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Why Stock Jumped Today

By Jeremy Bowman - Updated Apr 9, 2021 at 1:19PM

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The Chinese tech stock gained as its sale of Sogou looks set to close.

What happened

Shares of (SOHU -1.59%) were climbing on a report that Tencent (TCEHY 1.64%) was set to complete its acquisition of Sogou. This will pave the way for a payday for, the Chinese online media company that owns a third of Sogou.

As of 1:05 p.m. EDT, the stock was up 13.6%.

Chinese and American currency on top of each other

Image source: Getty Images.

So what

According to an exclusive report from Reuters, China's antitrust regulator had cleared the way for Tencent to complete its acquisition of Sogou, China's No. 3 search engine. Prior to the agreement to acquire all of Sogou, Tencent had controlled 39.5% of the business. owns a third of the business and will receive $1.16 billion in the buyout, a significant payout for Sohu, as its market cap is currently just $745 million.

The deal had been in doubt after the antitrust regulator, State Administration of Market Regulation (SAMR), had cracked down on tech giants like Alibaba, signaling a tougher stance against market concentration in the tech and online-media sectors. The regulator is even forcing Alibaba to sell off some of its media assets, but it cleared the Tencent-Sogou deal, as long as Tencent sets up a monitor to ensure data security.

Now what

Excluding Sogou, Sohu is a fast-growing business, coming off a quarter where it posted 34% revenue growth to $253 million, driven by its online gaming business, where revenue grew 49% to $196 million. On the bottom line, the company posted adjusted earnings per share of $1.33, making the stock look dirt cheap as shares are still less than $20.

Sohu also looks poised to benefit from the general antitrust pressure on tech giants like Alibaba, which should help even the playing field for small-cap Chinese tech stocks, and the cash infusion of $1.16 billion should only boost its prospects.

If Sohu can keep up its performance from the fourth quarter, the stock should move higher from here.

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Stocks Mentioned Inc. Stock Quote Inc.
$16.06 (-1.59%) $0.26
Tencent Holdings Limited Stock Quote
Tencent Holdings Limited
$46.40 (1.64%) $0.75
Sogou Inc. Stock Quote
Sogou Inc.

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