For many years, Sohu has consistently been at a disadvantage in the competition among major portal sites. However, just before Labor Day in 2008, Sohu had its moment to shine. The portal site announced its first-quarter 2008 financial report, with a total revenue of $84.8 million for the quarter, setting a historical record for the company.
The capital market reacted swiftly. On April 28, U.S. time, the day the financial report was released, Sohu's stock closed at $70.81 on NASDAQ, up by 15.51%. Based on this stock price, Sohu's market value reached $2.67 billion. Meanwhile, on the same day, Sina, which has always been ahead of Sohu, had a market value of $2.65 billion.
Sohu finally surpassed Sina and became the leading portal site — even though it is unclear how long this performance will last, Sohu Chairman and CEO Charles Zhang appeared quite pleased. He joyfully connected with the media via video from the base camp of Mount Everest to interpret the financial report. He said somewhat enigmatically, "I am looking down on you."
It is not difficult for the industry to understand Zhang's happiness. Although being one of the earliest established Chinese portal sites, Sohu’s performance has always been average. The so-called "matrix" strategy advocated by Zhang has never been recognized by the capital market. In fact, he has repeatedly expressed his dissatisfaction in public: Wall Street doesn't understand Sohu! To the point where he eventually felt somewhat "swallowed grievances," declaring that "going public in the U.S. is a collective tragedy for Chinese internet companies."
However, the financial report on April 28 finally gave Sohu a taste of sitting at the top. Zhang attributed this success primarily to Sohu's Olympic strategy. In this Olympic year, Sohu leveraged Beijing Olympic content to attract a large number of users, stimulating numerous companies' desire to place advertisements on the Sohu website. The advertising revenue for the quarter was $34.8 million, an increase of 36% year-over-year, with brand advertising revenue reaching $33.2 million.
From these figures, it appears that Sohu, which previously invested heavily, has begun to enter the harvest period. But the question remains: after the Olympics are over, how long can Sohu maintain its brand influence as the "exclusive internet Olympic sponsor"? In terms of attracting portal users — content — Sohu does not have an advantage compared to its old rival Sina. At the same time, it lacks the support of a vast number of QQ users like Tencent.com.
On April 30, investment bank Oppenheimer was the first to express concerns about Sohu's future market performance. Analyst Jason Helfstein downgraded Sohu's stock rating from "outperform" to "market perform," believing that the stock has been overvalued after several recent big increases, "and no longer offers obvious investment value."
In fact, more and more internet professionals believe that advertising may not be Sohu's true focus. The most likely future move for this portal site is to develop online games, just like NetEase.
The first piece of evidence supporting this claim also comes from Sohu's latest financial report: the revenue from online games for the quarter was $41 million, accounting for 48% of total revenue, 24 times that of the same period last year. Hongbo, partner of Wujie Consulting and an internet observer, believes that it is gaming, not advertising, that has driven Sohu's "overtaking Sina."
Co-President and CFO of Sohu, Yu Chuyuan, claimed in the analyst meeting after the financial report, "Sohu will not transform from a media company into a game company." However, according to information obtained by "The First Financial Weekly," another online game by Sohu, "Lu Ding Ji," will go online for operation by the end of this year, and they will also choose the right time to return to the game distribution market. From signs such as its acquisition of the game portal 17173, attempts to operate the online game "Dao Jian Online," and large-scale recruitment of online game promotion talents nationwide since the middle of last year, Sohu holds considerable expectations for the online game market.
However, the industry is concerned whether an increasing number of internet companies entering the online game sector will allow Sohu to establish its own product advantages? Additionally, there is no evidence yet showing that Sohu is prepared in multiple aspects such as product operation and promotion.
Therefore, we must pay attention to Sohu's prospects in the online game market. This might be more subtle than its situation in the online advertising market.
IT commentator and Wujie Consulting partner Hongbo issued a comment warning that the success or failure and life cycle of individual online games have too much impact on their operations. Whether Sohu will become the second NetEase is still uncertain. Under normal circumstances, businesses that make money quickly tend to receive more company resources. However, "Wall Street won't give a game company a P/E ratio of 78 for long."