Sohu Raises Guidance Again

Just weeks after blowing the roof off a spectacular third-quarter report, Sohu.com (Nasdaq: SOHU) raised its fourth-quarter guidance last night.

The company now expects to post a profit of $0.36 a share to $0.38 a share in the current period (before share-based compensation expenses) on $55.5 million to $57.5 million in revenues. Wall Street was only looking for a profit of $0.29 a share on a $53.8 million top line.

What's driving the jacked-up optimism? It isn't the Web properties you might expect: its namesake portal or its Sogou search engine. It's the company's success with its Tian Long Ba Bu online game.

Web-based multiplayer fantasy games continue to be a booming industry in China. Hot on the heels of fast-growing Giant Interactive (NYSE: GA), and the rebirth of Shanda (Nasdaq: SNDA) as a growth stock, companies with gaming interests like Sohu and CDC (Nasdaq: CHINA) are cashing in on the young Chinese who have percolating levels of disposable income.

It's not like shooting fish in a barrel. Market leader NetEase (Nasdaq: NTES) has been stagnant. Last year's darling The9 (Nasdaq: NCTY) was crushed after coming up short in both of the past two quarters. Gamers can be fickle, although Shanda's renaissance this year proves that you're not out just because you're down.

Sohu has been on a tear lately. Shares have tripled since bottoming out last April. Investors are already giddy about the company's Web advertising prospects heading into the Beijing Olympics next summer. The combination of its search and news portals and Go2Map, its mapping website, puts Sohu at the right place at the right time.

And now that it has a popular game, one can argue that Sohu is smoking -- even before the Olympic torch makes its way to China.