Sohu may feel the squeeze again this year

Web portals face revenue drop as advertisers tighten wallets: Experts

Sohu.com Inc, a major Chinese Web portal operator, may face another tough year in 2013 as advertisers remain cautious about spending and new business is unlikely to greatly add to revenue in the near future, said analysts.

Sohu reported net income of $78 million last year, a 49 percent drop from 2012, as slower growth in advertising revenue and increasing costs ate into profits.

The Chinese advertising industry experienced a slump last year as an economic slowdown led to belt tightening. Internet companies that depend on advertising revenue, especially Web portal operators, have all felt the pinch.

Charles Zhang, Sohu chairman and chief executive officer, said he expects the company's online video business and search business to increase its contribution to total revenue.

"For online video, our newly established sales team was successful in returning the business to growth in the fourth quarter, and we expect performance to further accelerate in 2013," he said, adding that the company was also "thrilled" with the growth of its search arm, Sogou.

Sohu's total revenue grew by 25 percent to $1.07 billion in 2011 from a year earlier. Sogou's revenue reached $131 million, a year-on-year growth of 108 percent, citing the company's financial reports.

However, analysts said the company's online video and search arms might not be able to contribute greatly to Sohu's total revenue in the near future.

"Both businesses will burn a lot of money before they can generate a considerable amount of revenue," said Chen Zhengyu, a stock analyst at China Merchants Securities (HK) Co Ltd.

Most online video companies in China are still in the red because of heavy expenditures on content licenses, bandwidth and daily operations, although a small number of players expect to break even in a year or two.

Sohu's online video business was ranked third in the third quarter with a 10-percent market share, according to the domestic research company Analysys International.

Qiu Lin, an IT analyst at Guosen Securities Co Ltd in Hong Kong, said Sogou's growth rate slowed from 238 percent year-on-year in 2011 to 108 percent in 2012.

"Compared with Baidu Inc, Sogou is less used," he said, adding that even though revenue growth is increasing for now, its advertising position is still tenuous, he added.

Most advertisers are still cautious about their budget this year despite an accelerated pace in economic recovery, Qiu said.