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Yesterday, we took a look at the growing comfort consumers, specifically gamers, have with purchasing virtual goods and currency on the Web and mobile devices. Virtual goods are becoming a booming market thanks to the growing maturity of gaming platforms, free-to-play models and the profusion of mobile devices. Today, international investment firm Digi-Capital published its in-depth review of the global gaming space, giving us a sense of the size, breadth, and activity of the very international gaming market last year that is contributing to the changing behavior around virtual commerce - as well as a glimpse into what we can expect from the industry over the course of 2012.

Sohu is expected to benefit from its strength in online games. We believe that Sohu's promising games portfolio and the growing popularity of Changyou's games will drive profitability over the long term. However, higher operating costs due to continued investments in video may hurt profitability in the near term. Moreover, cut-throat competition from the likes of Baidu Inc. ( BIDU ) and increasing government scrutiny into Chinese Internet usage may also hurt Sohu's growth over the long term. We, therefore, maintain our Neutral recommendation on the stock over the long term. Currently, Sohu has a Zacks #1 Rank, which implies a short-term Strong Buy rating.