* Q4 EPS $0.76/shr vs $0.91 estimate
* Q4 revenue $135.8 mln vs $137.4 mln forecast
* Q4 net profit falls 43 pct
* Sees Q1 revenue below Wall Street view
* Shares down 7 percent (Adds share movement, updates dateline)
SHANGHAI/BANGALORE, Feb 1 (Reuters) - China's No.2 Internet portal Sohu.com Inc (SOHU.O) posted a sharp drop in quarterly profit as operating expenses jumped, and forecast first-quarter revenue below estimates despite a gain in its gaming business, sending its shares down as much as 7 percent.
China's $4 billion online game market had 70 million gamers last year, said Beijing-based research firm iResearch.
Changyou posted a 21 percent rise in fourth-quarter revenue to $70.7 million and net profit rose by more than a third to $38.9 million as its blockbuster roleplaying game Tian Long Ba Bu -- which allows multiple users to play together online -- proved more popular due to the release of an expansion pack.
Changyou makes up more than half of Sohu's total revenue. Sohu said current first-quarter revenue would be $123 million to $128 million, less than the $135.8 million in the fourth quarter and below expectations of $139.9 million, according to Thomson Reuters I/B/E/S.
Sohu predicted first quarter non-GAAP net income of 78-83 cents a share, compared with analysts' forecast of 88 cents a share, excluding items.
"We didn't expect much for the first-quarter numbers because a lot of (Changyou's) games have been delayed," said CLSA analyst Elinor Leung. "I think the earliest new game will only be launched in the second quarter."
"The most important thing to the firm is the upcoming game launches," said Credit Suisse analyst Wallace Cheung.
Sohu, which delayed the release of its key title "Duke of Mount Deer" last year, said the game was progressing smoothly.
"Our highly anticipated and diverse 2010 pipeline of five games will bring us increasing momentum in the coming quarters," said Sohu CEO Charles Zhao said in a statement.
Shares of the company fell as much as 7 percent to $46.62 in early trading Monday on Nasdaq.
The sharp drop in fourth-quarter profit from a year-ago high came as conditions remain tough in Sohu's core advertising and game markets.
The firm said non-GAAP operating expenses increased 14 percent on higher marketing costs, while revenues for advertising and wireless segments were flat.
Fourth-quarter net profit fell to $32.3 million, or 76 cents a share, from a record $56.6 million, or $1.45, a year ago. On a non-GAAP basis, net income was $35.8 million, or 92 cents a share, on revenue of $135.8 million.
China's advertising market remained weak last year as companies slashed advertising and marketing budgets because of the financial crisis.
Analysts expect brand advertising to bounce back in 2010 driven by big ticket events such as the World Expo held in Shanghai and the Asian Games in Guangzhou.
In the third quarter, China's total portal advertising market was worth $158.5 million in revenue, with Sohu at No.2 with 31 percent share, said Beijing-based researcher Analysys International.
China is the world's largest Internet market with more than 380 million users. But it has also seen a number of high profile controversies, including a crackdown on content that could hurt some online game operators.
Global search leader Google (GOOG.O) has threatened to pull out of China after saying its site was hacked into from people inside China. [ID:nTOE60D00Y]
Sohu operates a search site that competes with Google in China, but it is still a relative bit player in the market, well behind dominant force Baidu (BIDU.O). (Reporting by Melanie Lee and Sakthi Prasad in Bangalore; Editing by Doug Young and Ian Geoghegan))