTP Price/Share: Calculated based on 38.31 million total shares outstanding.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
