SOHU, a revisit

**xxyygorich** Sat Apr 29, 2006 5:08 pm

SOHU, a revisit
SOHU was one of BLAST picks before, he selled all his SOHU position for more attractive stocks.

Recently SOHU advanced a lot, say about 60% after BLAST's sale.

I still have a small SOHU position. So I still have to take a look on SOHU's earning and performance.

The reasons for the rally
1. Oversale, in the first 2 quarters 2005, sohu gave ok ERs, however it did not match Walls street expectation. When sohu hit its lowest price (below $15), the stock was actually trading on a P/E ratio below 20. It was a very low P/E ration for a growth company like SOHU. I would have wished to buy more at that time.

2. Excellent ER of Q4 2005 and Q1 2006.
SOHU's business can be divided into 2 parts, advertisment (2/3) and wireless (1/3). Its advertisment kepts growing steadily. Advertisment revenue incress 28% Y2Y in Q4 2005, and 35% Y2Y in Q1 2006. At the same time, the wireless business is recovering from the ban in 2004, 65% Y2Y in Q4 2005 and 34% Y2Y in Q1 2006.

3. Traffic growth.
Traffic to SOHU continues to increase, 60% Q2Q in Q1 2006.

4. A few very good stratigic moves.
a. Olympic Sponsorship. In CC, Charles mentioned it again and again its the short term and long term catalyst of SOHU's growth.
b. SONY BMG world cup music/video exclusive partnership. It will provide huge incentive in Q2 and Q3's earning, especially in wireless sector I will predict.
c. WAP (Wireless Application Protocol) portal launched in Dec, 2005. So that SOHU can take advantage of web portal and its family sites to bust its wireless earning.
d. Improvements in technology. Sogou showed great traffice increase in the recent quarters. SOHU is still working on improving SOGOU, and combining it into other services. Another things, which Charles mentioned in CC, is that SOHU is developing new streaming technology to provide multimedia information along with text based information. (A new era? maybe.) But I think Worldcup and streaming video all together will end up a huge increase in terms of traffic, hopefully also in Revenue..
e. Supergirl, and dog search, they surly contribute to SOHU and SOGOU brand building.
f. An accounting adjustment
"No change in terms of actual payment to the salespeople that we will only pay them after the collection of receivables from customers. But, in terms of the timing when I accrue this expense, I moved the recording point to an earlier time instead of recording that only upon collection of receivable, I now record it upon the recognition of revenue. So, it’s only the timing of the accrual change; it’s not the actual payment nor the scheme itself."
I will consider it's a more conservitive accounting stratgy.
g. Take advantage of RMB appreciation. SOHU takes it into consideration. (a tradeoff between low interest rate in China, and high appreciation in RMB).

The current price.
The current price is not cheap, current P/E 35, forward P/E 28. These P/E ration won't give investor as much as of margin of safty when SOHU had P/E in high teens. In long term before 2008, I am bullish on SOHU. Compared it to YHOO, it has plenty of room to grow. In short term, because of incoming Worldcup, I am also positive to SOHU. So I will hold my shares tight and consider to buy more when price become more attractive.

BTW, Charles' English sucks. he he ..
Well mine is not better anyway.

Vote me!

**springsnailt** Sun Apr 30, 2006 3:06 pm

After the recent rally, none of the Chinese Internet related stock is cheap... (Given what you said, will do more research on Mr. Zhang's English :lol: )