The delays rained on what would otherwise have been applause-worthy results. Revenue climbed 25% year over year to $127.1 million, powered by strength in online gaming. Earnings of $0.79 a share were lower than a year earlier, but well ahead of Wall Street's $0.72-a-share profit target. Sohu has topped bottom-line estimates in each of the past nine quarters.
Video game release dates get pushed back often. They seem to have less dire consequences in cyberspace, where the shelf life is remarkably long. Chinese pioneer NetEase.com
Sohu better hope that's the case, because online gaming is the real growth driver these days. Online gaming revenue soared 39% during the quarter, well ahead of the mere 5% top-line increase in its brand advertising stronghold.
A 5% increase in online advertising revenue pales when compared to the 37% year-over-year spike that Baidu
With online gaming growing to make up the majority of Sohu's revenue, it's easy to understand why nervous investors would shoot down shares of Sohu and its springtime Changyou spinoff. When the pipeline is clogged, it can be problematic.
The market still overreacted yesterday. Changyou is growing just fine with its current slate of games. This isn't The9
Both Sohu and Changyou are trading at P/E multiples in the low teens. These are great prices for misunderstood growth stocks in a country that is growing quickly.
Other games to play in China:
Sohu.com, Baidu, and NetEase.com have been recommended to Motley Fool Rule Breakers newsletter service subscribers. Activision Blizzard is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletter services, free for 30 days.
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.