Web portal Sohu.com Inc said today its net income fell in the third quarter on stock options costs, despite higher advertising and wireless revenue, the Associated Press reported.

The Beijing-based company earned US$6.6 million, or 17 cents per share, down 18 percent from US$8 million, or 21 cents per share, during the same period a year ago. Excluding costs for stock-based compensation, income in the recent quarter was US$8.5 million, or 22 cents per share.

Revenue rose 29 percent to US$35.4 million from US$27.4 million in the year-ago period.

Analysts, on average, were looking for earnings of 16 cents per share including stock-based compensation charges, on sales of US$33.6 million, according to a poll by Thomson Financial.

Sohu is China's second-biggest Web business behind portal Sina.com Inc, as measured by advertising revenue, and ahead of Baidu.com, the country's most popular search engine.

Jason Brueschke, a Hong Kong-based analyst for Citigroup, said the company's performance in its core business -- brand advertising -- helped it hit the higher than expected earnings.

Sohu said brand advertising revenue grew 35 percent to US$21 million, exceeding its expectations. Sponsored search revenue fell 10 percent to US$2.9 million.

"I think people are going to feel very good about this set of results," said Brueschke. "And as the web becomes more video-centric, Sohu is perhaps the best positioned Internet company in China to take advantage of that evolution."

Brueschke said Sohu's proprietary streaming video capabilities and broad sports content should help it close the gap with rival Sina.com in advertising revenue in the lead up to the 2008 Olympic Games.

The company plans to launch a dedicated Olympic content channel next month and has sponsorship agreements with the NBA and its star Chinese player, Yao Ming.

"To appeal to the increasingly sophisticated user base and China's growing online advertising market we continue to deliver premium, differentiated and exclusive content," said CEO Charles Zhang. "This strategy has been working well in extending our core advertising business."

Wireless revenue climbed 31 percent to US$8.8 million during the quarter when compared with the year-ago period, but fell 2 percent from the prior quarter due to policy changes by China's mobile network operators.

Looking ahead to the fourth quarter, the company said it expects adjusted earnings of 20 cents to 22 cents per share on sales between US$34 million and US$36 million.

The adjusted earnings include stock options costs of 5 cents to 6 cents per share.

Analysts are looking for fourth-quarter earnings of 17 cents per share. 

Editor: Yan