Sohu.com's (SOHU) Q4 Loss Widens Y/Y but Revenues Improve

Sohu.com Inc. SOHU reported results for fourth-quarter 2017. While the top line recorded a significant year-over-year improvement, bottom-line comparisons were not favorable.

The company reported non-GAAP loss of $2.01 per share, which was wider than the year-ago quarter’s loss of $1.79.

Sohu’s revenues of $509.6 million were up 23.8% year over year but declined 1.2% on a sequential basis.
    
The top line was mainly driven by solid performance of the Legacy TLBB mobile game, which it launched in mid-May, along with continued growth momentum in mobile search. However, Sohu Media Portal and Sohu Video were hit this time due to increased competition.

Notably, the stock has lost 1.2% in the past year, significantly underperforming the 32.1% rally of the industry it belongs to. Shares of Sohu dropped nearly 15.8%, yesterday, following the earnings announcement.

 

Quarter Details

Total online advertising revenues (inclusive of revenues from brand advertising, search and search related businesses) increased 26.9% year over year to $318.8 million.

Brand advertising revenues in the reported quarter fell 27.3% on a year-over-year basis to $71.8 million, mainly due to lower demand from large advertisers and real estate advertising.

Search and search-related revenues increased 62% year over year to $247.1 million driven by growth in mobile search traffic and improved monetization.

Online game revenues of $109.4 million were up 14.7% from the year-ago quarter mainly on strong performance of the Legacy TLBB mobile game.

Sohu Video revenues decreased 10% from the year-ago quarter to $39 million. Decline in video advertising has been a concern. The company is now shifting its focus to create more original content as it is expected to drive more user growth. It released six original dramas in the quarter.

Sohu Media Portal revenues fell 15% to $36 million on a year-over-year basis owing to intense competition in the online media industry. The company added new key executives in the product team to improve Sohu News App, which is expected to be a key driver for the company.

Sogou’s SOGO revenues grew 62% year over year and 8% from the previous quarter to $278 million, driven by increase in mobile and search traffic.

Changyou’s CYOU revenues grew 11% year over year driven by Legacy TLBB and other mobile games.

Margins

Non-GAAP gross margin in the quarter increased to 46% from 44% in the year-ago quarter.

Non-GAAP gross margin of the company’s online advertising business was 37%, up from 33% in the prior-year quarter.

Brand advertising business margin was negative 17%, reflecting a sharp drop from 9% reported in the year-ago quarter primarily due to weak video ad sales.

Non-GAAP gross margin of the search and search-related business in the quarter was 52%, higher than 48% in the year-ago quarter.

Non-GAAP gross margin of the online game business was 84% compared with 78% reported in the prior-year quarter, driven by growth in Legacy TLBB game.

Sohu’s non-GAAP operating loss was $21.8 million compared with a loss of $48.7 million in the year-ago quarter.

Balance Sheet

Sohu exited the quarter with cash and cash equivalents (and short-term investments) of $2.19 billion compared with $1.34 billion as of Sep 30, 2017.

Sohu.com Inc. Price, Consensus and EPS Surprise

Sohu.com Inc. Price, Consensus and EPS Surprise | Sohu.com Inc. Quote

Outlook

For the first quarter of 2018, Sohu expects total revenues in the range of $410–$435 million.

Brand Advertising revenues is anticipated to be in the range of $55-$60 million, indicating a year-over-year decrease of 26-32%.

Online game revenues are expected in the band of $90-$100 million, implying a rise of 5-17%  from the year-ago quarter.

Sogou revenues are projected to be in the range of $218-$228 million, indicating a year-over-year increase of 35-41%

Non-GAAP net loss is anticipated to be in the range of $65-$75 million. Non-GAAP loss per share is projected to be between $1.65 and $1.90.

The company plans to release 20 original dramas in 2018. Its focus to cut spending on traditional TV dramas and increase spending on lower cost original content is expected to generate meaningful cost savings that will help narrow down the losses in the video businesses.

Zacks Rank & Stock to Consider

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

A better-ranked stock in the broader technology sector is Micron Technology MU, sporting a Zacks Rank #1.

Long-term earnings growth rate for Micron is projected to be 10%.

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