Sogou Is No Longer a Broken IPO

The past few weeks have been pretty good for Sogou (NYSE: SOGO) investors, and today the stock rose above last year’s initial public offering price of $13 for the first time since late November. China’s second-largest search engine (by mobile queries) has been on a tear lately.

Three weeks ago I was singling out Sogou as one of three stocks under $10 worth buying, and the shares went on to rise by roughly 30%. It would be easy to point to analyst upgrades, upbeat company press releases, or other newsy developments, but it’s been surprisingly quiet on the Sogou front during the stock’s sharp bounce. Sogou is merely springing back into favor after spending most of 2018 in the high single digits.

Image source: Sogou.

Numbers don’t lie

We won’t be digesting new financial data on Sogou until late next month, but this is as good a time as any to revisit the strong second quarter announced in April. Revenue and adjusted earnings rose 53% and 56%, respectively.

Sogou’s core search business continues to thrive, with revenue rising 50% for the quarter. The other part of its growth strategy — its mobile keyboard — is growing even faster. Sogou Mobile Keyboard grew its daily active user base by 30 million to hit 362 million for the quarter. The average user spends an hour a day using the mobile keyboard app.

It’s now been seven months since (NASDAQ: SOHU) completed its objective of spinning off Sogou. Sogou had been the fastest growing component at Sohu for years. It should have taken off after trading on its own merits, but that failed to happen. Though the shares inched slightly higher in their first few days of trading, Sogou has spent most of its time since late November as a broken IPO until it finally cracked the $13 ceiling today in intraday trading.

The gains may not stick: Corrections after sharp rallies are natural. However, trading above $13 for the first time in 2018 is notable even if it doesn’t last.

Sogou seems to be doing everything right. It has beaten Wall Street’s profit targets with ease in its first two quarters as a public company. Chinese stocks are also back in fashion, something that goes a long way toward explaining why this one has rallied despite a lack of analyst, corporate, or news activity.

The rallying shares will naturally place more pressure on the company to deliver a blowout quarter next month, to keep the party going. But Sogou has always been better than the broken IPO it’s traded as through most of its brief tenure as a public company.

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Rick Munarriz owns shares of Sogou Inc. The Motley Fool recommends The Motley Fool has a disclosure policy.

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