Sohu = So Huge (SOHU, BIDU)

October 29, 2007 by Douglas A. McIntyre

Well, after looking at the news it is of little surprise that Sohu.com (NASDAQ:SOHU) is on fire in after hours trading.

Last week Baidu.com (NASDAQ:BIDU) ran up on what logic should have dictated as an opportunity to take profits after the quarter was only a bit above expectations and the guidance was merely in-line.  The new search data  results show why investor excitement is there despite what the company said.

Sohu.com (NASDAQ:SOHU) is defying that as any sort of trend out of a "Chinese Web Stock" as it beat earnings and raised guidance.  Sohu.com posted earnings at $0.25 EPS vs $0.21 estimates and Revenues $51.5 million versus $46.65 million estimates.  It also raised guidance: $0.28 to $0.30 EPS on $53.5 to $55.5 million, versus estimates of $0.25 EPS and $49.4 million revenues.

Sohu.com traded up over 7% to $53.53 in regular trading, which is a new high above the $20.94 to $50.53 trading range over the last 52-weeks.  If that wasn’t enough, shares are up another 10% at $58.00+ in after-hours trading.

Whether we were skeptical of the Baidu.com results being worth a continued trading surge is immaterial.  Sohu.com turned in the sort results we’d have expected to continue the Baidu.com run.  As of the close, Sohu.com had roughly a $2.0 Billion market cap. 

If we applied the same sort of upside to estimates on a smoothed out basis and a gradualizing for 2008 consensus estimates of $1.24 EPS then we’d come up with a range of $1.34 to $1.42 (estimated) new range and a mid-point of $1.38 would give this one a forward 2008 P/E of just over 42. That is less than half the 96 forward 2008 P/E of Baidu.com.  Unfortunately, making the comparison is not apples to apples.

We recently named one of the key Asian web destinations to our "Small Cap Internet Watch List" of Takeover Candidates for subscribers of our "Special Situation Investing Newsletter."  All of these stocks will also occasionally appear in the new 24/7 Wall St. "New Media/Old Media" subscriber based newsletter that discusses potential acquisitions, media trends, winners and losers, and new media initiatives from old media.

More on the China front: China is looking into more private equity investments; China still is a super-heated economy; look at China Mobile growth numbers; PetroChina may be raising more cash

Jon C. Ogg
October 29, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.  Some of these points are also discussed from time to time on our free email list.