Seeking Alpha
Profile| Send Message|
( followers)  

Sohu (NASDAQ: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 (NASDAQ: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 (NASDAQ:MOBI), which provides similar wireless VAS in China.
  • SOTP Price/Share: Calculated based on 38.31 million total shares outstanding.
Source: Valuing Sohu With Sum-Of-The-Parts Analysis