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Sohu.com's (SOHU) Q4 Loss Widens, Revenues Fall Y/Y

Sohu.com Inc. (SOHU) reported fourth-quarter 2016 non GAAP loss of $1.79 per share, compared with loss of $1.68 reported in the prior-year quarter.

Sohu's revenues of $412 million decreased 12% on a year-over-year basis due to lower revenues from advertising and online gaming.

Quarterly Details

Total online advertising revenues (inclusive of revenues from brand advertising, search and search related businesses) fell 14% to $251 million.

Brand advertising revenues in the reported quarter fell 30% to $99 million on a year-over-year basis while search and search-related revenues increased 1% to $153 million.

Online game revenues for the quarter plunged 25% year over year to $95 million.

Sogou's revenues grew 4% to $172 million.

Margins

Non-GAAP gross margin in the quarter decreased to 44% from 57% in the year-ago quarter. Non-GAAP gross margin of the company's online advertising business was 33%, down from 47% in the prior-year quarter.

Brand advertising business margin was 9%, a sharp drop from 38% reported in the year-ago quarter but marked an increase of 1% from the third quarter. Non-GAAP gross margin for the search and search-related business in the quarter was 48%, down from 55% in the year-ago quarter.

Non-GAAP gross margin of the company's online game business remained flat year over year at 78%.

Sohu's non GAAP net loss was $69 million as against profit of $$65 million reported in the year-ago quarter.

Balance Sheet

Sohu exited the quarter with cash and cash equivalents (and short-term investments) of $1.30 billion, compared with $1.42 million as of Dec 31, 2015.

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 2017, Sohu expects revenues in a range of $345 million-$375 million.

Management estimates brand advertising revenues in a range of $75 million to $85 million, representing 32% to 40% year-over-year decline.

Sogou revenues are expected to be in a range of $145 million to $155 million. Online game revenues are expected in a band of $80 million-$90 million, indicating a year-over-year decline of 12% to 22%.

The company expects non-GAAP loss per share to be between $1.55 and $1.80.

Our Take

Sohu's financials have been impacted by lower online gaming and advertising sales. Specifically, its brand advertising business has remained sluggish because of lower spending levels in China.

However, Sogou continues to gain popularity and market share through increased product quality and effective marketing campaigns. Furthermore, its partnership with Tencent and the sale of 10% of Sogou shares in an IPO to be held in 2017 will further improve Sogou's competitive position against market leader Baidu and SINA Corp SINA

We also note that Sohu's shares have lost 16.26% in the past one year, vastly underperforming the Zacks categorized Internet Software industry, which gained 14.06% during that period.

Currently, Sohu carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader tech space are Applied Optoelectronics, Inc. AAOI , which sports a Zacks Rank #1 (Strong Buy) and Netflix, Inc. NFLX , which has a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

In the trailing four quarters, Applied Optoelectronics and Netflix delivered an average positive earnings surprise of 106.74% and 141.35%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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