Feb. 7 (Bloomberg) -- Jiong Shao, regional head of Internet and media at Macquarie Securities, talks about Chinese Internet and advertising companies. Sohu.com Inc. tumbled the most in two years, and an index of Chinese U.S.-traded stocks dropped from a five-month high, as the owner of China’s third-biggest search engine posted an unexpected decline in profit. Shao also discusses Facebook Inc.'s planned initial public offering. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Sohu.com Inc. tumbled the most in two years, and an index of Chinese U.S.-traded stocks dropped from a five-month high, as the owner of China’s third-biggest search engine posted an unexpected decline in profit.
Sohu sank 15 percent in New York, leading a slump in Chinese Internet stocks in the U.S. Changyou.com Inc., Sohu’s online gaming unit, and social-media companies Renren Inc. and Sina Corp. all slid, paring advances spurred last week by Facebook Inc. filing for an initial public offering. The Bloomberg China-US 55 Index of the most-traded Chinese shares in the U.S. dropped 2.1 percent to 104.26 yesterday in New York, the biggest daily decline since Dec. 12.
Fourth-quarter net income for Sohu fell 39 percent to $25 million, compared with the $48.7 million average of seven analysts’ estimates compiled by Bloomberg. The Beijing-based company also forecast revenue for this quarter that missed analysts’ estimates by as much as $21 million as the slowing Chinese economy translates into less advertising.
Sohu’s stock price dropped “mainly because its first- quarter sales forecast is far below our expectations due to slower growth in advertising revenue,” said Qi Guo, an analyst at ThinkEquity LLC in San Francisco. In a conference call with investors after the release of the results, “Sohu’s management said they’re not optimistic about the outlook for advertising revenue growth. Investors connected it with other Chinese Internet companies relying on advertising,” Guo said.
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., snapped a four-day advance, sliding 1.5 percent to $39.87, the most since Jan. 30.
Impairment Charge
Sohu put the drop in net income down a $27.5 million impairment charge canceling out higher revenue from more advertising and game sales. ThinkEquity’s Guo maintained his “hold” recommendation on the stock after the report, while cutting the 12-month price target to $59 from $68. Two other analysts reiterated ratings of “sector perform” or “market perform” yesterday.
Sohu declined 15 percent yesterday, the most since October 2009, to a three-week low of $53.41 in New York trading.
Brand advertising revenue, or revenue from online advertising excluding search-engine pages, is expected to be in the range of $60 million to $63 million, down about 21 percent from the previous three months. That would still constitute an increase of 5 percent to 10 percent from a year earlier, Sohu said in the statement yesterday.
The lower first-quarter forecast “is due to lower revenue from the advertising businesses” and a $7 million increase in costs, Sohu’s Chief Financial Officer Carol Yu said, according to a transcript of the conference call. The first three months of the year is “a slow season” for advertising, she said.
‘Not So Optimistic’
“We are not so optimistic about the macro-economy in 2012,” said Belinda Wang, Sohu’s chief operating officer.
China’s economic expansion would be cut almost in half should Europe’s debt crisis worsen, warranting “significant” fiscal stimulus from the government, the International Monetary Fund said in a report released yesterday by its China office in Beijing. The growth rate may drop as much as 4 percentage points from the Washington-based lender’s current projection, which is for 8.2 percent this year.
Changyou.com Inc., Sohu’s online gaming unit based in Beijing, fell 13 percent to $25.31, the biggest drop since its initial public offering in April 2009 and the second-biggest decliner on the Bloomberg China-US 55 index yesterday. The stock surged 14 percent last week, the most since the five days to Dec. 2.
‘Pressure to Sell’
Shanghai-based Sina, which owns the Twitter-like Weibo service in China, retreated 6.6 percent, the most in a month, to $70.08, after surging 55 percent in the past four weeks.
“There was psychological pressure to sell after the recent gains, especially as there’s still a lot of concerns about the economy,” Chen Liqiu, a strategist at Jianghai Securities Co. in Shanghai, said in a phone interview.
Qihoo 360 Technology Co., a Chinese developer of computer security software, sank 6.1 percent to $17.89, the most in a month, after its products were removed from Apple Inc.’s online store for wireless applications.
Qihoo, based in Beijing, said in a statement e-mailed yesterday that it’s seeking information from Apple about the withdrawal and that people who have previously downloaded its apps should continue to use them as normal.
Melco Crown Entertainment Ltd., a Macau casino operator, slumped 3.4 percent in New York to $11.66, trading at a 2.2 percent discount to its shares in Hong Kong, the most in a week.
Macau Land Grants
The Macau Daily Times reported over the weekend that two of three land grants for the Cotai area of Macau may be approved this year, citing Lands and Public Works Bureau Director Jaime Carion. Casino operators MGM China Holdings Ltd., SJM Holdings Ltd. and Wynn Macau Ltd. have applied for grants, though the bureau may only be able to approve two of the three applications this year, the newspaper said.
The Standard & Poor’s 500 Index was little changed at 1,344.33, ending a three-day rally, on concern Greece won’t be able to agree on the spending cuts necessary to get European Union aid and avert a debt default. The Shanghai Composite Index was steady at 2,331.14, with most stocks on the gauge rising.
Seaspan Corp., a container ship operator based in Hong Kong, jumped 6.6 percent to an eight-month high of $16.65 after the company said it will pay a fourth-quarter dividend this month. Seaspan will pay a dividend of 18.75 cents per common share on Feb. 22 to all shareholders as of Feb. 13, the company said in a statement yesterday.
Chinese consumer prices rose 4 percent in January, compared with a 4.1 percent gain in December, according to the median of 31 economists’ estimates compiled by Bloomberg. The government data is due to be released on Feb. 9. January exports may drop 1.4 percent from year-ago levels, compared with a 13.4 percent advance the previous month, a separate survey showed. The trade data is scheduled for Feb. 10.
To contact the reporter on this story: Belinda Cao in New York at lcao4@bloomberg.net
To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net
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Sohu Leads Internet Stock Slide as Profit Disappoints: China Overnight