Not everything is golden in China. Online media specialist Sohu.com (NASDAQ:SOHU) delivered lackluster results in its first quarter. Revenue inched just 9% higher to hit $33.1 million. That's slower than the rate at which the overall Chinese economy is growing. Earnings clocked in at $0.12 a share, or $0.18 a share before share-based compensation expenses. Those figures lagged the $0.16 a share, or $0.20 per share before expensing stock options, that Sohu earned a year ago.
There are many factors in play here. Brand advertising was the company's bright spot, now accounting for 71% of total revenue at Sohu. However, margins are deteriorating there. Meanwhile, the rest of Sohu's businesses face even bigger problems. Sponsored search, wireless, and other non-advertising revenues are all coming in lower than they did a year ago.
Stagnancy is never a good thing in a hot market. A few years ago, the Chinese growth-stock universe was limited to the trio of Sohu, SINA (NASDAQ:SINA), and NetEase.com (NASDAQ:NTES).
Investors have a wider range of choices these days. They can go with Ctrip.com (NASDAQ:CTRP) as the leader in online travel booking, or fast-growing lodging chain Home Inns (NASDAQ:HMIN). Those companies are growing quickly without the Sohu warts.
This doesn't mean that Sohu will be a slouch forever. It's in the process of launching a new in-house online game, and its SoGo search engine debuted this past summer. Sohu will also cash in on next year's Olympic Games in Beijing. However, until margins improve in its ad business -- or its smaller subsidiaries begin showing signs of life -- Sohu may be more like "so who" in a forgetful marketplace.
NetEase was recommended to Motley Fool Rule Breakers newsletter service subscribers nearly two years ago. SINA has also been singled out to Motley Fool Stock Advisor readers. Ctrip is a Hidden Gems selection.
Longtime Fool contributor Rick Munarriz has been a fan of China's high-margin online stocks for a long time. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
