Time to Sell Sohu.com

March 24, 2009

I've been a big fan of Sohu.com (SOHU), but the time has come to sell this stock into strength. The shares have been trending downward ever since the company announced that it's spinning off ChangYou.com, its gaming division. This is infuriating to me because the gaming segment of Sohu is why I liked this stock in the first place. I really wonder what company executives are thinking.

Most of Sohu's non-advertising income comes from its online games business, and that means a ChangYou spin-off will affect Sohu's bottom line. Some of the company's officials have tried to do damage control, saying Sohu.com's numbers won't take a hit since the Internet provider will retain a 71% ownership stake in the new company. But this is down from the 84% Sohu.com previously held, so I'm not sure these guys know how to do math properly. This gaming business was the foundation of my confidence in this company so without it, there's no point in holding on to this stock anymore.

If you own Sohu.com, my advice is to sell the stock on a strong day.

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