Earnings: Sohu, Changyou Beat Expectations; Chinese Online Gaming Bucking Recession

This story was written by Rory Maher.
Chinese internet portal and gaming company Sohu (NSDQ: SOHU) beat expectations in the first quarter, as revenue was up 36 percent over the year-ago quarter, to $115.7 million, and earnings-per-share came in at $1.15. (Consensus estimates were for $113.4 million in revenues and EPS of $0.99). The results were driven primarily by the company's online gaming division Changyou , whose revenue increased by 50 percent over last year to about $62 million. The company's advertising business grew revenue 17 percent to $40.6 million. The remainder of revenue was primarily driven by mobile-gaming sales. (Changyou is 68.5 percent owned by Sohu and was recently spun off as a separate public company.)

Gaming: Changyou increased its user base significantly, growing concurrent users 47 percent to 970,000 and active paying accounts 50 percent to 2.27 million over the previous year's quarter. But that was countered by a 7 percent decrease in the average-revenue-per-user (ARPU), indicating more people are playing Changyou games but for less time. The majority of the company's gaming business comes from its Tian Long Ba Bu game (about 88 percent of revenue), with Blade Online comprising the rest. The company started licensing its games overseas in 2007 (it now has agreements in Vietnam, Hong Kong and Taiwan), which generated $2.3 million in revenue during the quarter.

Advertising: Brand advertising grew 18 percent to $39 million, while sponsored search declined 3 percent to $1.6 million. In a press release issued this morning, the company said it saw some indications of a recovery ahead. Sohu issued guidance that indicates it believes the strong performance will continue into second quarter 2009.

Changyou started trading as a separate company on April 2, 2009, but its results are still reported with Sohu's. Sohu has helped drive users to Changyou's games through promotion on its homepage and marketing directly to the portal's 250 million registered users.

Sohu: Press Release | Webcast
Changyou: Press Release | Webcast

By Rory Maher