Why Is Sohu.com (SOHU) Down 5.2% Since Last Earnings Report?
A month has gone by since the last earnings report for Sohu.com (SOHU). Shares have lost about 5.2% 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 catalysts.
Sohu’s Q4 Loss Narrower Than Expected, Revenues Fall
Sohu reported relatively weak fourth-quarter 2022 results, with the bottom line beating the Zacks Consensus Estimate but the top line missing the same. Despite efforts to refine products and optimize operational effectiveness, the leading provider of online advertising, media and gaming services in China recorded year-over-year lower revenues owing to the adverse impact of the pandemic and macroeconomic headwinds.
Sohu remains committed to enriching its customers with rich premium content. The organization continues to put its emphasis on creating unique content and science-based live program based on its ‘Twin Engine’ strategy.
On a GAAP basis, the company witnessed a net loss of $7.1 million or a loss of 21 cents per ADS against a net income of $3.6 million or 9 cents per ADS in the prior-year quarter. Revenue decline year over year is the key reason behind the net loss.
Non-GAAP net loss stood at $2.2 million or a loss of 6 cents per ADS against a net income of $0.2 million or a penny per ADS in the year-ago quarter. Non-GAAP net loss for the reported quarter was narrower than the consensus estimate of a loss of 52 cents.
In 2022, the company witnessed a net loss of $17.3 million or a loss of 50 cents per ADS against a net income of $927.7 million or $ 23.49 per ADS a year ago. On a non-GAAP basis, it registered a net income of $2.4 million or 7 cents per ADS compared with $938.7 million or $23.76 per ADS in 2021.
Revenues in the reported quarter declined to $160.4 million from $193 million in the year-ago quarter. The negative impact of COVID-19 and macroeconomic uncertainty hampered the top line during the quarter. The top line fell short of the consensus estimate of $162 million.
Brand advertising revenues declined 14% year over year to $28.8 million from $33.6 million in the prior-year quarter. Revenues from Online Game totaled $121.4 million, down 16% year over year. The downside was caused by the declining demand for the company’s older games like Little Raccoon: Heroes and TLBB PC. Other revenues totaled $10.2 million, down from $15.6 million in the year-ago quarter.
For 2022, revenue stood at $733.9 million compared with $835.6 million in 2021.
For PC games, the total average monthly active user accounts (MAU) were 2.3 million, up 11% year over year, due to better performance of some of the older games driven by content updates during the quarter. Total quarterly aggregate active paying accounts (APA) were 0.9 million, up 2% year over year.
For mobile games, the total average MAU was 1.8 million, down 30% year over year and the total quarterly APA was 0.4 million, down 24% year over year. The decline of Little Raccoon: Heroes primarily led to this contraction.
Quarterly GAAP gross profit was $124.6 million compared with the year-ago quarter’s figure of $141.2 million, with a respective gross margin of 78% and 73%. Non-GAAP gross margin for brand advertising business increased to 51% from 28% in the prior-year quarter owing to a waiver of unpaid long-term accounts payable of approximately US$10 million. Non-GAAP gross margin was flat at 84%.
Due to Changyou's reduction in marketing and promotional expenditures for online games, non-GAAP operating expenses decreased by 10% year over year to $130 million.
Cash Flow & Liquidity
As of Dec 31, 2022, the company had $697.8 million in cash and cash equivalents with $448 million of long-term tax liabilities compared with respective tallies of $998.9 million and $443.1 million in 2021.
For the first quarter of 2023, brand advertising revenues are estimated to be in the range of $20-$23 million, which indicates a decrease of 3% to 16% year over year. Online game revenues are estimated in the band of $121-$131 million, which indicates a decrease of 17% to 23% year over year. Sohu’s non-GAAP net loss is likely to be between $15 million and $25 million. GAAP net loss is projected between $20 million and $30 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -96.3% due to these changes.
Currently, Sohu.com has a poor Growth Score of F, a grade with the same score on the momentum front. However, 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 F. 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 is part of the Zacks Internet - Services industry. Over the past month, DoorDash, Inc. (DASH), a stock from the same industry, has gained 2.1%. The company reported its results for the quarter ended December 2022 more than a month ago.
DoorDash, Inc. reported revenues of $1.82 billion in the last reported quarter, representing a year-over-year change of +39.9%. EPS of -$0.63 for the same period compares with -$0.45 a year ago.
For the current quarter, DoorDash, Inc. is expected to post a loss of $0.57 per share, indicating a change of -18.8% from the year-ago quarter. The Zacks Consensus Estimate has changed +6.1% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for DoorDash, Inc. Also, the stock has a VGM Score of D.
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