Sohu.com (SOHU) Down 9.8% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Sohu.com (SOHU). Shares have lost about 9.8% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Sohu.com Q1 Loss Narrower Than Expected, Top Line Falls
Sohu reported relatively modest first-quarter 2023 results, with the bottom and the top line beating the respective Zacks Consensus Estimate. Declining net sales in Online games induced by the natural fall of older games and lower revenues from Brand advertising led to year-over-year contraction in the top line for the leading provider of online advertising, media and gaming services in China.
However, management is focused on improving user experience and expanding brand influence through incorporating advanced technology to steadily enhance its products, optimize operations, develop high-quality content and improve monetization.
Net Income
On a GAAP basis, the company witnessed a net loss of $17.9 million or a loss of 53 cents per ADS against a net income of $2.7 million or 7 cents per ADS in the prior-year quarter. Lower net sales and higher operating expenses are the main drivers behind the net loss.
Non-GAAP net loss stood at $12.6 million or a loss of 37 cents per ADS against a net income of $9.5 million or 26 cents 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 50 cents.
Revenues
Revenues in the reported quarter declined to $161.8 million from $193.4 million in the year-ago quarter. Low demand for mobile games and some older PC games hampered revenue growth during the quarter. The top line surpassed the consensus estimate of $160 million.
Brand advertising revenues declined 5% year over year to $22.5 million from $23.7 million in the prior-year quarter. Revenues from Online Game totaled $129.5 million, down 18% year over year. The downside was caused by sluggish demand for older games like Little Raccoon: Heroes and TLBB PC. Other revenues totaled $9.8 million, down from $11.8 million in the year-ago quarter.
For PC games, the total average monthly active user accounts (MAU) were 2.2 million, up 8% year over year, owing to content updates and the optimization of some older games. Total quarterly aggregate active paying accounts (APA) were 0.9 million, down 4% year over year.
For mobile games, the total average MAU was 1.6 million, down 32% year over year and the total quarterly APA was 0.3 million, down 39% year over year. The decline in Bright Stars and some older games affected this vertical.
Other Details
Quarterly GAAP gross profit was $121.3 million compared with the year-ago quarter’s figure of $144.3 million, with gross margin of 75% in both cases. Non-GAAP gross margin for brand advertising business increased to 17% from 2% in the prior-year quarter. Non-GAAP gross margin for online games was flat at 85%.
GAAP operating expenses rose to $139.8 million up 6% from $131.6 million in prior year quarter. Increase in salary and benefit expenses, marketing costs and Changyou licensing fees led to higher operating expenses.
Cash Flow & Liquidity
As of Mar 31, 2023, the company had $525.5 million in cash and cash equivalents with $458.5 million of long-term tax liabilities.
Outlook
For the second quarter of 2023, Brand Advertising revenues are estimated to be in the range of $23-$26 million, which indicates a decrease of 4% year over year. Online game revenues are estimated in the band of $112-$122 million, which signals a reduction of 22% to 29% 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 $18 million and $28 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -123.81% due to these changes.
VGM Scores
At this time, Sohu.com has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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, Zillow Group (ZG), a stock from the same industry, has gained 1.7%. The company reported its results for the quarter ended March 2023 more than a month ago.
Zillow reported revenues of $469 million in the last reported quarter, representing a year-over-year change of -89%. EPS of $0.35 for the same period compares with $0.49 a year ago.
Zillow is expected to post earnings of $0.18 per share for the current quarter, representing a year-over-year change of -61.7%. Over the last 30 days, the Zacks Consensus Estimate has changed -19.7%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Zillow. Also, the stock has a VGM Score of C.
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