Sohu 2Q2008 Prediction

My last prediction on 1Q2008 can be found here:
http://chinese-net-gaming-stock.blogspot.com/2008/03/tlbb-status-update.html

First, let’s see how I did in my last prediction. The following table compares my TLBB prediction on the previous quarter vs. the actual numbers:

TLBB	1Q2008
My Prediction – ACU QoQ	4%
My Prediction – PCU QoQ
My Prediction – APA QoQ	8%
My Prediction – ARPU QoQ	5%
My Prediction – Revenue QoQ	13.4%
Actual – ACU QoQ
Actual – PCU QoQ	20%
Actual – APA QoQ	35%
Actual – ARPU QoQ	35%
Actual – Revenue QoQ	77%

The acronyms first -
ACU = Average Concurrent Users
PCU = Peak Concurrent Users
APA – numbers of Active Paying Account
ARPU – Average Revenue per Active Paying Account

From the above table, it is clear that I completely misjudged my prediction. I only have an estimate for the ACU, it is virtually impossible to give reasonable guesses for other parameters.

Now, let’s do the 2Q2008 estimate for TLBB.



The server counts for the TLBB can be found in the following table:


There are 3 months in a quarter. Each month has either 4 or 5 weeks. I only use 2 days in a week. I don’t do server count every weekend. I only put in the number where I have a server count in both quarter. I also pick 3 days of holidays in this calculation.

From the above table, I have a 2Q2008 ACU increase of 4.47% quarter over quarter (QoQ). But I need to take into consideration that the company suspended operation for 3 days. It counts as 2.56% of revenue in a quarter

By taking into consideration of the 3 days off due to Sichuan earthquake, the new ACU increase is only 1.8%

I used Zhengtu of Giant Online as a guide. It has maximum APA = 1.405 million and maximum ARPU = 309.

I am going to have the APA follows my calculated ACU estimate. I am going to predict the 2Q2008 APA = 2% QoQ increase.

Now, for the ARPU, I am going to give an increase of 20% QoQ. 20% is probably a pretty good estimate considering we had an increase of 35% in the 1st quarter.

Therefore, the revenue increase will be 1.02*1.2 = 1.224 or 22.4% increase quarter over quarter.

We can now put my new estimates into the following table:

TLBB	1Q2008	2Q2008
My Prediction – ACU QoQ	4%	1.8%
My Prediction – PCU QoQ
My Prediction – APA QoQ	8%	2%
My Prediction – ARPU QoQ	5%	20%
My Prediction – Revenue QoQ	13.4%	22.4%
Actual – ACU QoQ
Actual – PCU QoQ	20%
Actual – APA QoQ	35%
Actual – ARPU QoQ	35%
Actual – Revenue QoQ	77%

Given the the 1Q TLBB revenue is 38.9M, 22.4% increase will give it $47.6M.

Now, let’s figure the revenue contribution from Blade Online. The following table is the revenue from Sohu’s other game, Blade Online

	2Q2007	3Q2007	4Q2007	1Q2008
Blade Revenue	1.5	1.8	2.0	2.1

From the my server count, Blade Online seems to be increasing during the 2nd quarter. I didn’t bother to do a detailed calculation. I am going to give a rough estimate of 2.5M for the 2Q2008. Take off 2.56% (due to the Sichuan earthquake) gives me 2.4M.

Combine the two, we have the total game revenue of 47.6+2.4 = 50M for 1Q2008. This is considerable more than Sohu’s gaming revenue guidance of 43 to 45 millions.

For wireless, it was 9.1M for the 1Q2008. There were no adverse regulations from China during this quarter. China’s telecom companies are busying with merger and 3G technology. They don’t have time to mess with the wireless value added providers. Therefore, I predict 10M for the 2Q2008.

For brand ads, the 1Q2008 revenue is 33.2M (and 26.6M for 2Q2007). Sohu had a very stable year over year growth of 40 to 45% for the last 5 quarters. Most people think there will be a spike (or extreme acceleration) in brand ads as we get close to the Olympics. I never think so. I believe we will still see a YoY growth of 45% during the 2Q2008. Thus, I predict we will have 26.6*1.45=38.57M. This is going to be in the very low range of Sohu’s guidance.

Search, however, is going to be another story. Sohu had started to do some major push in monetizing search. But the push starts at the end of 2nd quarter, so we will not see it reflected too much during the 2Q. Still, I predict we will see the true turnaround in Sohu’s search business. I think 2Q will be the first quarter where it would experience both QoQ and YoY increase. I predicted 1.8M for search in 2Q2008.

If we add them up together, we would get
50+10+38.57+1.8 = 100.37M

This is better than both the Sohu’s estimate of 93M to 96M and analysts’ estimate of 96.12M.