1. SOHU
Shiwei Zhang
April 7, 2013

2. Proposal: Long SOHU (Nasdaq: SOHU)
Severely undervalued Chinese Internet Player
2

3. Chairman & CEO
Charles Zhang
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4. Business Units
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5. Business Units
• Portal: Sohu.com
• #1 portal site in China: news, multi-media
• Changyou (Nasdaq: CYOU) : Online Gaming
• Top 3 leading online gaming service provider in China
• 67% owned by Sohu
• Sohu TV
• Top 3 leading online video site
• Sogou: Typing, Browser, Search
• Largest Chinese typing software – 80%
• Third largest browser – 8.9%
• Third largest search engine – 7.6%
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6. Thesis: Severely undervalued
Methodology:
Sum of the Parts
Comparables Valuation
Comparables better suited for tech & internet company than DCF
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7. Business Unit Valuation
Sohu.com
Yahoo
• Founded 1996
• Founded 1994
• 178 MM monthly unique
visitors, ranked #16 globally by
ComScore
• 470 MM monthly unique
visitors, ranked #4 globally by
ComScore
• 2012Q4 25% YoY traffic
growth
• Revenue $5 B
• Profit $4 B
• Revenue ?
• Valuation:
• Profit ?
• Valuation ?
• P/E: 7.11
• Mkt cap $25.66 B

8. Business Unit Valuation
Sohu TV
Youku Tudou (think
Hulu)
• 2012Q4 Revenue 70% YoY
growth
• 2012Q4 Revenue 30% YoY
growth
• 2012Q4 Market Share:
• 2012Q4 Market Share:
• Revenue : 12%, #3
• Revenue: 34%, #1
• DAU: 11% #4
• DAU: 31%, #1
• Average Time Spent: 10%, #4
• Content differentiation:
Focus on documentary and TV
shows
• Valuation for Sohu: $2.66 B *
0.3 = $0.80 B
• Average Time Spent: 37%, #1
•Valuation:
• Mkt cap: $2.66 B

9. Business Unit Valuation
Sogou
Baidu (think Google)
• 2013Q1 Customer 10% YoY
growth
• 2013Q1 Search volume -10%
YoY decrease
• 2013Q1 Search volume 1%
YoY growth
• 2012Q4 Revenue 41% growth
YoY to $1 B
• 2012Q4 Revenue 78% growth
YoY to $41 MM
• 2012Q4 70.81% mkt share
• 2012Q4 7.6% mkt share
• Valuation:
• Goal: Spin-off & IPO
• Valuation for Sohu: $29.2 B*
4% = $1.16 B
• P/E: 17.3
• Mkt cap: $29.2 B

10. Business Unit Valuation
Changyou (Nasdaq:
CYOU)
Sohu affiliation
• 2012Q4 Revenue 26% YoY
Growth to $623 MM
• Changyou spun-off from
Sohu in 2009 and went IPO
• 2012Q4 Profit 15% YoY Growth
to $282 MM
• 66.7% equity owned by Sohu
• 2012Q4 Registered accounts
41% YoY Growth to 248 MM
• 80% voting power owned by
Sohu
• 2012Q4 Average revenue per
active paying account 60% YoY
growth to $58.8
• Valuation for Sohu: $1.5 B *
66.7% = $1 B
• Valuation:
• P/E 5.35
• Mkt Cap: $1.5 B

11. Sum of the Parts Valuation
? + $1.16 B + $1 B + $0.8 B ≥
$2.96 B > $1.79 B
Sohu is severely undervalued.
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12. 5 Year Stock Chart
Market cap: $1.79 B
Average Volume: 423 K
Current price: $47.04
P/E ratio: 20.3
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13. Financials
As of Dec. 2012
Income Statement
Balance Sheet
Key Ratios
• Revenue: $1,079 MM
• 22.4% YoY Growth
• Gross Profit: $705 MM
• 65% Margin
• EBITDA: $359MM
• 33% Margin
• Net Profit: $88 MM
• 8.2%
• $2,076 MM Total Asset
• $1,232 MM Total
Current Asset
• $541 MM cash
• $991 MM Total
Liabilities
• $552 MM Total
Current Liabilities
•
•
•
•
•
EV/EBITDA: 3.4x
EV/Sales: 1.1x
P/E: 20.3
Current ratio: 2.23
5 Year Revenue CAGR:
41%
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14. Trading below breakup value
• Theories:
• Operational: Disynergies among different business units
• Transactional: Fees going to I-Banks
• Financial: Uncle Sam
• Industry specific:
• Adversely impacted by other Chinese frauds
• Sohu Specific:
• Misperceptions from US investors
• A combination of vastly different businesses
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15. Investment Rationales
The Positives
The Negatives
IPO of Changyou subdiary 7
Road (on track)
Sohu TV dragging the whole
group
IPO of Sogou (on track)
IPO of Sohu TV
Privitization of Sohu
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16. China Internet Users
Online Video Users to Reach 450 Million by 2012
Millions
600
100%
90%
500
80%
Internet Users
70%
400
60%
300
50%
Online Video
Users
Penetration
40%
200
30%
20%
100
10%
0
0%
2006
2007
2008
2009
2010
2011
2012
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17. Market size
• 4.1 billion hours watched in August--comScore
• Youtube monthly average 4 billion hours (70% intl).
• Hulu 2011 revenue -- $420 million
Online Video Market Size (in million $)
416
$450
358
$400
$350
303
$300
278
231
$250
$200
155
$150
$100
289
159
156
106
70
$50
$0
2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3
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18. Exit
When any one or more of the subsidiaries go public, or
after holding for 2 years, or the company goes private.
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19. Thank you.
Shiwei Zhang
Shiwei.Zhang47@gmail.com
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20. Appendix
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21. China Internet
• 538 million internet users
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22. 2012Q4 China Online Gaming Market Share
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23. 2012 Q4 Market Share in Revenue
Youku
22%
Tudou
12%
Sohu
12%
Tencent
5%
iQiyi
7%
CR4: 51%
CR8: 85%
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24. 2012 Q4 Market Share in DAU
iFeng
6%
PPTV
6%
CNTV
7%
Youku
20%
LeTV
7%
Tudou
11%
Xunlei
10%
iQiyi
13%
Tencent
9%
Sohu
11%
CR4: 64%
CR8: 94%
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25. 2012 Q4 Market Share in time spent
CNTV
4%
iFeng
3%
PPTV
5%
Youku
25%
Tencent
5%
Xunlei
6%
LeTV
10%
Tudou
12%
Sohu
10%
iQiyi
20%
CR4: 77%
CR8: 97%
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26. Revenue Sources
As of Dec. 2012
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27. Future – Mobile, Content
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28. Mobile
• China Mobile Internet Users (2012 1H) 388 million
• In 2012 1H mobile internet users surpassed PC internet
users (380 million)
• 27.7% (107 million) of mobile internet users watch videos
online
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29. 3G User Growth
China 3G user to reach 300 million by the end of 2012
China 3G user to reach 300 million by 2012
1,200
30%
1,112
986
1,000
859
800
747
20%
Mobile phone user
600
3G user
3G penetration rate
400
301
200
10%
128
47
12
0
0%
1
2
3
4
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30. Sogou Typing & Search
Weather
TV show
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31. Data Source
iResearch
CNNIC – China Internet Network Information Center
comScore
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32. Thanks!
Shiwei Zhang
Shiwei.Zhang47@gmail.com
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