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Brand Advertising Revenues Fall

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SINA-SOHU_LN1_tumb(Oct. 22, 2009 - Linette Ng) The sluggish economic growth in China during the first half of 2009, took a toll on the finances of online media companies. Sina Corp. (NASDAQ:SINA) and Sohu.com Inc. (NASDAQ:SOHU) are struggling to maintain their usual profits in the online brand advertising industry. The fall in brand advertising revenues has been contributing to Sohu’s and Sina’s recent decline in net profitability. Net profit for Sohu.com (NASDAQ:SOHU) dropped from $56.6m to $33.5m in two quarters since December 2008 after achieving a remarkable growth in 2008. Likewise, profitability of Sina Corporation (NASDAQ:SINA) follows a similar dip after a steady rise throughout 2007 and 2008. Net income fell from $25.1m to $9.7m in first quarter of 2009 with a slight increase in the second quarter.

SINA-SOHU_LN1

The online game sector for Sohu.com (NASDAQ:SOHU) has not been realising the growth that investors have been expecting due to the delayed launching of three of its new games.  Nevertheless, its online game subsidiary, Changyou.com (NASDAQ:CYOU), has attained steady profits since June 2008. This implies that Sohu’s decline in profitability have been affected by its brand advertising sector. Brand advertising is the second main source of revenue for Sohu,.com contributing approximately 39% to Sohu’s annual total revenues while online gaming contributes approximately 47%.

 

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As demonstrated by the graph above, Sohu.com and Sina Corporation revenues in the brand advertising sector over the years have been positively correlated. Brand advertising revenues grew consistently between 2006 and third quarter of 2008 but started to fall in fourth quarter 2008 for both companies as the Chinese economy entered a difficult year. As a result of the weak economic conditions, advertisers are more cautious with their budget and remain conservative in their spending on advertising.




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