Sohu.com (SOHU) Q3 Earnings Beat Estimates, Revenues Up Y/Y

Sohu.com SOHU reported third-quarter 2019 non-GAAP loss of 55 cents per share, much narrower than the Zacks Consensus Estimate of a loss of $1.23 and year-ago quarter’s loss of 60 cents.

Revenues were up 8.6% year over year to $482.3 million. On a constant-currency basis, revenues grew 12% year over year.

The year-over-year growth in both top and bottom lines was driven by improved performance of the company’s online game and search businesses, and cost-saving initiatives in Sohu Media and Sohu Video segments.

Following third-quarter results, there was no noticeable movement in Sohu shares. Notably, the stock has plunged 35.1% year to date against the industry's growth of 7.1%.

Year-to-Date Performance

Top-Line Details

Total online advertising revenues increased 7.2% year over year to $334.5 million.

Brand advertising revenues in the reported quarter fell 18.7% on a year-over-year basis to $46.3 million.

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

 

Search and search-related revenues improved 13% year over year to $288.2 million. Online game revenues of $108 million grew 12.5% from the year-ago quarter.

Meanwhile, other revenues declined 10.6% year over year to $39.8 million.

Media Portal and Video revenues were $25 million and $22 million, respectively.

Sogou’s SOGO revenues increased 14% year over year to $350 million.

Sogou’s search and mobile keyboard integrated with AI technology witnessed healthy growth. Sogou Mobile Keyboard daily active users (DAUs) reached 464 million, up 14% year over year. Notably, Sogou maintained its position as the “second-largest search engine” based in China. Meanwhile, Sogou Mobile Keyboard continues to be the “third largest Chinese mobile app” on expanding user base.

Changyou’s CYOU revenues improved 9% year over year to $111 million. Apart from solid performance by TLBB PC and the Legacy TLBB mobile titles, TLBB Honor — a new mobile game launched during the quarter — performed well during the quarter.

Margins

Non-GAAP gross margin in the quarter expanded 160 bps on a year-over-year basis to 47.9%.

Online advertising non-GAAP gross margin rose 490 bps on a year-over-year basis to 37.1%.

Brand advertising business margin expanded 830 bps on a year-over-year basis to 30.9%. Moreover, non-GAAP gross margin of the search and search-related business in the reported quarter grew 380 bps to 38.1%. However, online games non-GAAP gross margin contracted 70 bps to 17.6%.

Non-GAAP operating expenses were $215 million, down 10.5% year over year.

Sohu’s non-GAAP operating income was $16 million. The company reported an operating loss of $34.6 million in the year-ago quarter.

Balance Sheet

As of Sep 30, 2019, Sohu’s cash and cash equivalents (and short-term investments) came in at $1.563 billion compared with $1.698 billion as of Jun 30.

Fourth-Quarter Guidance

Sohu expects total revenues between $435 million and $470 million.

Brand Advertising revenues are anticipated in the range of $40-$45 million, indicating a year-over-year decrease of 21-30%.

Online game revenues are expected in the band of $95-$105 million, suggesting a year-over-year decline of 1-12%.

Sogou revenues are projected to be $290-$310 million, implying a year-over-year increase of 3-4%.

Non-GAAP net loss is expected between 30 cents and 55 cents per ADS.

Zacks Rank & Another Key Pick

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

Another top-ranked stock in the broader technology sector is NetEase NTES, which sports a Zacks Rank #1 (Strong buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NetEase is set to report third-quarter 2019 results on Nov 20.

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