The market is abuzz with rumors that China’s leading online brand and Internet portal Sohu.com Inc. (SOHU) could be acquired by the premier online search giant in China, Baidu.com (BIDU). Baidu also happens to be Sohu’s prime competitor.
Sohu’s shares have so far reacted to various takeover rumors and soared 15% over the last month. The company has refrained from making any comment on this.
However, according to Silicon Valley’s Tech Trader, the company’s CEO Charles Zhang commented that Sohu’s current stock price is too low, which limits it from being a potential take-over candidate. Zhang also pointed out that even if the price rises the company has no intention of selling out itself in the near future as its long-term prospects are bright.
In August, Sohu spun off a part of its proprietary search engine, Sogou (which means ‘Search Dog’ in Chinese). Sogou is China’s third largest search engine. The net proceeds from the sale will be used for further development of its business, the company pointed out.
Sohu signed a preliminary, non-binding term sheet for the sale to strategic investors, including Alibaba Group Holding Ltd. and Yunfeng Fund for a minority interest of 16% in its Sogou online search business. Yunfeng is controlled by Alibaba CEO Jack Ma and Target Media founder Feng Yu. Terms of the deal were not disclosed.
Sohu’s Zhang would also invest in Sogou. Zhang’s investment group would be entitled for a stake of 16% in Sogou. Sohu would have the remaining 68% stake.
Alibaba’s investment will aid the development of Sohu’s search engine which has a meager market share, Sohu’s CEO commented, according to the research firm iSuppli, that Sogou’s market share was just 0.8% last quarter ended June, compared with Baidu Inc.’s 70.8% and Google Inc.’s (GOOG) 27.3%. Management also pointed out that the Sogou search engine will drive the company’s profitability going forward. Further, the company plans to hold a 20.0% share of the China search market over the next three years.
Search media is a significant contributor to Sohu’s growth. The search traffic growth will eventually generate increased search advertising revenues in 2010. Sohu’s popular search engine -- the Sogou Pinyin -- continues to gain popularity and market share through increased product quality and effective marketing campaigns.
With an increase in average daily users, Sogou Pinyin has been installed in roughly 70% or over 100 million personal computers (PCs) in China, adding to Sohu’s growth. Sohu released a web browser toward the end of 2008 and also launched the mobile version of Sogou Pinyin in 2009.
Despite recent rumors to the contrary, Sohu.com Inc. (SOHU) this morning said the stock's current price is too low for the Chinese Internet portal to even consider putting up the 'For Sale' sign. What's more, even if SOHU's share price was higher, "we have no intention of selling now," Chairman and CEO Charles Zhang told Reuters Insider at the World Economic Forum, calling SOHU a "long-term play." In fact, Zhang says, the firm is aiming to scoop up 20% of China's online search market within the next three years, with help from its Sogou search engine.
Investors have responded relatively well to the news, with the shares of SOHU up 0.2% to explore the $53.65 level, at last check. However, a few options speculators are likely hoping for more upside momentum for the stock in the short term, as evidenced by the recent affinity for out-of-the-money calls.
During the past couple of weeks, traders on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have bought to open almost 16 SOHU calls for every put on the stock. In fact, the equity's 10-day call/put volume ratio of 15.70 ranks in the 95th annual percentile, implying that options players on the ISE and CBOE have initiated bullish bets over bearish at a faster clip only 5% of the time during the past year.
Most popular during the past 10 sessions have been the September 55 and October 55 strikes, which have seen about 1,200 calls and 1,300 calls added, respectively. By purchasing to open the 55-strike calls, the buyers are betting the shares of SOHU will finish north of the $55 level before the options expire.