Shares of Sohu.com (Nasdaq: SOHU) fell by as much as 10% this morning, after the Chinese new-media company warned of slower online advertising growth come 2009. Co-President Belinda Wang expects Internet advertising to grow by 20% to 30% next year, after this year's projected 40% to 45% spurt.
Sohu's outook shouldn't be confused with Focus Media's (Nasdaq: FMCN) move in lowering its guidance earlier this month. Focus Media slashed its targets for the current year as a result of fallout from last month's tragic Sichuan earthquake. Sohu is not showing any signs of slowing down in 2008, with the decelerating kicking in come 2009.
Sohu and Focus Media are also entirely different advertising companies. Sohu is primarily an online advertiser. Focus Media has a strong presence there with last year's Allyes acquisition, but it is still mostly a company with a fleet of LCD monitors in public places, billboards, and elevator posters.
A closer fit to Sohu would be Baidu.com (Nasdaq: BIDU), but the mere 2% dip in shares of China's leading search engine this morning shows that the market is disconnecting the two companies. That's the right thing to do. Sohu's advertising business is related mostly to display advertising. It's a closer match to Yahoo! (Nasdaq: YHOO). Baidu is more like Google (Nasdaq: GOOG), with its emphasis on paid search.
Another thing to consider is that Sohu's sharp ad gains this year are tied partly to the Olympic Games in Beijing. Sohu will be tracking and webcasting the athletic contests in an official capacity, so it's only natural to see a little deflation in the numbers next year.
Besides, what's so disappointing about 20% to 30% in top-line growth? Wall Street was already looking for total revenue at Sohu to clock in just 22% higher next year after this year's dramatic climb. Wang's online ad target is also roughly double the 13.7% revenue gain that investors are expecting out of Yahoo!.
Yes, Sohu had been on a tear until now. Shares had roughly tripled over the past year, before this morning's tumble. However, is Sohu really that expensive, now trading for 22 times next year's profit expectations?
Let the pessimists sell. If the dips continue, investors may welcome the buying opportunity just before the Olympics-peppered buzz kicks in later this summer.
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