Sohu Earnings Preview: First Quarter 2009

Sohu.com [[SOHU]] is scheduled to report their first quarter 2009 results before the market opens on Monday, May 4. Based on our analysis, we at EarningsPreviews.com are expecting SOHU to report better than expected results that exceed Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $114.2 million and EPS of $1.07. This would represent a 35% increase in revenues from last year’s $84.8 million in the same period. The current analyst consensus estimates calls for revenues of $113.4 million and EPS of $.99. On February 9, the company provided first quarter revenue guidance of $111.5 – $115.5 million and EPS of $1.05 – $1.10

 

While advertising revenue is expected to experience sequential declines, gaming revenue appears to still be going strong for the Chinese internet stock. Gaming revenues made up 48% of fourth quarter revenues and will likely be well over 50% this quarter. The global economic recession may be causing companies to cut their advertising budgets, but gamers continue to flock online.

 

It’s also important to note that while preliminary first quarter GDP fell 6.1% in the U.S., it increased 6.1% in China. While first quarter growth slowed from the 6.8% growth in the fourth quarter of 2008, many believe that the government’s spending programs are already beginning to stimulate the economy.

 

Share Performance

Since the beginning of the year, Sohu’s shares are up over 6%. Last year, Sohu was one of the better performing Chinese stocks, falling only 13% compared to the 66% drop in Baidu [[BIDU]] and the 48% decline in Sina [[SINA]].

 

Valuation

Shares are now trading at 11x consensus 2010 EPS estimates. This is below the relative valuations of their peer group. An attractive valuation and strong growth prospects make Sohu a buy ahead of quarterly earnings.

 

Recommendation: Buy with a $70 price target.

 

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