Sohu.com’s (SOHU - Analyst Report) online gaming subsidiary Changyou.com (CYOU - Snapshot Report) recently announced the open beta version of the upcoming new game Dou Po Cang Qiong. Players will be able to access the beta version of the game from Apr 10, 2013 onward.
Developed by Changyou, the new game is based on a popular online novel of the same name. Dou Po Cang Qiong is a 2.5 D massively multiplayer online role-playing game (MMORPG) powered by the PyroEnigma game engine.
Changyou continues to launch new MMORPG’s such as Dou Po Cang Qiong, on a frequent basis, which expands its product portfolio in a highly competitive Chinese online gaming market. This will not only help Changyou to maintain its existing customer base but also attract new subscribers.
This is particularly evident from the fact that aggregate registered accounts for Changyou's games jumped 41.0% from the year-ago quarter and 11.0% sequentially to 248.1 million in the recently concluded fourth quarter.
Moreover, the addition of new games significantly reduces Changyou’s dependence on Tian Long Ba Bu (“TLBB”), its longest running MMORPG in China. Sohu expects to release four expansion packs for TLBB in 2013.
Besides Dou Po Cang Qiong, Changyou plans to launch at least a couple of new MMORPG’s and a number of new web games. We believe that this strong product pipeline will drive Changyou’s as well as Sohu’s top-line growth going forward.
Online games contributed approximately 54% of total revenue and surged 32.0% year over year in 2012. Online gaming revenues grew on the back of expanding user base and improved monetization.
For the first quarter of 2013, Sohu expects online game revenues to be in the $160.0–$165.0 million range, representing 26% to 29% year-over-year growth. Revenues are expected to increase in the range of 1.0% to 4.0% sequentially.
We believe that Sohu’s innovative product pipeline, strong gaming monetization base and incremental revenues from Sogou will drive top-line growth in the near term. However, increasing operating expenses and stiff competition from the likes of Baidu (BIDU - Snapshot Report) and Youku Tudou will keep margins under pressure going forward.
Currently, Sohu has a Zacks Rank #3 (Hold).