Chinese Internet media company Sohu.com posted a 20 percent drop in quarterly profit but topped expectations due to an increase in online corporate brand advertising and forecast a stronger third quarter.
Sohu and others such as Yahoo are competing against Baidu.com and Google, which together command more than 80 percent of the search market in the world's second-largest Web market, according to research firm Analysys International.
"Sohu is still a strong brand in China," said Dick Wei at JP Morgan in Hong Kong. "The Olympics will help it remain competitive in the medium term," he said.
Sohu is the official Internet content provider of the Beijing 2008 Olympics and operates the Web site beijing2008.cn.
Second-quarter net income fell to $5.7 million, or 15 cents per diluted share, from the year-earlier 19 cents.
Revenue rose 14 percent to $39.0 million -- beating its own and analysts' forecasts -- but operating expenses jumped 22 percent from the previous quarter due to product development and marketing costs, the company said.
Analysts, on average, were looking for net profit of 12 cents, according to Reuters Estimates. The latest quarter's forecasts include stock option expenses but not one-time items.
In contrast, Baidu last week reported second-quarter revenues and profits that more than doubled.
For the third quarter, the company said it expected revenue of $45 million to $47 million, and profit per share of 25 cents to 27 cents -- excluding stock-compensation costs and other one-time expenses. Stock option expenses would cut reported earnings by 5 cents per share in the period, it said.
On average, analysts have forecast a third-quarter net profit of 17 cents per share, and a profit, excluding one-time items, of 19 cents per share, according to Reuters Estimates.
Sohu said earlier this month it would launch a video-sharing service, as it broadens its focus beyond its search engine roots into social networking.
Sohu revenue was buoyed by sales of online brand ads, which rose 38 percent to $26.6 million from the year-ago quarter. Sohu had forecast branded ad revenue for Web banners and other display advertising of between $24.5 million and $25 million.
However, wireless sales declined 27 percent to $6.59 million while sponsored searches fell 50 percent to $1.75 million.
Shares of Sohu rose 5.8 percent to close at $33.99 on Nasdaq. Following the report, the stock rose in extended trade nearly 6 percent to $36 before retreating to $34.21.
The stock has surged 61 percent from an April low, rising along with other Chinese Internet shares such as Baidu, which gained 112 percent in the same period, and far outstripping a 7.5 percent gain in the Nasdaq.
Sohu, which provides wireless services such as music sent over cell phones and operates online games, recently launched a search engine with improved features to try to differentiate itself. Sohu said it may take time for the new product to contribute to the bottom line.