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China's Sohu Net Profit Drops, But Tops Forecasts

Chinese Internet media company Sohu.composted a 20% drop in quarterly profit but topped investor expectations as an increase in online corporate brand advertising swelled its results.

The Beijing-based company said second-quarter net income fell to $5.7 million, or 15 cents per diluted share, from the year-earlier-quarter's $7.2 million, or 19 cents per diluted share.

Analysts, on average, were looking for net profit of 12 cents per diluted share, according to Reuters Estimates. The latest quarter's forecasts include stock option expenses but not any one-time items.

Revenue rose 14% to $39.0 million. Sohu had forecast between $35.5 million and $37.5 million, and analysts, on average, had expected revenue of $36.2 million.

Revenue was buoyed by sales of online brand ads, which rose 38% to $26.6 million from the year-ago quarter. Sohu had forecast branded ad revenue for Web banners and other display advertising of between $24.5 million and $25 million.

Wireless sales declined 27% to $6.59 million while sponsored search fell 50% to $1.75 million.

Shares of Sohu rose 5.8% to close at $33.99 on Nasdaq. Following the report, the stock rose in extended trade nearly 6% to $36 before settling back to $34.21.

The stock has surged 61% from a 52-week low in early April, rising along with other Chinese Internet shares such as Baidu.com , which gained 112% in the same period, and far outstripping a 7.5% gain in the Nasdaq Composite Index.

For the third quarter, the company said it expected revenue of $45 million to $47 million, with advertising revenues of $30 million to $31 million, and gaming and other non-advertising revenue making up most of the remainder.

Analysts on average surveyed by Reuters Estimates had predicted revenue of $41.3 million in the September quarter. Forecasts ranged between $39.4 million and $43.0 million.

Sohu estimated brand advertising revenues for the third quarter to grow to between $28.5 million to $29.5 million.

Excluding stock-compensation costs and other one-time expenses, the company said it expected a third-quarter profit of 25 cents to 27 cents. It said stock option expenses would cut reported earnings by 5 cents per share in the period.

On average, analysts have forecast a third-quarter net profit of 17 cents per share, and a profit, excluding one-time items, of 19 cents per share, according to Reuters Estimates.

Sohu, which provides wireless services such as music sent over cellphones and operates online games, recently launched a search engine with improved features to try to differentiate itself from market leader Baidu and No. 2 player Google . Sohu said it may take time for the new product to contribute to the bottom line.

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