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Sohu.com (SOHU) Reports Q1 Loss, Revenues Rise Y/Y

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Sohu.com (SOHU - Free Report) reported first-quarter 2020 non-GAAP loss of 52 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 65 cents and the year-ago quarter loss of $1.44 per share.

Revenues were up 6% year over year to $436 million. On a constant-currency basis, revenues grew 10% year over year.

The year-over-year growth in the top line was driven by improved performance of the company’s online game business.

Top-Line Details

Total online advertising revenues decreased 5% year over year to $263 million.

Brand advertising revenues in the reported quarter fell 40% on a year-over-year basis to $26 million due to seasonality and the negative impact of the coronavirus outbreak on the brand advertising industry.

Search and search-related revenues were up 1% year over year to $238 million.

Sohu.com Inc. Price, Consensus and EPS Surprise

Sohu.com Inc. Price, Consensus and EPS Surprise

Sohu.com Inc. price-consensus-eps-surprise-chart | Sohu.com Inc. Quote

Online game revenues of $133 million grew 35% from the year-ago quarter primarily due to the contribution of TLBB Honor and improved performance of some of Changyou's older games, including TLBB PC and Legacy TLBB Mobile, as a result of content updates and some promotional activities during the quarter.

Other revenues decreased 5.5% year over year to $39.4 million.

Media Portal and Video revenues were $50 million and $23 million, respectively.

Sogou’s (SOGO - Free Report) revenues increased 2% year over year to $257 million.

Sogou’s search and mobile keyboard integrated with AI technology witnessed healthy growth. Sogou Mobile Keyboard daily active users (DAUs) reached 482 million, up 9% year over year.

Sogou maintained its position as the “second-largest search engine” based in China. Meanwhile, Sogou Mobile Keyboard continues to be the “third largest Chinese mobile app” on expanding user base.

Changyou’s revenues improved 32% year over year to $136 million mainly driven by the solid performance of both TLBB PC and the Legacy TLBB Mobile.

Notably, the privatization of Changyou was completed on Apr 17. Changyou's profit will be wholly attributable to Soho.com Limited going forward.

Margins

Non-GAAP gross margin in the quarter contracted 400 bps on a year-over-year basis to 37%.

Online advertising non-GAAP gross margin contracted to 10% from 23% reported in the year-ago quarter. Brand advertising business margin was nil, compared with 20% in the year-ago quarter mainly due to decreased revenues as a result of the outbreak of the COVID-19.

Moreover, non-GAAP gross margin of the search and search-related business contracted to 11% from 24% reported in the year-ago quarter. The year-over-year decrease primarily resulted from an increase in traffic acquisition cost as a percentage of search and search-related advertising revenues.

Meanwhile, online games non-GAAP gross margin contracted to 79% from 86% reported in the year-ago quarter primarily due to an increase in revenue contribution from new mobile games, primarily TLBB Honor, which typically require larger revenue-sharing payments compared with PC games and Legacy TLBB Mobile.

Non-GAAP operating expenses were $182 million, down 13% year over year.

Sohu’s non-GAAP operating loss was $20 million. The company had reported an operating loss of $39 million in the year-ago quarter.

Balance Sheet

As of Mar 31, 2020, Sohu’s cash and cash equivalents (and short-term investments) came in at $1.53 billion compared with $1.63 billion as of Dec 31, 2019.

Second-Quarter Guidance

Sohu expects total revenues between $410 million and $445 million.

Brand Advertising revenues are anticipated in the range of $32-$37 million, indicating year-over-year decrease of 16-27%.

Online game revenues are expected in the band of $102-$112 million, flat to up 10% year over year.

Sogou revenues are projected to be $260-$280 million, implying a year-over-year decrease of 8-14%.

The bottom line on a non-GAAP basis is expected in the range of a loss of 13 cents to earnings of 13 cents per ADS.

Zacks Rank & Other Stocks to Consider

Sohu.com currently carries a Zacks Rank #2 (Buy).

NVIDIA Corporation (NVDA - Free Report) and Workday Inc. (WDAY - Free Report) are some other top-ranked stocks in the broader computer and technology sector. Both stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

NVIDIA and Workday are set to report quarterly results on May 21 and 26, respectively.

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