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Why Sogou Stock Skyrocketed 106.2% in July

By Keith Noonan – Aug 10, 2020 at 10:15AM

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A buyout offer from a tech giant caused the Chinese search company's valuation to soar.

What happened

Shares of Sogou (SOGO) jumped 106.2% in July, according to data from S&P Global Market Intelligence. The stock climbed in conjunction with market momentum for much of the month and then saw a pronounced spike following news that the China-based internet search company had received an acquisition offer from Tencent Holdings (TCEHY -1.61%).

^SPX Chart

^SPX data by YCharts.

Sohu.com (SOHU -1.69%), Sogou's parent company, announced on July 27 that it had received a preliminary nonbinding offer from Tencent to acquire the search-engine subsidiary at a price of $9 per outstanding American depositary share. That valuation suggested roughly 56% upside on the stock compared with its price at market close on Friday, July 24, and Sogou shares skyrocketed when U.S. markets opened the following Monday.

A search bar over a woman using a mobile phone.

Image source: Getty Images.

So what

Tencent's stated plan is to shift Sogou into being a privately held subsidiary if its acquisition bid is successful, meaning that the search engine company would be delisted from the New York Stock Exchange. Sohu, which is Sogou's majority stakeholder, has said that it has not evaluated the proposed buyout in detail.

Tencent could potentially move to list Sogou on the Stock Exchange of Hong Kong (HKEX) or another exchange if a deal with Sohu were completed. But the potential buyout might also be aimed at preventing Sogou (which provides search engine services for Tencent's WeChat social network) from being impacted by potential new regulatory standards that Chinese companies would have to meet to stay on U.S. exchanges. 

Now what

Sogou published second-quarter earnings results today. Sales in the period came in at $261.2 million, down roughly 14% year over year. The company's adjusted loss for the period was $5.5 million.

Management cited pressures from the coronavirus pandemic as contributing factors in its revenue decline, but it also pointed to maintaining market share in the search business, its mobile keyboard and voice recognition expanding its user base, and increasing artificial intelligence hardware sales as positives in the quarter. 

Sogou's stock has traded roughly flat in August and hasn't seen any significant movement following its earnings release. It's likely that the company's shares will mostly trade in relation to news about the potential Tencent acquisition in the near future. 

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tencent Holdings. The Motley Fool recommends Sohu.com. The Motley Fool has a disclosure policy.

Stocks Mentioned

Sohu.com Stock Quote
Sohu.com
SOHU
$14.54 (-1.69%) $0.25
Tencent Stock Quote
Tencent
TCEHY
$39.19 (-1.61%) $0.64
Sogou Inc. Stock Quote
Sogou Inc.
SOGO

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