Sohu.com Inc.
Thesis
The market underestimates SOHU's value by focusing on the risks of its free-to-play online gaming business and its reliance on a single hit game. By subtracting the value of its 66% stake in Changyou and its cash reserves, we find that we are effectively paying only $107 million for SOHU's other internet properties and businesses. This presents a significant upside potential, making SOHU a compelling investment opportunity at a value price.
Did it work?
The long thesis argued SOHU was deeply undervalued on a sum-of-the-parts basis, with the market overpricing the risks to its gaming business and offering 'significant upside potential.' Instead, the stock declined 71.5% over the ~16.5 years since the pitch, a decisive loss of capital that directly contradicts the value and upside framing. Whatever residual value existed in the non-Changyou assets and cash was clearly eroded or never recognized by the market, invalidating the core thesis.