It's a good start to the earnings season for Chinese stocks. Last night, Sohu (NASDAQ:SOHU) helped spur optimism with a better than expected third-quarter report. For the period, earnings dipped to $0.17 a share from $0.21 a year earlier. Analysts were expecting profits to clock in at $0.16 per share before stock-based compensation, and on that basis, Sohu would have earned $0.22 a share.
Net revenues soared 29% higher to hit $35.4 million. Wall Street was only looking for the top line to come in at $33.6 million. Sohu is also guiding investors to expect earnings of $0.20 to $0.22 a share for the current quarter, on $34 million to $36 million in revenues. Last night, the consensus estimates stood at $0.17 a share in earnings on $34.2 million in revenues.
Sohu saw healthy growth in both its online advertising business (68% of revenue) and wireless services (25% of revenue). With mobile network operators getting stingy in terms of third-party wireless content, Sohu devoted most of last night's call to detailing its online growth initiatives (where Sohu's future truly lies).
It's not just this summer's launch of its SoGo search engine, which has an uphill battle in taking on market leader Baidu.com (NASDAQ:BIDU). The company has had some early success in launching a blog site that incorporates enough social networking features for Sohu's CEO to compare it to News Corp.'s (NYSE:NWS) MySpace last night.
The company is also launching online TV-like channels devoted to sports and entertainment, and the former is going to play a major role for Sohu as it covers the 2008 Olympic Games in Beijing.
We won't have to wait two summers for the Olympics to begin smiling kindly on Sohu. CFO Carol Yu explained some of the factors that will help spur ad demand as early next year: Corporate spending budgets will be ramping up as they jockey for exposure during the celebratory torch relay, and many events will be taking place at the new stadiums long before the 2008 games officially begin.
Along with NetEase (NASDAQ:NTES) and SINA (NASDAQ:SINA), Sohu was one of the three original stock market darlings representing the booming potential in China. Four years ago, they were mostly seen as wireless service providers, but they have now gone in different directions. NetEase has established itself as a leader in Internet fantasy games, while SINA has become the top news portal in the country.
Sohu has set the right tone as SINA gets ready to post earnings next week, with NetEase stepping up to the plate a week from Monday. One up, two to go.
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.
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. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. T he Fool has a disclosure policy.
