Sohu Surges as Its Chinese Search Engine Prepares U.S. IPO

(Bloomberg) -- Sohu.com Inc. rose the most in almost five years after its chairman said the Chinese company's search engine subsidiary Sogou is on a “very good trajectory” as it prepares for a public listing in the U.S.

Sohu told investors Monday it planned to file paperwork with the U.S. Securities and Exchange Commission for an initial public offering of its mobile-centric search engine Sogou this year. The company didn't say how many American depositary shares would be offered or at what price. Earlier this year, Bloomberg reported that Sogou was planning to sell about 10 percent of its shares in an IPO that would value China's third-biggest search engine at as much as $5 billion.

Getting more funding is vital for Sohu as its cash-burning streaming video service battles more popular rivals backed by bigger tech giants such as Baidu Inc. and Tencent Holdings Ltd. Once known as one of China's leading internet portals, it has failed to report an annual profit since fiscal 2012 as users and advertisers shift to more popular online services.

“Since exclusive self-produced content will be the key driver of user base growth, we see Sohu Video's offering becoming less attractive without more investment,” CICC analysts led by Natalie Wu told clients in a note.

Sohu's U.S.-traded shares climbed as much as 14 percent to $58.16 in New York, the biggest intraday gain since August 2012, adding to what had already been a 50 percent gain so far this year through Friday.

The company Monday also forecast an adjusted loss per share for the third quarter in a narrower range than the average analyst estimate, and higher revenue. Sohu reported sales during the quarter ending June 30 of $461.2 million, beating the average analyst estimate of $432.3 million thanks largely to the popularity of its latest game, TLBB. The company also reported a $88.2 million loss, worse than forecasts for a $63.3 million loss.

Chairman Charles Zhang was tight-lipped during Sohu's earnings call and declined to provide details about the IPO despite sustained questioning from analysts.

“We'd always planned to IPO at some time in the future,” he said, adding that the search unit was on “a very good trajectory.” Zhang said Sogou – whose Chinese name means ‘search dog' – would continue to have its financial results consolidated into Sohu after any listing.

While Chinese tech giant Tencent owns a substantial stake in Sogou, the search company is run as a subsidiary of Sohu thanks to a dual-class share structure. It remains unclear how this structure will stand after the IPO.

To contact Bloomberg News staff for this story: David Ramli in Beijing at dramli1@bloomberg.net.

To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net, Molly Schuetz, Alistair Barr

With assistance from David Ramli