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The purpose of this blog is for my personal use. It serves as my personal diary as I investigate Chinese internet/gaming companies for investment purpose. If you have any comments or disagreement, please give me feedbacks.

Monday, July 21, 2008

Sohu – What was Sohu trying to tell us

My last post on the Olympics can be found here:

On 6/19/2008, Sohu’s Co-President Belinda Wang, said she expects core advertising to grow by 40% to 45% this year and 20% to 30% next year. See the following article:

The market interpreted as company’s admission of Sohu slowing down after the Olympics. It punished the stock on the same day and push the stock of Sohu down by 14% in a single day.

But what is Sohu actually trying to say to the wall street.

On 6/26/2008, Sohu published an interview with the CEO of Sohu. The article is as follows:

The main points of that article are as follows:
- Wall Street “mis-interpreted” the interview with Belinda Wang.
- The growth rate of 20% to 30% in 2009 is incorrect. The actual 2009 growth rate is unclear at this point.
- During the Olympics, Sohu will get a bigger percentage of internet users. This pattern will continue into 2009. There is absolutely no reason that the growth rate in 2009 is only 20% to 30%.
- Wall Street still don’t understand Sohu. For example, Wall Street didn’t taken into consideration of Sohu future killer product such as Sogou Pinyin Input Method.

What do I think of what exactly happened?

I think there is a basic misunderstanding between the Wall Street and Sohu management. The most likely case is that the Sohu management was trying to send the message to Wall Street that its estimate for 2009 (after the Olympics) is too pessimistic. On 6/18/2008, the average analysts’ estimate for 2009 is 22%.

Sohu’s management wants to up that estimate while still stays conservative. Therefore, it gave an estimate of 20% to 30%. Thus, its medium is 25%.

But somehow, the “whisper number” in Wall Street is probably higher and Sohu’s stock crashed 14% as a result.

It think it caught Sohu’s management by surprise. Thus the second interview on 6/26/2008. It is pretty clear that Sohu’s management is pretty confident that they can beat the 20% to 30% estimate they gave. But it is so far away that they don’t want to give out more precise estimates.

On a side note, it is pretty clear that Sohu regards the Sogou Pinyin Input Method as its ace, or its most important weapon to gain market shares. There are some recent news about it and I will talk about it in future posts.

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