Changyou.com Ltd, Sohu's Nasdaq-listed subsidiary, has entered into a definitive agreement with Shenzhen 7Road Technology Co Ltd to acquire a 68 percent stake in the Web-based games developer for about $100 million, Sohu announced on Monday. The acquisition is expected to be complete by June 30.
"This will surely make Changyou more competitive, because Web-based games are the future of the gaming market," said Sohu's Chairman Charles Zhang at a media briefing.
Growth in the market for MMORPG (massively multiplayer online role-playing games), the major type of game that large online-gaming companies provide, has been slowing during the past 12 months. Web-based games, which don't require users to download client software and are easier to play, however, have been developing more quickly.
Revenue from Web-based games reached 3.1 billion yuan ($479 million) in China last year, and in the fourth quarter of 2010, it registered a year-on-year increase of more than 50 percent, according to the research company Analysys International. The growth rate of online games running on client software - such as MMORPG - was around 20 percent last year.
Zhang said Changyou had been focusing on MMORPG but has changed direction to fuel growth. Web-based games will also make it easier for Changyou to expand into other countries, he added.
Changyou took 7.6 percent of China's online-gaming industry, following rivals Tencent Holdings Ltd, Shanda Interactive Entertainment Ltd and NetEase.com Inc, which together controlled more than 60 percent of the market in the fourth quarter of 2010, according to Analysys International.
Sohu's first-quarter net profit rose 48 percent from 2010 to reach $44.8 million, thanks to strong growth in advertising and revenue from online-gaming, according to the company's financial report released on Monday.
The company's stock traded at $99.70 at 7:13 am US local time on Monday, 4 percent higher than its closing price on Friday.
Zhang said the company's search division, Sogou.com, will look to list publicly once it has gained market share and built its user base.
Sogou has benefited from Google Inc's declining presence in the country's online search market, but its market share is still tiny when compared with the 75 percent held by Baidu Inc.
Sogou's search business earned $8 million in the first quarter of 2011, a rise of 183 percent year-on-year, according to Sohu.