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Follow Us Seeks Investors in Search Engine Unit for Growth

May 18 (Bloomberg) -- Inc., owner of China’s third-largest Web portal, is seeking strategic investment for its Sogou search unit to compete with Baidu Inc. for Internet users and advertising.

The company is also looking to buy larger video websites to provide content, Chairman and Chief Executive Officer Charles Zhang, 48, said in an interview yesterday at the company’s headquarters in Beijing.

Sohu, founded by Zhang as one of the first generation Internet startups in China in the late 1990s, is seeking acquisitions and partnerships as it lags behind Baidu in search and Youku Tudou Inc. in online video growth. Zhang aims to strengthen the company as an Internet media and entertainment provider targeting consumers watching video and using applications on their smartphones and tablet computers.

“None of the business units at Sohu are showing big growth,” said Deco You, a Beijing-based analyst at Internet consulting firm iResearch. “Only when the search engine reaches a certain scale, can they realize its commercial value.”

Sogou accounted for 5.4 percent of search-engine queries in China in the fourth quarter, placing it in third place. Baidu had 82.3 percent and Qihoo 360 Technology Co. 8.2 percent, according to data compiled by Bloomberg Industries.

Sohu’s Web portal lags behind Tencent Holdings Ltd.’s and Sina Corp., according to data compiled by Bloomberg.

The company’s American depositary receipts gained 3.7 percent to $63.51 at 3:26 p.m. in New York trading. The stock has gained 34 percent this year.

Sabbatical Year

Zhang, who has a Ph.D. from the Massachusetts Institute of Technology, took a sabbatical to address some personal issues and was away for about a year till January.

“I missed out on some things, but that’s life,” said Zhang. “My goals in life have changed, and work is very important now.”

In the past year Baidu and Alibaba Group Holding Ltd., China’s largest e-commerce company, have made acquisitions to grow. Baidu said this month it will buy PPS Net TV’s Internet video business for $370 million and combine it with, another video unit the company agreed to acquire last year.

On May 10, Alibaba announced the $294 million acquisition of a 28 percent stake in Beijing-based mapping company AutoNavi Holdings Ltd. And last month, it agreed to pay $586 million for about 18 percent of Sina’s Weibo, a Twitter-like service.

Sohu is now exploring social media opportunities on mobile devices.

The company “has to produce the best quality content either text based, picture based, or video motion picture based, and at the same time it has to have channels,” said Zhang. “Sogou is very important, it is an access and a channel.”

Cash in Hand

Sohu had cash and short-term investments of about $951 million at the end of March, according to data compiled by Bloomberg.

“Strategic growth costs money,” Zhang said. “$1 billion is not that much.”

The company last month posted first-quarter profit that beat analyst estimates on higher online advertising sales. Net income rose 14 percent to $23 million.

Second-quarter revenue will be between $333 million and $342 million, Sohu said April 29.

“Online video is now in a high-growth period, but competition is also very fierce,” Zhang said.

China had 564 million Internet users at the end of last year, up 10 percent from the year before, according to the government-run China Internet Network Information Center. That is greater than the population of any country except India.

To contact Bloomberg News staff for this story: Lulu Yilun Chen in Hong Kong at; Edmond Lococo in Beijing at

To contact the editor responsible for this story: Michael Tighe at

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