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Sohu (SOHU) Q3 Loss Narrows on Lower Costs, Revenues Down Y/Y

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Sohu.com Inc. (SOHU - Free Report) reported third-quarter 2018 non-GAAP loss of 81 cents per share, which was much narrower than the year-ago quarter’s loss of $2.38.

The figure was also better than management’s expectation of a loss between $1.40 and $1.65 per share. The Zacks Consensus Estimate was pegged at a loss of $1.64.

Sohu’s revenues of $460 million were down 11% year over year but came within the guided range of $445–$470 million.

Quarter Details

Total online advertising revenues (inclusive of revenues from brand advertising, search and search related businesses) increased 4% year over year to $312 million.

Brand advertising revenues in the reported quarter however fell 24% on a year-over-year basis to $57 million, mainly due to decrease in portal and video advertising revenues.

Search and search-related revenues increased 13% year over year to $255 million driven by growth in mobile search traffic and improved monetization. However, the search advertising business was negatively impacted by suspension of a portion of Sogou's advertising services for 10 days. This was done to ensure compliance with government regulations.

Online game revenues of $96 million were down 28% from the year-ago quarter, primarily due to “natural decline in revenue of Changyou's older games, including Legacy TLBB Mobile.”

Sohu Video revenues decreased 40% from the year-ago quarter to $26 million. Quarterly loss was $27 million, narrower than a loss of $60 million in the year-ago quarter. Management noted that its focus on content strategy helped it release three original dramas in the quarter. Additionally, Sohu was also successful in releasing a second season for a popular reality show in third-quarter 2018.

Sohu Media Portal revenues were down 17% on a year-over-year basis to $31 million due to budget cuts from large enterprises on the back of economic slowdown in China. However, management stated that the company is focusing on enhancing content quality to expand its user base. Moreover, design upgrade, particularly for The Moment, and increase in user base of Sohu news application is a positive.

Sogou’s (SOGO - Free Report) revenues increased 7% year over year to $277 million. In third-quarter 2018, Sogou enhanced its search and mobile keyboard products by using artificial intelligence (AI) technology.

Changyou’s (CYOU - Free Report) revenues declined 29% year over year and 5% sequentially to $118 million.

Sohu.com Inc. Price, Consensus and EPS Surprise

 

Sohu.com Inc. Price, Consensus and EPS Surprise | Sohu.com Inc. Quote

Margins

Non-GAAP gross margin in the quarter contracted 600 basis points (bps) on a year-over-year basis to 43%.

Non-GAAP gross margin of the company’s online advertising business contracted 400 bps on a year-over-year basis to 32%.

Brand advertising business margin was 23% against negative 1% in the year-ago quarter. The increase was primarily driven by decreased video content cost. Non-GAAP gross margin of the search and search-related business in the quarter contracted 1500 bps on a year-over-year basis to 34%. The decrease was particularly due to higher traffic acquisition cost.

Non-GAAP gross margin of the online game business contracted 300 bps to 84%.

Sohu’s non-GAAP operating loss was $47.1 million compared with a loss of $74.8 million in the year-ago quarter.

Balance Sheet

Sohu exited the quarter with cash and cash equivalents (and short-term investments) of $1.88 billion compared with $1.89 billion as of Jun 30, 2018.

Guidance for Q4

Sohu expects total revenues in the range of $465–$495 million.

Brand Advertising revenues are anticipated to be in the range of $55-$60 million, indicating a year-over-year decrease of 16-23%.

Online game revenues are expected in the band of $85-$95 million, marking a decline of 13-22% from the year-ago quarter.

Sogou revenues are projected to be in the range of $292-$307 million, indicating a year-over-year increase of 5-11%

Non-GAAP net loss is anticipated to be in the range of $45-$55 million. Non-GAAP loss per share is projected to be between $1.15 and $1.40.

Zacks Rank & Stock to Consider

Sohu.com currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the broader technology sector is NetApp, Inc. (NTAP - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NetApp is set to report second-quarter fiscal 2019 earnings on Nov 21.

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