SOHU's Q3 Loss Narrower Than Expected, Revenues Decline

Sohu.com Limited SOHU reported relatively soft third-quarter 2022 results with a year-over-year decrease in revenues and earnings due to lower contributions from both the brand advertising sector and online games. The company aims to focus on refining its products and improving operational efficiency in the impending quarters.

Quarter Details

Net loss from continuing operations in the quarter was $21.6 million or a loss of 63 cents per ADS against net income of $12.3 million or 31 cents per ADS in the year-ago quarter. The significant decline in the bottom line was primarily attributable to top-line contraction and higher operating expenses in the reported quarter and income from divested operations in the year-earlier quarter. Non-GAAP net loss in the quarter was $17 million or a loss of 50 cents per ADS, narrower than the Zacks Consensus Estimate of a loss of 72 cents.

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

Revenues in the reported quarter declined to $185.3 million from $216.1 million in the year-ago quarter owing to adversities stemming from the pandemic and uncertain macroeconomic environment. However, the top line beat the consensus estimate of $181 million.

Brand advertising revenues declined 23.4% year over year to $25.8 million. Online games revenues of $148.9 million were down 10.7% due to the natural decline of Little Raccoon: Heroes launched in third-quarter 2021. Other revenues totaled $10.6 million, down 32.1%.

For PC games, total average monthly active user accounts (MAU) were 2.1 million, up 6% year over year, due to improved performance of some of the older games driven by content updates and higher promotional activities during the quarter. Total quarterly aggregate active paying accounts (APA) were 1 million, up 4% year over year.

For mobile games, total average MAU was 2.5 million, down 45% year over year due to the natural decline of Little Raccoon: Heroes. Total quarterly APA was 0.6 million, down 44% year over year.

Quarterly GAAP operating profit was $131.6 million, down 17.4% from the year-ago quarter. Operating expenses jumped 11.3% due to an increase in marketing expenses.

Liquidity

As of Sep 30, 2022, the company had $516.8 million in cash and cash equivalents with $436.7 million of long-term tax liabilities.

Q4 Outlook

For the fourth quarter of 2022, Brand advertising revenues are estimated to be in the range of $25-$28 million, which implies a decrease of 17% to 26% year over year. Online game revenues are estimated in the band of $118-$128 million, which indicates a decrease of 11% to 18% year over year. Sohu’s non-GAAP net loss is likely to be between $10 million and $20 million. GAAP net loss is projected between $13 million and $23 million.

Zacks Rank & Stocks to Consider

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

TESSCO Technologies Incorporated TESS, sporting a Zacks Rank #1, delivered an earnings surprise of 126.1%, on average, in the trailing four quarters. Earnings estimates for TESSCO for the current year have moved up 44.3% since November 2021.

TESSCO offers products to the industry’s top manufacturers in mobile communications, Wi-Fi, wireless backhaul and related products. With more than three decades of experience, it delivers complete end-to-end solutions to the wireless industry.

Harmonic Inc. HLIT, carrying a Zacks Rank #2 (Buy), delivered an earnings surprise of 79.3%, on average, in the trailing four quarters. Earnings estimates for Harmonic for the current year have moved up 48.6% since March 2021.

Harmonic provides video delivery software, products, system solutions, and services worldwide. With more than three decades of experience, it has revolutionized cable access networking via the industry's first virtualized cable access solution, enabling cable operators to more flexibly deploy gigabit internet service to consumers' homes and mobile devices.

AudioCodes Ltd. AUDC, sporting a Zacks Rank #1, is likely to benefit from the secular tailwinds related to IP-based communications. Incorporated in 1992 and headquartered in Lod, Israel, it offers advanced communications software, products and productivity solutions for the digital workplace. It has a long-term earnings growth expectation of 9%.

AudioCodes It aims to leverage its long-term partnership with Microsoft to further strengthen its market position. It is also likely to benefit from its continued focus on high-margin businesses.

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