Sohu, one of China's largest web portals, saw its profits fall 20 per cent as it put funds into expansion, according to the company's latest quarterly results.

Sales increased 14 per cent to $39.1m as new content and services drew users, but net income slid to $5.7m in the second quarter. Much of the company's revenue comes from advertising, sponsorship and similar sources.

Ad sales rose 24 per cent year-on-year to $28.4m. ”Advertising revenue momentum continues to accelerate as our unmatched content strength brings in more users, increased traffic and new advertisers,” claimed Sohu chairman and CEO, Charles Zhang.

Sohu has begun promoting sports-related content in the run up to the Beijing Olympic games, which will take place next summer.

"Our dominant advantages surrounding the Beijing 2008 Olympic Games – as official Internet Content Sponsor and operator of Beijing2008.cn, exclusive strategic partner of China Interactive Sports, and exclusive Internet Content Partner for Team China – are paying off,” said Zhang.

Sohu's services include news and information, search and games. The company prides itself on its in-house development of software and services – an area that has proven challenging for China's web firms, and in which many of Sohu's competitors are comparatively weak. Both its search engine and its latest massively multiplayer online role-playing game (MMORPG) were developed in-house.

The company's search engine, Sogou, earned $1.8m in sponsored search results revenues in the second quarter, the company reported. The new MMORPG, launched in May, generated $2.3m in revenue quarter, with up to 400,000 playing simultaneously.