UPDATE 3-China's Sohu.com profit beats forecast, eyes Olympics

(Adds details, quotes)

By Sophie Taylor and Eric Auchard

SHANGHAI/SAN FRANCISCO, Feb 5 (Reuters) - Chinese media company Sohu.com said quarterly profit more than doubled, beating expectations, fuelled by record growth in advertising and online gaming in one of the world's biggest Internet markets.

Sohu (SOHU.O), which has its roots in online search and competes with Baidu.com (BIDU.O) and Google (GOOG.O), said it expects robust online advertising spending to continue in the run-up to the Beijing Olympics this summer.

Shares in Beijing-based Sohu -- "search fox" in Chinese -- rose 3.5 percent to $50.65 in after-hours trading. The stock had lost more than 3 percent amid a wider U.S. sell-off on Monday.

"For fiscal 2007, Olympic partners, sponsors and suppliers increased advertising spending with Sohu by 74 percent year on year," Sohu Co-President Belinda Wang told a conference call.

"Looking ahead, we believe the growth of our brand advertising business will continue to be robust."

China had 210 million Internet users at end-2007, second only to the United States. China is expected to become the world's top Internet market in terms of users early this year, the official Xinhua news agency reported, citing industry sources.

Excluding one-time items, Sohu expects first-quarter earnings per share of 43-45 cents. On the same basis, analysts forecast a profit of 34 cents, according to Reuters Estimates.

Sohu's fourth-quarter net income rose to $15.1 million, or 39 cents per diluted share, from $6.1 million, or 16 cents per diluted share, a year earlier.

Excluding stock option expenses, Sohu reported profit of $17 million, or 43 cents per diluted share. Analysts had expected net profit and profit excluding one-time items of 31 cents per share, according to Reuters Estimates.

Its profit margin rose to 71 percent from 67 percent in the third quarter and from 63 percent in the fourth quarter of 2006.

OLYMPIC BOOST

Analysts said Sohu's growth is being driven by advertising sales ahead of the Beijing Olympics, as well as healthy income from its game Tian Long Ba Bu, named after a famous kung fu novel which translates as Sky Dragon Eight Factions.

The game's recent launch marked Sohu's renewed foray into the fast-growing online gaming sector, as the company tries to re-position itself as a social networking site offering a range of services including video-sharing.

"Branded advertising growth should accelerate to about 50 percent versus 40 percent in 2007. Additionally, the acceleration in 2008 should be concentrated around 2Q08 and 3Q08," RBC Capital Markets said in a research note.