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Sohu (SOHU) Q4 Loss Narrows Y/Y on Lower Costs, Revenues Down

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Sohu.com Inc. (SOHU - Free Report) reported fourth-quarter 2018 non-GAAP loss of $1.50 per share, which was much narrower than the year-ago quarter’s loss of $2.01 per share.

The narrower loss can be attributed to the positive impact from the company’s cost saving efforts.

The Zacks Consensus Estimate was pegged at a loss of $1.03.

However, sluggish macroeconomic conditions in China negatively impacted the top-line. Sohu’s revenues of $482.2 million were down 5.4% year over year but came within the management’s guided range of $465–$495 million.

However, Sohu’s loss figure was wider than management’s expectation of a loss between $1.15 and $1.40 per share primarily due to lower year-over-year growth in revenues.

Quarter Details

Total online advertising revenues (inclusive of revenues from brand advertising, search and search related businesses) increased 4.7% year over year to $333.9 million.

Brand advertising revenues in the reported quarter however fell 20.3% on a year-over-year basis to $57.2 million, mainly due to decrease in video and real estate advertising revenues.

Search and search-related revenues increased 12% year over year to $276.7 million driven by growth in mobile search traffic and improved monetization.

Online game revenues of $94.1 million were down 14% from the year-ago quarter, primarily due to “natural decline in revenue of Changyou's older games, including Legacy TLBB Mobile.”

Sohu Video revenues were $26 million, down 34% year over year. Quarterly loss was $13 million, narrower than a loss of $69 million in the year-ago quarter.

Sohu Media Portal revenues were down 10% on a year-over-year basis to $33 million due to budget cuts from large enterprises on the back of an economic slowdown in China. In December 2018, daily active users of Sohu News app doubled, while leading page views tripled from a year ago.

Sogou’s (SOGO - Free Report) revenues increased 7% year over year to $298 million. In fourth-quarter 2018, Sogou enhanced its search and mobile keyboard products by using artificial intelligence (AI) technology. Notably, Sohu Mobile Keyboard daily active users reached 430 million users a day, an increase of 28% year over year.

Changyou’s (CYOU - Free Report) revenues declined 18% year over year but were flat sequentially at $180 million. In the reported quarter, Changyou recognized a $60 million charge for goodwill impairment.

Sohu.com Inc. Price, Consensus and EPS Surprise

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

 

Full Year Details

Total revenues for 2018 were $1.88 billion, up 1% year over year. Non-GAAP loss for 2018 came at $6.08 per share compared to a loss of $7.99 per share in the year ago quarter.

Notably, the company released a total of 12 dramas and five daily variety shows in 2018 under its Video segment.

Declining macroeconomic conditions in China are taking a toll on Sohu. The company’s advertising revenues were negatively impacted by industry-wide budget cuts.

Margins

Non-GAAP gross margin in the quarter contracted 310 bps on a year-over-year basis to 42.7%.

Non-GAAP gross margin of the company’s online advertising business contracted 500 bps on a year-over-year basis to 32%.

Brand advertising business margin was 26% against negative 17% in the year-ago quarter. The improvement was primarily driven by a decrease in video content cost and impairment charges recognized in 2017. Non-GAAP gross margin of the search and search-related business in the quarter was 34% compared with 52% in the year-ago quarter. The decrease was particularly due to higher traffic acquisition cost.

Non-GAAP gross margin of the online game business expanded 100 bps to 85%.

Non-GAAP operating expenses were $252 million, down 1% year over year. Sohu’s non-GAAP operating loss was $46.5 million compared with a loss of $21.9 million in the year-ago quarter.

Balance Sheet

Sohu exited the quarter with cash and cash equivalents (and short-term investments) of $1.73 billion compared with $1.88 billion as of Sep 30, 2018.

Q1 Guidance

Sohu expects total revenues in the range of $390–$415 million.

Brand Advertising revenues are anticipated to be in the range of $45-$50 million, indicating a year-over-year decrease of 11-20%.

Online game revenues are expected in the band of $80-$90 million, indicating a decline of 15-24% from the year-ago quarter.

Sogou revenues are projected to be in the range of $231-$241 million, indicating a year-over-year decline of 3-7%.

Non-GAAP net loss is anticipated to be in the range of $50-$60 million. Non-GAAP loss per share is projected to be between $1.30 and $1.55.

Zacks Rank & Stock to Consider

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

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

Twitter is set to report fourth-quarter 2018 earnings on Feb 7.

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