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Sohu.com (SOHU) Shares Fall on Q3 Loss, Revenues Decline

Zacks Equity Research
Updated

Shares of Sohu.com Inc. SOHU fell nearly 7% yesterday after the company’s third-quarter 2016 earnings results. The company posted non GAAP loss of $1.68 as against earnings of $1.27 per share in the prior-year quarter.

Even revenues in the quarter were down 21.4% to $410.6 million, primarily due to lower revenues from advertising and online gaming. Currency depreciation had a big role to play as per Sohu.

Segment Details

Total online advertising revenues (inclusive of revenues from brand advertising, search and search related businesses) fell 13% to $262 million.

Brand advertising revenues in the reported quarter fell 27% to $111 million, owing to sluggishness in the video ads business. The company’s revenues from Sohu Media Portal decreased 6% year over year to $48 million while that from Sohu Video fell 54% to $25 million.

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Search and search-related revenues increased 2% to $151 million, owing to growth in mobile traffic and monetization.

Online game revenues for the quarter plunged 35% to $99 million, primarily as a result of lower revenues from older games.

Sogou’s revenues grew 2% to $166 million, driven by higher mobile related traffic. However, Changyou’s CYOU revenues plummeted 28% on a year-over-year basis to $136 million.

Margins

Non-GAAP gross margin in the quarter decreased to 46% from 59% in the year-ago quarter. Non-GAAP gross margin of the company’s online advertising business was 32%, down from 49% in the prior-year quarter. Brand advertising business margin was 8%, a sharp drop from 40% reported in the year-ago quarter. Non-GAAP gross margin for the search and search-related business in the quarter was 49%, down from 58% in the year-ago quarter.

Non-GAAP gross margin of the company’s online game business was 76%, down from 77% in the prior-year quarter.

Sohu’s non GAAP net loss was $38 million as against $41 million profit reported in the year-ago quarter.

SOHU.COM INC Price, Consensus and EPS Surprise

SOHU.COM INC Price, Consensus and EPS Surprise | SOHU.COM INC Quote

Balance Sheet

Sohu exited the quarter with cash and cash equivalents (and short-term investments) of $1.36 billion, compared with $1.42 million as of Dec 31, 2015.

Outlook

For the fourth quarter of 2016, Sohu expects revenues in a range of $370 million–$400 million.

Management estimates brand advertising revenues in a range of $95 million to $105 million, representing 25% to 33% year-over-year decline. The company expects to generate about $42 million to $45 million revenues from Sohu Media Portal and $25 million - $28 million from Sohu Video.

Sogou revenues are expected to be in a range of $155 million to $165 million, representing 1% to 7% year-over-year decline. Online game revenues are expected in the $85 million–$95 million range, indicating a year-over-year decline of 25% to 33%.

The company expects non-GAAP loss per share to be between $2.20 and $2.45.

To Conclude

Sohu’s financials have been impacted by falling gaming and advertising revenues. Furthermore, stringent cost control measures are making market share gain more difficult due to stiffening competition from likes of SINA Corp SINA. Reportedly, Sohu was also sued by rival Baidu BIDU on allegations of villifying its food delivery service, Waimai.

Nonetheless, Sohu expects strength in Sogou to boost its financials. Sogou is likely to benefit from increased investment in its search division.

Currently, Sohu has a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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SINA CORP (SINA): Free Stock Analysis Report
 
CHANGYOU.COM (CYOU): Free Stock Analysis Report
 
SOHU.COM INC (SOHU): Free Stock Analysis Report
 
BAIDU INC (BIDU): Free Stock Analysis Report
 
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