Sogou files for $600 million US IPO

Updated: This piece has been updated to reflect a miscalculation in the previous reporting that wrongly identified a disparity between earlier reported values and the value that the IPO aim value would generate.  

Sogou, the search engine subsidiary of Sohu, filed with the Securities and Exchange Commission (SEC) to raise up to $600 million via an IPO on the NYSE on Friday night Beijing time. Shares in Sohu closed up that day on the news. Its stock code will be SOGO.

Back in January, Bloomberg said Sogou was aiming for a $5 billion US IPO for 10% of its shares in a bid to raise funding to chase Baidu, especially in mobile, by improving its AI and machine learning. Then on July 31, Sohu announced Sogou would make registration filing with the SEC in the US, but the filing was confidential. The announcement puts the potential value of the company in roughly the same ballpark as Bloomberg had reported.

Earning for the search subsidiary have been rising and the announcement was reflected by the 13% jump in Sohu’s NASDAQ-listed shares on Friday. Sogou made $660 million in earnings in 2016, 90% of which came from search services. In the year to June 30, this revenue had climbed to $710 million.

The prospectus shows Sohu owns 37.8% of Sogou, Sohu’s CEO Zhang Chaoyang has 9.2%, Sogou’s CEO Wang Xiaochuan has 5.5% with the biggest stakeholder being Tencent with 43.7% after initially investing $448 million for 40% in 2013. Sohu has held the controlling stake due to share classes. Tencent has made its WeChat content searchable exclusively via Sogou.

Sogou’s search market share is climbing slowly and is around the 16% mark. Baidu is still top with 45% and the number two spot is taken by Alibaba’s Shenma with 21%.

The IPO aim follows soon after the damp squib of a listing for Best, a logistics firm that caters to Alibaba, which only raised $495 million rather than the $1 billion hoped for on NASDAQ.

There is another strand to the story: Wang Xiaochuan, Sogou’s CEO, once said he wouldn’t get married until the company listed. Perhaps the lower IPO value aim comes down to reasons other than shareholders.