Sohu.com reports Q2 profits slump by 37%

Sohu.com Inc's booth at the China International Copyright Expo in Beijing in June. [Photo/China Daily]

Sohu.com Inc, a major Web portal in China, reported a 37.3 percent drop in profits as its growth on advertising sales slowed down while expenses in its online video services rose.

The slower growth of advertising reflects the effect of a weakening economic climate on companies that generate revenue from advertising , experts said.

Operating profit dropped to $43 million in the second quarter from $68.8 million in the same period last year, according to Sohu's financial report released on Monday. Its revenue rose 29 percent to $256 million.

"As China's economic growth continued to decelerate and we initiated some operational transitions in our online video business, revenues from brand advertising recorded only a low single-digit year-on-year increase," said Charles Zhang, company chairman and CEO, in a statement.

Sohu is spending more on licensed online video content and developing its search engine Sogou to attract users to fend off competition from rivals like Tencent Holdings Ltd and Sina Corp.

China's annual GDP growth slowed to 7.6 percent in the second quarter, registering the lowest growth rate since the second quarter of 2009.

This has led to a tightening of advertising spending, which further affected companies like Sohu, which got 65 percent of its revenues from advertising in the second quarter.

Sina Corp, one of the largest Internet portals in China, also saw its adverting business slow in the first quarter, with only 9 percent year-on-year growth. Sina CEO Charles Chao cited the slowing economic growth to be the main reason.

And the situation is not going to change in the short term, experts said.

"The whole advertising market is recovering very slowly," said Huang Shengmin, dean of the Advertising School at the Communication University of China.

Internet advertising expenditure increased by 25.9 percent in the first quarter, down from last year's 35.5 percent, according to domestic research company iResearch.

Other kinds of media have also felt the pinch.

China's advertising expenditure in traditional media, including newspapers, magazines, TV, radio and outdoor, increased only 1.4 percent in the first quarter, the lowest in nearly five years, according to a report released by CTR, a market information and research service provider.

"The time for improvement will be in the fourth quarter or next year," Huang said.

Qiu Lin, an Internet stock analyst at Guosen Securities in Hong Kong, agreed.

"There are no substantial signs of improvement of the advertising market in the second half," he said, citing his research on media companies. "The situation will remain in downturn for some time until more easing measures are released."

Baidu Inc, China's biggest search engine, reported a 70 percent growth in profits, reaching 2.77 billion yuan ($436 million), boosted by its robust advertising sales that more than offset its rising costs.

Huang, of the Communication University of China, said advertising on search engines, which is keyword-based, is closer to sales, while that on portals is more about improving brand recognition. Advertisers tend to cut advertising to the latter if they have to reduce spending.

Youku Inc, China's biggest online video company, also registered growth in its advertising business. Its net revenues were 387.4 million yuan in the second quarter, up 96 percent year-on-year, according to its financial report released on Monday.

The growth was because of the increased average spending per advertiser from 0.9 million yuan to 1.7 million yuan and the increased number of advertisers from 260 to 283, it said. However, the company had a net loss of 62.8 million yuan.

chenlimin@chinadaily.com.cn