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Sohu.com (SOHU) Up 10.6% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Sohu.com (SOHU - Free Report) . Shares have added about 10.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sohu.com due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Sohu.com Q2 Earnings Beat Estimates, Revenues Rise Y/Y

Sohu.com reported second-quarter 2021 adjusted earnings of 63 cents per share, which beat the Zacks Consensus Estimate by a wide margin of 125%. The company had reported a loss of $1.92 per share in the year-ago quarter.

Revenues increased 27.8% year over year to $204.4 million.

Top Line Details

In the second quarter, Brand advertising revenues decreased 3.1% year over year to $36.8 million.

Online game revenues of $151.3 million jumped 42.8% year over year, driven by strong demand for TLBB Vintage.

For PC games, total average monthly active user (MAU) accounts were 2.1 million, up 9% year over year. Total quarterly aggregate active paying accounts (APA) were 0.9 million, down 3% year over year.

For mobile games, total average MAU were 1.9 million, down 39% year over year primarily due to lower demand for Legacy TLBB Mobile and TLBB Honor. Total quarterly APA were 0.5 million, down 21% year over year.

Other revenues increased 1.7% year on year to $16.3 million.

Operating Details

Non-GAAP gross margin in second-quarter 2021 increased to 76% from 67% reported in the year-ago quarter.

Brand advertising business margin decreased to 28% from the year-ago quarter’s 40%. The year-over-year decrease was mainly due to increases in costs of events hosted in the second quarter of 2021.

Online games’ non-GAAP gross margin was 89%, up from the year-ago quarter’s 78%.

Non-GAAP operating expenses were $127.2 million, up 25% year over year due to higher marketing expenses as well as salary and benefits expenses.

Sohu’s non-GAAP operating profit was $28 million, significantly up from the year-ago quarter’s $5.2 million.

Balance Sheet

As of Jun 30, 2021, Sohu’s cash and cash equivalents (including restricted cash and short-term investments) came in at $874.4 million compared with $335 million as of Mar 31, 2021.

Q3 Guidance

For third-quarter 2021, Brand advertising revenues are anticipated in the range of $35-$39 million, down 5% to 15%.

Online game revenues are expected in the band of $145-$155 million, which indicates a year-over-year increase of 43-53%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 120% due to these changes.

VGM Scores

At this time, Sohu.com has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Sohu.com has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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