Sohu Rallies on IPO Plan as Earnings Lift ADRs: Overnight
Sohu.com Inc. (SOHU), China’s fifth-most visited website, led gains in the nation’s Internet companies traded in New York, surging the most since October 2008 after saying its unit is planning an initial public offering.
The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies in the U.S. rose 3.1 percent to 90.10 yesterday in New York, the most since May 29. Sohu and online games unit Changyou.com Ltd. (CYOU) jumped at least 18 percent after announcing the U.S. IPO plans of a subsidiary. Social website operator Renren Inc. gained the most in six months. Youku Inc. (YOKU) and Tudou Holdings Ltd. (TUDO) climbed more than 9 percent after saying their merger will be completed by month’s end.
Changyou said yesterday that its unit 7Road.com Ltd. plans to submit to the U.S. securities regulator a draft statement for a possible IPO. Changyou, which is 67 percent owned by Sohu, also announced it will pay shareholders a dividend of $3.8 for each American depositary receipt, after its 14 percent growth in second-quarter profit beat the average estimate of seven analysts surveyed by Bloomberg.
“What drives Sohu’s stock prices is really the growth in its games unit Changyou,” Henry Guo, an analyst at ThinkEquity Partners LLC, said by phone yesterday from San Francisco. “Changyou’s IPO plan for its web games unit and dividend payment indicate strong performance of the gaming business, and the parent company will benefit from it.”
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., climbed 0.5 percent to $34.99 yesterday, the highest level since May 11. The Standard & Poor’s 500 Index of the biggest U.S. shares advanced 0.2 percent to 1,394.23 in its second day of rally, as German Chancellor Angela Merkel’s government backed the European Central Bank’s bond- buying plan while corporate earnings beat forecasts.
Sohu advanced 18 percent to $40.86 in New York, the biggest jump since Oct. 28, 2008. Changyou surged 19 percent to $23, the biggest gain since April 2009.
Beijing-based Sohu said yesterday second-quarter net income was $12.8 million, compared with a $13.7 million mean estimate of seven analysts in a Bloomberg survey. Its forecast for an adjusted profit of as much as $21 million for the third quarter also missed analysts’ projection of $26.5 million.
Changyou said yesterday second-quarter profit rose to $69.1 million from a year ago, more than the average forecast of $59.8 million of four analysts. Its guidance of at least $70 million in adjusted profit also beat analysts’ estimate of $61 million, data compiled by Bloomberg showed. Investors holding Changyou’s shares by markets’ close on Aug. 17 will be entitled to the one- time cash dividend, it said yesterday.
The purpose of seeking listing of 7Road.com is “attracting and retaining talented employees by providing them with equity incentives,” according to a joint statement yesterday by Changyou and Sohu.
Ten companies in the Bloomberg gauge that have reported earnings since the mid-July have beaten estimates by 15 percent on average while sales have trailed analysts’ projections by 9.7 percent, data compiled by Bloomberg showed.
Youku, based in Beijing, surged 9.8 percent to $17.98, the biggest gain in two months. President Dele Liu said its purchase of competitor Tudou will be completed before the end of this month in a conference call with analysts yesterday. The merged company is expected to have more than 300 million users each week, he said. Shanghai-based Tudou also rose 9.8 percent to $27.93 in New York.
The value of the Youku-Tudou deal had dropped 33 percent to $615 million last week since it was announced March 12, on concern the transaction will fall through and fail to boost Youku’s profit. The value rebounded to $688 million yesterday as the share prices jumped, data compiled by Bloomberg show.
Youku said yesterday second-quarter net loss was $9.9 million, less than the average loss of $15.6 million predicted by six analysts compiled by Bloomberg.
Renren (RENN), which operates a social networking website in Beijing, jumped 12 percent to $4.20, the biggest gain since January. The company is due to report second-quarter figures today after U.S. markets close.
Renren’s sales rose to $42.3 million for the quarter, the mean forecast of six analysts showed. That would compare with the company’s lowest prediction of $41 million in May and sales of $32.1 million in the previous three months.
China plans to let workers choose for as much as 30 percent of their wages to be paid in the shares of their publicly-traded employers, according to draft rules posted on the China Securities Regulatory Commission’s website on Aug. 5. The stock used to pay employees must be acquired from the secondary market, and employees who receive shares as salaries or bonuses would have to hold them for at least 36 months, the regulations said.
The Shanghai Composite Index (SHCOMP) climbed 1 percent yesterday to 2,154.92, the steepest increase in a month, while the Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong advanced 1.6 percent to a one-month high of 9,812.92.
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