The day has also seen a dismal IPO from online textbook rental leader Chegg, a WSJ report of a rejected $3B+ Facebook offer for Snapchat, and a vague afternoon rumor about M&A interest in Trulia from Realogy.
U.S. standouts: ZNGA +7.4%. LNKD +4.8%. P +3.3%. ANGI +2.6%. GSVC +4.1% (owns a Chegg stake).
Baidu (BIDU +1.4%) is up moderately following news Chinese online video rivals Sohu (SOHU +1.7%) and Youku (YOKU +3%) have joined the MPAA and various entertainment/media companies in suing it for piracy. The assorted parties accuse Baidu of enabling piracy through its video search engine, as well as through video player apps and a TV dongle.
SOHU is guiding for Q4 revenue of $378M-$390M and EPS of $0.30-$0.35; the former is above a $369.9M consensus, but the latter is below a consensus of $0.48.
No explanation for the guidance is given, but at least some of the blame lies with Sohu's Changyou subsidiary. Changyou shares are down 17.3% premarket after the online gaming firm guided for Q4 revenue of $193M-$199M and EPS of $0.34-$0.41 vs. a consensus of $190.3M and $1.39; the EPS shortfall is due to a major Q4 ramp in marketing spend.
Also, Changyou saw a 14% Q/Q and 21% Y/Y drop in gaming monthly active users thanks to a drop in active accounts for its popular Tian Long Ba Bu MMO game before the launch of a new expansion pack.
Sohu's online ad sales (48% of revenue) rose 21% Q/Q and 56% Y/Y in Q3; the Y/Y pace is faster than Q2's 49% clip. A 60% Y/Y increase in brand ad sales (driven by Sohu's online video and real estate ops) was largely responsible.
Online game revenue (Changyou, 44% of revenue) fell 4% Q/Q and rose 7% Y/Y. The Y/Y clip represents a slowdown from Q2's 24%. The Sogou search unit, which Tencent will soon own a major stake in, saw revenue grow 48% Y/Y in Q3 vs. 61% in Q2.
Sohu's gross margin was 66%, flat Q/Q and Y/Y. Opex rose 19% Q/Q and 53% Y/Y (exceeding rev. growth of 29%).
With the government shutdown having reached day 8, many U.S. and Chinese Internet stocks that have seen giant 2013 gains (often with the help of momentum traders and/or short squeezes) are falling sharply.
U.S. decliners include Facebook (FB -5.2%), Yahoo (YHOO -5.2%), Netflix (NFLX -4.7%), LinkedIn (LNKD -7%), Zillow (Z -5.3%), Trulia (TRLA -7.5%), Yelp (YELP -9.3%), Groupon (GRPN -4.9%), and Web.com (WWWW -10.2%).
Chinese decliners include Baidu (BIDU -6.2%), Sina (SINA -7.5%), YY (YY -7.3%), Sohu (SOHU -5.1%), Renren (RENN -9.2%), Youku (YOKU -9.6%), Vipshop (VIPS -6.9%), and Dangdang (DANG -10.7%).
A chart of the YTD performance of some key names speaks for itself.
Chinese Internet firms, already shown plenty of love by momentum traders this year, are rallying again following the release of Twitter's public S-1.
Chinese microblogging leader Sina (SINA +4%) is among the gainers, and so are fellow social networking plays YY (YY +3.2%) and Renren (RENN +9.7%). But several other names are also taking part in the rally: BIDU +2%. NQ +2.7%. CYOU +6.9%. DANG +4.1%. SOHU +5.4%. SFUN +5.8%. AMAP +3.4%. QIHU +2%.
Twitter mentioned in its S-1 78% of the 218.3M monthly active users it had at the end of Q2 were outside the U.S. But few of them are in China, where its services (like Facebook's) are generally blocked.
Things have turned bitter between Qihoo (QIHU) and SOHU after the latter sold a 36.5% stake in its Sogou search unit to Tencent instead of to Qihoo, as had been speculated. After trading barbs publicly, the two companies are now suing each other over allegations that both companies' software is switching users' browser preferences without permission.
Beneath the surface of verbal and legal jabs, Qihoo may damage Sohu in a more material way. Wedge Partners analyst Juan Lin notes, "A significant share of Sogou’s search traffic is through traffic acquisition (around 40%) and directed by the Sogou browser. Since Qihoo’s PC anti-virus software has penetrated into over 90% of Chinese internet users, we think it may create difficulties for Sogou to further develop its search engine and browser."
Further, "[T]here is a risk that Qihoo will reduce the traffic it directs to Sohu video. Currently around 10% of Sohu video traffic comes from Qihoo, and the share has been increasing rapidly."
In a coverage launch for Chinese Internet stocks, Baidu (BIDU +0.7%), Ctrip (CTRP +0.2%), Sohu (SOHU +2.5%) Changyou (CYOU +5.4%), and Dangdang (DANG +8.5%) have been started at Outperform by Credit Suisse.
Tableau (DATA +0.5%) has been started at Outperform by FBN.
Cavium (CAVM +1.6%) has been started at Overweight by Morgan Stanley.
Blue Nile (NILE +4.7%) has been started at Buy by B. Riley.
Applied Materials (AMAT +0.1%) has been upgraded to Buy by Berenberg two days after the Tokyo Electron deal was announced.
IT/chip distributors Arrow (ARW) and (AVT +0.2%) have been cut to Neutral by UBS.
HomeAway (AWAY -3.9%) has been cut to Equalweight by Morgan Stanley.
Sohu (SOHU +8.4%) has provided details about the $301M special dividend it's paying to holders of Series A preferred shares in its Sogou search unit, courtesy of the $448M investment Sogou is receiving from Tencent. Sohu sold off yesterday after Wedge Partners highlighted the dividend, and declared it to amount to insider highway robbery.
$161.2M of the dividend payment will go to Sohu's Sohu.com unit, and thus stay within the company. $96.7M will go to minority shareholder China Web Search.
Most notably, an investment vehicle owned by chairman/CEO Charles Zhang will only receive $43M, even though it owns 60% more Series A shares than Sohu.com. Zhang chose to receive dividend payments on only 1/6 of the Series A shares he owns through the vehicle.
After opening higher thanks to Goldman's upgrade, Sohu (SOHU -1.1%) has turned negative following a Wedge Partners note that observes the company's Sogou search unit will use $301M of the $448M investment it will receive from Tencent to pay a special dividend to owners of Sogou's Series A preferred stock (as disclosed in a Sohu 8-K).
Wedge declares the dividend payment to be an example of insider highway robbery.
Shares still +6% from where they traded before the Tencent announcement.
SOHU gains another 2.6% premarket after Goldman Sachs puts the name on its Conviction Buy list with $98 per share price target, a modest 40% above yesterday's close. Costly investments in video, search, and mobile are about to pay off in the form of accelerating earnings, says Goldman.
Sohu flew 7.5% yesterday following its deal with Tencent.