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Why Is Sohu.com (SOHU) Down 0.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Sohu.com (SOHU). Shares have lost about 0.6% in that time frame, outperforming 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 drivers.

SOHU Outperforms Q2 Earnings and Revenue Estimates

Sohu reported relatively soft second-quarter 2022 results with a year-over-year decrease in revenues and net income due to lower contribution from both the brand advertising sector and the other revenues sector. The company aims to focus on refining its products and improving its operational efficiency in the impending quarters.

Quarter Details

Net income in the quarter was $8.7 million or 25 cents per share compared with $40.7 million or $1.03 per share in the year ago quarter, beating the Zacks Consensus Estimate of a loss of 28 cents.

Revenues reported in the quarter were $194.8 million compared to $204.4 million in the year ago quarter, beating the Zacks Consensus Estimate of $192 million. In the quarter, Brand advertising revenues declined 32.3% year over year to $24.9 million. Online games revenues of $157.3 million rose 4%. Other revenues totaled $12.6 million, down 22.9%.

The online games sector reported better-than-expected results, primarily driven by product upgrades and refinement in the quality in the news and overall content. During the quarter, the company’s advanced live broadcasting technology, strong operating track record and extensive media resources reinforced its credentials as a mainstream media platform.

For PC games, total average monthly active user accounts (MAU) were 2.3 million, up 7% year over year, due to the introduction of a new PVP, player versus player event for regular TLBB PC and upgrade of the artistic design of game characters. Total quarterly aggregate active paying accounts (APA) were 1 million, up 15% year over year.

For mobile games, total average MAU was 2 million, up 7% year over year, which was driven from games launched during the recent quarters, including Little Raccoon, Heroes and Bright Stars. Total quarterly APA was 0.4 million, down 13% due to natural decline of older games including TLBB Honor, and Legacy TLBB Mobile.

Operating Details

Quarterly GAAP operating profit was $10.1 million, down 59.3% from the year-ago quarter. Operating expenses jumped 1.1% year over year due to an increase in traffic and user acquisition cost. However, top-line contraction led to lower operating profit in the quarter.

Liquidity

As of Jun 30, 2022, the company had $394.4 million in cash and cash equivalents with $443.7 million of long-term tax liabilities.

Q3 Outlook

For the third 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 $138-$148 million, which indicates a decrease of 11% to 17% year over year. Sohu’s non-GAAP net loss is likely to be between $35 million and $25 million. GAAP net loss is projected between $38 million and $28 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

Currently, Sohu.com has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Sohu.com has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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