It has been about a month since the last earnings report for Sohu.com (SOHU Quick QuoteSOHU - Free Report) . Shares have added about 0.6% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important drivers.

Sohu.com Q3 Loss Narrower Than Expected, Revenues Fall Y/Y

Sohu reported mixed third-quarter 2023 results, with the bottom line surpassing the Zacks Consensus Estimate but the top line missing the same. The company reported lower revenues year over year owing to declining trends in all verticals. However, management’s twin-engine strategy to generate and distribute enhanced short-form content and unique marketing campaigns has boosted user engagement and improved monetization. Despite weakness in older games, various content updates have partially reversed the net sales decline from online games.

Net Income

On a GAAP basis, Sohu registered a net loss of $14.1 million or a loss of 41 cents per ADS from continuing operations compared with a net loss of $21.6 million or a loss of 63 cents per ADS in the year-ago quarter. Lower operating expenses and higher interest income led to a narrower loss during the quarter.

Non-GAAP net loss was $10.2 million or a loss of 30 cents per ADS compared with a net loss of $17.4 million or a loss of 50 cents per ADS in the year-ago quarter. Non-GAAP net loss for the September quarter was narrower than the consensus estimate of a loss of 59 cents.

Revenues

Quarterly revenues declined to $145.4 million from $185.3 million in the prior-year quarter. Weak demand for older games and lower brand advertising revenues impeded revenue growth. The top line fell short of the consensus estimate of $163 million.

Brand advertising generated $22.1 million in revenues compared with $25.8 million in the year-earlier quarter. The top line missed our estimate of $22.6 million.

Net sales from Online Game were $117 million, down 21% year over year. The declining demand for older games impacted the top line from this vertical. However, the top line marginally beat our estimate of $116.8 million.

For PC games, the company registered a total average monthly active user account (MAU) of 2.2 million, up 3% year over year. Total quarterly aggregate active paying accounts (APA) were 1 million, down 5% year over year. However, a 12% sequential uptick was propelled by the introduction of various promotional activities in TLBB PC game.

For mobile games, the total average MAU totaled 2.3 million, down 9% year over year, while the total quarterly APA was 0.5 million, down 18% year over year. The downside was caused by the natural decline trend of older games.

Other Details

Non-GAAP gross profit in the September quarter was $111 million with a margin of 76%, down from the respective figures of $131.7 million and 71% a year ago. Non-GAAP gross margin for brand advertising business rose to 15% from 2% in the year-earlier quarter. Non-GAAP gross margin for online games was 87%, up from 84% in the year-ago quarter.

Non-GAAP operating expenses declined to $131 million, down 12% year over year. Reduction in Changyou‘s marketing and promotion-related expenses for online games resulted in lower operating costs.

Cash Flow & Liquidity

As of Sep 30, 2023, the company had $335.9 million in cash and cash equivalents with $462.2 million of long-term tax liabilities.

Outlook

For the fourth quarter of 2023, revenues from brand advertising are projected in the range of $20-$23 million, indicating a 20-31%% year-over-year decline. Online Game revenues are estimated in the band of $106-$116 million, which implies a decrease of 4% to 13% year over year. The company expects a non-GAAP net loss between $10 million and $20 million, while GAAP net loss is estimated between $13 million and $23 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -84.44% due to these changes.

VGM Scores

At this time, Sohu.com has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Sohu.com has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Sohu.com is part of the Zacks Internet - Services industry. Over the past month, Shopify (SHOP Quick QuoteSHOP - Free Report) , a stock from the same industry, has gained 10.7%. The company reported its results for the quarter ended September 2023 more than a month ago.

Shopify reported revenues of $1.71 billion in the last reported quarter, representing a year-over-year change of +25.5%. EPS of $0.24 for the same period compares with -$0.02 a year ago.

For the current quarter, Shopify is expected to post earnings of $0.25 per share, indicating a change of +257.1% from the year-ago quarter. The Zacks Consensus Estimate has changed -2.9% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Shopify. Also, the stock has a VGM Score of C.