Sohu.com Inc. (SOHU - Free Report) reported results for first-quarter 2018. While the top line recorded a significant year-over-year improvement, bottom-line comparisons were unfavorable.
The company reported non-GAAP loss of $2.50 per share, which was wider than the year-ago quarter’s loss of $1.75.
Sohu’s revenues of $455 million were up 21.6% year over year but declined 10.7% on a sequential basis.
Total online advertising revenues (inclusive of revenues from brand advertising, search and search related businesses) increased 23.8% year over year to $276.6 million.
Brand advertising revenues in the reported quarter fell 30.9% on a year-over-year basis to $56.3 million, mainly due to decrease in video and real estate advertising.
Search and search-related revenues increased 55.1% year over year to $220.3 million driven by growth in mobile search traffic and improved monetization.
Online game revenues of $105.5 million were up 23.6% from the year-ago quarter mainly on strong performance of the Legacy TLBB mobile game.
Sohu Video revenues decreased 16% from the year-ago quarter to $31 million. Decline in video advertising has been a concern. Sohu Media Portal revenues fell 18% to $31 million on a year-over-year basis owing to intense competition in the online media industry.
Sogou’s (SOGO - Free Report) revenues surged 53% year over year but declined 11% from the previous quarter to $248 million. The number of daily average users of Sogou Mobile Keyboard increased 30 million to $362 million.
Changyou’s (CYOU - Free Report) revenues grew 20% year over year but declined 5% sequentially to $137 million.
Non-GAAP gross margin in the quarter expanded 100 basis points (bps) on a year-over-year basis to 43%.
Non-GAAP gross margin of the company’s online advertising business was 29%, up from 27% in the prior-year quarter.
Brand advertising business margin of 9% expanded 700 bps. Non-GAAP gross margin of the search and search-related business in the quarter contracted 800 bps to 34%.
Non-GAAP gross margin of the online game business increased 300 bps to 84%, driven by growth in Legacy TLBB game.
Sohu’s non-GAAP operating loss was $33.8 million compared with a loss of $40.1 million in the year-ago quarter.
Sohu exited the quarter with cash and cash equivalents (and short-term investments) of $3.31 billion compared with $2.19 billion as of Dec 31, 2017.
For the second quarter of 2018, Sohu expects total revenues in the range of $485–$510 million.
Brand Advertising revenues are anticipated to be in the range of $65-$70 million, indicating a year-over-year decrease of 19-24%.
Online game revenues are expected in the band of $85-$95 million, marking a decline of 22-31% from the year-ago quarter.
Sogou revenues are projected to be in the range of $295-$305 million, indicating a year-over-year increase of 40-45%
Non-GAAP net loss is anticipated to be in the range of $55-$65 million. Non-GAAP loss per share is projected to be between $1.40 and $1.65.
Zacks Rank & Stock to Consider
Sohu.com carries a Zacks Rank #4 (Sell).
A better-ranked stock in the broader technology sector is Lam Research Corporation (LRCX - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Lam Research is projected to be 17.7%.
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