Revenues for the quarter jumped 42%, to $233 million. The company's net income increased by 19%, to $64.3 million, from the year-ago quarter.
Sohu's online advertising business saw robust results as two of the company's fastest-growing divisions -- Sogou and Sohu Video -- sustained their uptrend.
Sogou sustained its dreamy top-line growth with revenues at $18.4 million, more than triple last year's figure on the back of terrific traffic growth and enhanced monetization.
Sohu's online video business, Sohu Video, boasted a 110% jump in advertising revenues from the same period last year. This is because from June to September, monthly unique visitors to the site increased by 49% and the number of videos viewed or released onto the video site was up 33%. This is according to statistics provided by comScore, a digital marketing intelligence firm.
Moving to Sohu's online gaming unit and subsidiary Changyou
Sohu's results have shown a rather disturbing statistic. Operating margins dropped by a whopping 800 basis points, to 32% from 40% in the previous year.
The main problem causing this is Sohu's promotion-crazy gaming division. The brutally competitive gaming market prompts companies to shell out heavily for promotional activities, building and maintaining infrastructure, and employing operators.
This has left analysts questioning where the company is heading and when the erosion of margins will finally come to a halt.
China's very own Internet boom
China is the world's largest Internet market, with more than 450 million users. But the potential for growth is still there, with Internet penetration at approximately 30%.
And Sohu.com is not the only company trying to catch the action in the Chinese Internet market. Competitors also looking to cash in include search engine Baidu.com
Government plays party pooper
China's ruling party has made it clear that it's going to strictly monitor microblogs, social media, and instant messaging services. The law would strictly punish the publication of supposedly "harmful information." This is especially applicable to Sohu rivals SINA
Tighter censorship may not have any immediate impact on such companies, but in the long run, censorship could drive away users.
The Foolish bottom line
While Sohu has posted impressive top-line growth, the company's declining margins are a source of concern. In addition to growing revenues, the company needs to dedicate some of its attention to bottom-line performance.
It will be interesting to see how Sohu deals with these problems in the coming quarters. To stay up to speed with the latest developments for Sohu.com, add it to your very own personalized stock watchlist. It's free.
Keki Fatakia does not own shares in any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Sohu.com, Baidu, and SINA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.