Sohu Setback Slams Other Chinese Net Stocks

Chinese Internet stocks sagged Tuesday after Sohu.com (SOHU Quote - Cramer on SOHU - Stock Picks) disappointed investors with a soft growth forecast.

The Chinese Internet portal, whose shares are followed by only one major sell-side analyst in the U.S., failed to meet that analyst's targets for the fourth quarter. The analyst, Safa Rashtchy of Piper Jaffray, cut his 2004 estimates and his price target for the company, which he still rates outperform.

The disappointment sent Sohu.com's shares down as much as 23% Tuesday, and to a lesser extent knocked down the shares of its fellow Chinese Internet portals, Sina (SINA Quote - Cramer on SINA - Stock Picks) -- slated to report Tuesday night -- and NetEase.com (NTES Quote - Cramer on NTES - Stock Picks).

But even as Sohu.com's stock was trading at $30.87 Tuesday afternoon, down $7.04 for the day, it was still more than 400% above its 52-week low.

The stock's upsurge in the first half of the year and its volatility since then reflect the ongoing debate about Sohu.com and other Chinese Net stocks.

Their supporters say that the shares represent an opportunity to get a piece of the inevitable growth of the Internet economy in China. As Sohu.com CEO Charles Zhang put it on a conference call with analysts Monday evening, "We believe Sohu is the best-positioned company to capture the growth opportunity of the Internet in China."

But doubters wonder whether Chinese Internet and wireless data services growth will be as fast and profitable as hoped, and whether stocks will collapse as they did in the U.S.' dot-com bust. In line with the outsized stock appreciation over the past year, each new piece of evidence -- be it Tuesday's disappointment or Sina's mid-January deal to launch an auction site with Yahoo! (YHOO Quote - Cramer on YHOO - Stock Picks) -- can easily spark a double-digit percentage price change in the relevant company's stock.

For the fourth quarter ended Dec. 31, Sohu.com earned 28 cents a share on revenue of $24.6 million. While the EPS number matched Rashtchy's estimate, revenue fell short of his $25.7 million estimate, a result of lower-than-expected short messaging service, or SMS, revenue from wireless telephone users.

« Previous Page

1 2

Next Page »