It has been about a month since the last earnings report for Sohu.com (SOHU). Shares have lost about 7.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Sohu.com due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Sohu.com Q2 Earnings Miss Estimates, Revenues Fall Y/Y
Sohu reported soft second-quarter 2023 results, with the bottom and the top line missing the respective Zacks Consensus Estimate. Weak demand trends across all the verticals and declining trends in older games led to lower revenues year over year.
On a GAAP basis, Sohu reported a net loss of $21.2 million or a loss of 62 cents per ADS against a net income of $8.7 million or 25 cents per ADS in the year-earlier quarter. The decline was primarily attributed to top-line contraction year over year and higher income tax.
Non-GAAP net loss was $17.9 million or a loss of 52 cents per ADS against a net income of $12.4 million or 36 cents per ADS in the year-ago quarter. Non-GAAP net loss for the June quarter was wider than the consensus estimates of a loss of 44 cents.
Quarterly net sales declined to $152.1 million from $194.8 million in the prior-year quarter, owing to weakness in online games and lower brand advertising revenues. The top line missed the consensus estimate of $154 million.
Revenues from brand advertising totaled $23.9 million, down 4% year over year. The segment’s top line marginally fell short of our estimate of $24 million.
Net sales from Online Game stood at $118.4 million, down 25% year over year. The top line surpassed our estimate of $116.8 million. Declining trends for the company’s older games impacted the sales.
Other revenues were $9.8 million, down from $12.6 million in the year-ago quarter. Net sales fell short of our estimate of $13.2 million.
Total average monthly active user accounts (MAU) for PC games were 2.2 million, down 4% year over year. The figure fell short of our estimate of 2.5 million. Total quarterly aggregate active paying accounts (APA) were 0.9 million, down 12% year over year. Decline of TLBB PC led to a year-over-year reduction in APA.
For mobile games, the total average MAU recorded a sharp decline of 35% year over year to $1.3 million. The MAU fell short of our estimated figure of 2.2 million. Weakness in older games affected the MAU. The total quarterly APA was 0.3 million, down 35% year over year.
Non-GAAP gross profit was $115.1 million compared with $141.8 million in the prior year quarter with respective margins of 76% and 73%. Non-GAAP gross margin for the brand advertising segment rose to 30% from 4% in the year-ago quarter. Non-GAAP gross margin for online games improved to 87% from 84% a year ago.
The company reported a non-GAAP operating loss of $22.7 million against an operating profit of $11.5 million in the prior-year quarter, with respective margins of -15% and 6%. Higher operating expenditure due to Changyou’s product development expenses negatively impacted the operating profit.
Cash Flow & Liquidity
As of Jun 30, 2023, the company had $482.6 million in cash and cash equivalents with $451.9 million of long-term tax liabilities.
For the third quarter of 2023, revenues from brand advertising are estimated in the range of $21-$24 million, indicating a 7-18% year-over-year decline. Online game revenues are projected in the band of $108-$118 million, which implies a decrease of 21% to 27% year over year. The company expects a non-GAAP net loss between $20 million and $30 million. GAAP net loss is estimated between $23 million and $33 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 -93.75% due to these changes.
Currently, Sohu.com has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
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 belongs to the Zacks Internet - Services industry. Another stock from the same industry, Uber Technologies (UBER), has gained 3.1% over the past month. More than a month has passed since the company reported results for the quarter ended June 2023.
Uber reported revenues of $9.23 billion in the last reported quarter, representing a year-over-year change of +14.3%. EPS of $0.18 for the same period compares with -$1.33 a year ago.
For the current quarter, Uber is expected to post earnings of $0.13 per share, indicating a change of +121.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +5.7% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #1 (Strong Buy) for Uber. Also, the stock has a VGM Score of C.
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