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Long Sohu Long Sohu Presentation Transcript

  • SOHU Shiwei Zhang April 7, 2013
  • Proposal: Long SOHU (Nasdaq: SOHU) Severely undervalued Chinese Internet Player 2
  • Chairman & CEO Charles Zhang 3 View slide
  • Business Units 4 View slide
  • Business Units • Portal: Sohu.com • #1 portal site in China: news, multi-media • Changyou (Nasdaq: CYOU) : Online Gaming • Top 3 leading online gaming service provider in China • 67% owned by Sohu • Sohu TV • Top 3 leading online video site • Sogou: Typing, Browser, Search • Largest Chinese typing software – 80% • Third largest browser – 8.9% • Third largest search engine – 7.6% 5
  • Thesis: Severely undervalued Methodology: Sum of the Parts Comparables Valuation Comparables better suited for tech & internet company than DCF 6
  • Business Unit Valuation Sohu.com Yahoo • Founded 1996 • Founded 1994 • 178 MM monthly unique visitors, ranked #16 globally by ComScore • 470 MM monthly unique visitors, ranked #4 globally by ComScore • 2012Q4 25% YoY traffic growth • Revenue $5 B • Profit $4 B • Revenue ? • Valuation: • Profit ? • Valuation ? • P/E: 7.11 • Mkt cap $25.66 B
  • Business Unit Valuation Sohu TV Youku Tudou (think Hulu) • 2012Q4 Revenue 70% YoY growth • 2012Q4 Revenue 30% YoY growth • 2012Q4 Market Share: • 2012Q4 Market Share: • Revenue : 12%, #3 • Revenue: 34%, #1 • DAU: 11% #4 • DAU: 31%, #1 • Average Time Spent: 10%, #4 • Content differentiation: Focus on documentary and TV shows • Valuation for Sohu: $2.66 B * 0.3 = $0.80 B • Average Time Spent: 37%, #1 •Valuation: • Mkt cap: $2.66 B
  • Business Unit Valuation Sogou Baidu (think Google) • 2013Q1 Customer 10% YoY growth • 2013Q1 Search volume -10% YoY decrease • 2013Q1 Search volume 1% YoY growth • 2012Q4 Revenue 41% growth YoY to $1 B • 2012Q4 Revenue 78% growth YoY to $41 MM • 2012Q4 70.81% mkt share • 2012Q4 7.6% mkt share • Valuation: • Goal: Spin-off & IPO • Valuation for Sohu: $29.2 B* 4% = $1.16 B • P/E: 17.3 • Mkt cap: $29.2 B
  • Business Unit Valuation Changyou (Nasdaq: CYOU) Sohu affiliation • 2012Q4 Revenue 26% YoY Growth to $623 MM • Changyou spun-off from Sohu in 2009 and went IPO • 2012Q4 Profit 15% YoY Growth to $282 MM • 66.7% equity owned by Sohu • 2012Q4 Registered accounts 41% YoY Growth to 248 MM • 80% voting power owned by Sohu • 2012Q4 Average revenue per active paying account 60% YoY growth to $58.8 • Valuation for Sohu: $1.5 B * 66.7% = $1 B • Valuation: • P/E 5.35 • Mkt Cap: $1.5 B
  • Sum of the Parts Valuation ? + $1.16 B + $1 B + $0.8 B ≥ $2.96 B > $1.79 B Sohu is severely undervalued. 11
  • 5 Year Stock Chart Market cap: $1.79 B Average Volume: 423 K Current price: $47.04 P/E ratio: 20.3 12
  • Financials As of Dec. 2012 Income Statement Balance Sheet Key Ratios • Revenue: $1,079 MM • 22.4% YoY Growth • Gross Profit: $705 MM • 65% Margin • EBITDA: $359MM • 33% Margin • Net Profit: $88 MM • 8.2% • $2,076 MM Total Asset • $1,232 MM Total Current Asset • $541 MM cash • $991 MM Total Liabilities • $552 MM Total Current Liabilities • • • • • EV/EBITDA: 3.4x EV/Sales: 1.1x P/E: 20.3 Current ratio: 2.23 5 Year Revenue CAGR: 41% 13
  • Trading below breakup value • Theories: • Operational: Disynergies among different business units • Transactional: Fees going to I-Banks • Financial: Uncle Sam • Industry specific: • Adversely impacted by other Chinese frauds • Sohu Specific: • Misperceptions from US investors • A combination of vastly different businesses 14
  • Investment Rationales The Positives The Negatives IPO of Changyou subdiary 7 Road (on track) Sohu TV dragging the whole group IPO of Sogou (on track) IPO of Sohu TV Privitization of Sohu 15
  • China Internet Users Online Video Users to Reach 450 Million by 2012 Millions 600 100% 90% 500 80% Internet Users 70% 400 60% 300 50% Online Video Users Penetration 40% 200 30% 20% 100 10% 0 0% 2006 2007 2008 2009 2010 2011 2012 16
  • Market size • 4.1 billion hours watched in August--comScore • Youtube monthly average 4 billion hours (70% intl). • Hulu 2011 revenue -- $420 million Online Video Market Size (in million $) 416 $450 358 $400 $350 303 $300 278 231 $250 $200 155 $150 $100 289 159 156 106 70 $50 $0 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 17
  • Exit When any one or more of the subsidiaries go public, or after holding for 2 years, or the company goes private. 18
  • Thank you. Shiwei Zhang Shiwei.Zhang47@gmail.com 19
  • Appendix 20
  • China Internet • 538 million internet users 21
  • 2012Q4 China Online Gaming Market Share 22
  • 2012 Q4 Market Share in Revenue Youku 22% Tudou 12% Sohu 12% Tencent 5% iQiyi 7% CR4: 51% CR8: 85% 23
  • 2012 Q4 Market Share in DAU iFeng 6% PPTV 6% CNTV 7% Youku 20% LeTV 7% Tudou 11% Xunlei 10% iQiyi 13% Tencent 9% Sohu 11% CR4: 64% CR8: 94% 24
  • 2012 Q4 Market Share in time spent CNTV 4% iFeng 3% PPTV 5% Youku 25% Tencent 5% Xunlei 6% LeTV 10% Tudou 12% Sohu 10% iQiyi 20% CR4: 77% CR8: 97% 25
  • Revenue Sources As of Dec. 2012 26
  • Future – Mobile, Content 27
  • Mobile • China Mobile Internet Users (2012 1H) 388 million • In 2012 1H mobile internet users surpassed PC internet users (380 million) • 27.7% (107 million) of mobile internet users watch videos online 28
  • 3G User Growth China 3G user to reach 300 million by the end of 2012 China 3G user to reach 300 million by 2012 1,200 30% 1,112 986 1,000 859 800 747 20% Mobile phone user 600 3G user 3G penetration rate 400 301 200 10% 128 47 12 0 0% 1 2 3 4 29
  • Sogou Typing & Search Weather TV show 30
  • Data Source iResearch CNNIC – China Internet Network Information Center comScore 31
  • Thanks! Shiwei Zhang Shiwei.Zhang47@gmail.com 32