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Sohu slumps on a revenue miss

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Sohu slumps on a revenue miss

Shares of (NASDAQ:SOHU) traded sharply lower following the release of the company’s second quarter results early Monday morning. Prior to the announcement shares traded just under the 52-week highs after moving to the upside by 44% this year alone. However, early in the session Monday shares traded lower by as much 10% as the company missed on some of the key metrics analysts were watching.

The company reported $0.58 in earnings per share during the second quarter, beating the consensus estimate of $0.49 by $0.09. However, revenues came in lighter than anticipated. The company had revenue of $339.00 million for the quarter, compared to the consensus estimate of $340.27 million. While one may say the company’s miss on the top line was rather insignificant, when a stock is priced to perfection even the slightest miss can send shares significantly lower. Sohu is a high growth technology company, thus the company trades with a much higher than average forward valuation in comparison to the more established names in the technology space. A revenue miss, however small, may lead some investors to question the lofty valuations considering the company has yet to even meet estimates in the time being.

On a year over year basis revenues did grow by 33%, thus the company does deserve a premium to the street. The extent of this premium will be determined over the coming weeks as analysts and retail investors alike recalculate the value of the company. Up until this point, analysts have held a cautious stance. Of the six research analysts which have initiated coverage on the stock, only one gives his buy recommendation. The company has an average rating of “Hold” and a consensus target price of $53.34. Using the current trading price of $63, we can calculate analysts believe the stock remains overvalued by roughly 18.5% even with today’s 10% pullback. In the weeks leading up to the report a number of these analysts did upgrade to stock, during the remainder of the week it will be interesting to see if analysts take back their recommendations in light of the miss.

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