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Sohu.com (SOHU) Q3 Loss Narrower Than Expected, Revenues Fall Y/Y

Sohu.com Limited SOHU reported mixed third-quarter 2023 results, with the bottom line surpassing the Zacks Consensus Estimate but the top line missing the same. The company reported lower revenues year over year owing to declining trends in all verticals. However, management’s twin-engine strategy to generate and distribute enhanced short-form content and unique marketing campaigns has boosted user engagement and improved monetization. Despite weakness in older games, various content updates have partially reversed the net sales decline from online games.

Net Income

On a GAAP basis, Sohu registered a net loss of $14.1 million or a loss of 41 cents per ADS from continuing operations compared with a net loss of $21.6 million or a loss of 63 cents per ADS in the year-ago quarter. Lower operating expenses and higher interest income led to a narrower loss during the quarter.

Non-GAAP net loss was $10.2 million or a loss of 30 cents per ADS compared with a net loss of $17.4 million or a loss of 50 cents per ADS in the year-ago quarter. Non-GAAP net loss for the September quarter was narrower than the consensus estimate of a loss of 59 cents.

Sohu.com Inc. Price, Consensus and EPS Surprise

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

Revenues

Quarterly revenues declined to $145.4 million from $185.3 million in the prior-year quarter. Weak demand for older games and lower brand advertising revenues impeded revenue growth. The top line fell short of the consensus estimate of $163 million.

Brand advertising generated $22.1 million in revenues compared with $25.8 million in the year-earlier quarter. The top line missed our estimate of $22.6 million.

Net sales from Online Game were $117 million, down 21% year over year. The declining demand for older games impacted the top line from this vertical. However, the top line marginally beat our estimate of $116.8 million.

For PC games, the company registered a total average monthly active user account (MAU) of 2.2 million, up 3% year over year. Total quarterly aggregate active paying accounts (APA) were 1 million, down 5% year over year. However, a 12% sequential uptick was propelled by the introduction of various promotional activities in TLBB PC game.

For mobile games, the total average MAU totaled 2.3 million, down 9% year over year, while the total quarterly APA was 0.5 million, down 18% year over year. The downside was caused by the natural decline trend of older games.

Other Details

Non-GAAP gross profit in the September quarter was $111 million with a margin of 76%, down from the respective figures of $131.7 million and 71% a year ago. Non-GAAP gross margin for brand advertising business rose to 15% from 2% in the year-earlier quarter. Non-GAAP gross margin for online games was 87%, up from 84% in the year-ago quarter.

Non-GAAP operating expenses declined to $131 million, down 12% year over year. Reduction in Changyou‘s marketing and promotion-related expenses for online games resulted in lower operating costs.

Cash Flow & Liquidity

As of Sep 30, 2023, the company had $335.9 million in cash and cash equivalents with $462.2 million of long-term tax liabilities.

Outlook

For the fourth quarter of 2023, revenues from brand advertising are projected in the range of $20-$23 million, indicating a 20-31%% year-over-year decline. Online Game revenues are estimated in the band of $106-$116 million, which implies a decrease of 4% to 13% year over year. The company expects a non-GAAP net loss between $10 million and $20 million, while GAAP net loss is estimated between $13 million and $23 million.

Zacks Rank & Other Stocks to Consider

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

Model N Inc MODN, sporting a Zacks Rank #1 (Strong Buy) at present, delivered an earnings surprise of 20.78%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 3.33%. You can see the complete list of today’s Zacks #1 Rank stocks here.

MODN provides revenue management solutions for life sciences and technology companies, including applications for configuration, price, quote, rebate management and regulatory compliance.

NVIDIA Corporation NVDA, currently sporting a Zacks Rank #1, delivered an earnings surprise of 9.79%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 29.19%.

NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit. Over the years, the company’s focus has evolved from PC graphics to artificial intelligence-based solutions that support high-performance computing, gaming and virtual reality platforms.

Arista Networks, Inc. ANET, presently carrying a Zacks Rank #2, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has delivered an earnings surprise of 12%, on average, in the trailing four quarters.

ANET holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed data center segment. Arista is increasingly gaining market traction in 200 and 400-gigabit high-performance switching products and is well-positioned for healthy growth in the data-driven cloud networking business with proactive platforms and predictive operations.

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