Say it ain't so, Sohu.com (NASDAQ:SOHU). The Chinese Internet and wireless content specialist provided a lackluster fourth-quarter report and an equally sleepy outlook for the current quarter.
Profits dipped to $0.16 a share for the quarter, or $0.21 a share if adjusted for stock-based compensation. On that basis, Sohu beat Wall Street's expectations of $0.17 in profitability, but it gets worse the higher you look. Gross margins dipped, both sequentially and year-over-year, and Sohu's top line inched just 16% higher to hit $34.4 million. Analysts were looking for a 20% gain.
The outlook for the March quarter also finds Sohu looking to edge past the profit target while coming up short in total revenues.
It's not a disastrous quarter. It's just not the blowout type of quarter that we have come to expect from Chinese bellwethers like Baidu.com (NASDAQ:BIDU) and NetEase (NASDAQ:NTES).
In an ironic twist, gross margins improved in the company's fading wireless business while deteriorating in its advertising stronghold. Go figure. Sohu's presence in delivering premium wireless content is being threatened by regulatory hoops and stingy telcos, and gross margins advanced there. Meanwhile, the company's brand advertising is booming as margins contract.
Sohu blames factors like higher content costs and head count, but why is Sohu outspending its growth? Aren't a lot of the company's online properties scalable businesses, where margins should be improving with every growth spurt?
We're far away from the days in which Sohu, NetEase, and SINA (NASDAQ:SINA) lit up the stock market as rare Chinese equities with a stateside trading presence. The IPO spigot keeps unloading new issues, and Sohu has to earn the attention it covets.
Last night's report isn't going to do that, at least not in the way that Sohu would like. The shares fell 8% overnight in after-hours trading.
Get it right, Sohu. Nobody patronizes the falling child star.
NetEase and Baidu have been recommended to Motley Fool Rule Breakers newsletter service subscribers. 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. 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.
