SOHU: Margin Pressure From Gaming, Barclays Lowers
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Posted On: 07/28/2014 12:19:38 AM
SOHU: Margin Pressure From Gaming, Barclays Lowers TP
By Shuli Ren
http://blogs.barrons.com/emergingmarketsdaily...p;ru=yahoo
While Sohu.com‘s (SOHU) Sogou search and online video businesses continue to grow, its ongoing transition for game developer Changyou (CYOU) and continued spending on buying new games is likely to drag on the margins, said Barclays. As such, the bank lowered its price target for Sohu from $79 to $78, ahead of Sohu’s earnings release next Monday.
But Barclays maintained a Buy rating. In particular, the bank believes Sohu’s tie-up with Tencent (0700.HK/TCEHY) on mobile search is essential for its value proposition. Last month, Sogou, Sohu’s search engine, launched a search function within Tencent’s WeChat. Here are analysts Alicia Yap, Anand Ramachandran, Joyce Zhou, and Gregory Zhao:
Sogou launches WeChat search, looks on track to reach quarterly breakeven in 2H14.
Sogou announced the launch the Weixin/WeChat search sub-website (weixin.sougou.com), which supports the search for Weixin/WeChat official accounts (public accounts that allow users to subscribe to and follow news alerts) and articles that are published by official accounts. We view this as another important strategic cooperation with Tencent after the integration of Sogou and Soso in 4Q13.
While Sogou has launched the WeChat search function, we do not expect any meaningful revenue contribution from this search service near term.
Barclays has base, bear, and bull scenarios. Under its bear scenario, it values Sohu at $49, a 13% downside. But under the bull scenario, it values Sohu at $105, an 86% upside. The base case gives a 38% upside. Limited downside, huge upside? Now that is the Tencent bump.
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By Shuli Ren
http://blogs.barrons.com/emergingmarketsdaily...p;ru=yahoo
While Sohu.com‘s (SOHU) Sogou search and online video businesses continue to grow, its ongoing transition for game developer Changyou (CYOU) and continued spending on buying new games is likely to drag on the margins, said Barclays. As such, the bank lowered its price target for Sohu from $79 to $78, ahead of Sohu’s earnings release next Monday.
But Barclays maintained a Buy rating. In particular, the bank believes Sohu’s tie-up with Tencent (0700.HK/TCEHY) on mobile search is essential for its value proposition. Last month, Sogou, Sohu’s search engine, launched a search function within Tencent’s WeChat. Here are analysts Alicia Yap, Anand Ramachandran, Joyce Zhou, and Gregory Zhao:
Sogou launches WeChat search, looks on track to reach quarterly breakeven in 2H14.
Sogou announced the launch the Weixin/WeChat search sub-website (weixin.sougou.com), which supports the search for Weixin/WeChat official accounts (public accounts that allow users to subscribe to and follow news alerts) and articles that are published by official accounts. We view this as another important strategic cooperation with Tencent after the integration of Sogou and Soso in 4Q13.
While Sogou has launched the WeChat search function, we do not expect any meaningful revenue contribution from this search service near term.
Barclays has base, bear, and bull scenarios. Under its bear scenario, it values Sohu at $49, a 13% downside. But under the bull scenario, it values Sohu at $105, an 86% upside. The base case gives a 38% upside. Limited downside, huge upside? Now that is the Tencent bump.
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