China Brands Changyou, Update Inc.’s (SOHU) second-quarter profit fell 0.2% as the Chinese Internet portal reported record revenue on strength in its brand-ads and online-game businesses. Results topped expectations.

The company, which provides news, entertainment and communication in China, also projected third-quarter earnings of $1 to $1.05 a share on revenue of $153 million to $158 million. Analysts polled by Thomson Reuters on average projected 93 cents and $155 million, respectively.

Sohu has expanded and diversified the collection of licensed and in-house produced quality video content and developed innovative applications that cater to various devices, including the sought-after iPad.

Ad sales jumped 26% in the most recent quarter. In the first quarter, aggregate peak concurrent users surpassed one million for the first time.

Online game business also continues to be the major revenue source for the company. Inc. (CYOU), an online game developer in China, makes up essentially all of Sohu’s online-gaming revenue. Changyou’s revenue growth and game-user base expansion have been steady, and the company has been ramping up efforts to develop new videogames related to popular Chinese novels. In May, it completed the acquisition of online-game developer I.C.E. Entertainment Ltd., expanding its game-developing capacity.

Sohu reported a second-quarter profit of $33.5 million, or 82 cents a share, compared with $33.5 million, or 79 cents a share, a year earlier. Excluding stock-compensation impacts, earnings rose to 96 cents from 90 cents as revenue increased 15% to $146.1 million. Sohu in April predicted earnings of 87 cents to 92 cents on revenue of $139 million to $144 million, generally above analysts’ then-expectations.

Gross margin fell to 73.4% from 77.4% as costs increase more than offset the sales gain.

Meanwhile, Changyou reported a better-than-expected profit of $42.1 million, or 79 cents per American depositary share, up from $34.5 million, or 66 cents per ADS, a year earlier. The most recent period included a 3-cent charge. Changyou in April projected 74 cents to 77 cents.

Revenue increased 17% to a record $77.7 million. Analysts most recently estimated $77 million.

Via WSJ Online