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What's in the Cards for Sohu.com (SOHU) in Q3 Earnings?

Sohu.com Inc. SOHU is set to report third-quarter 2017 results on Oct 27. Last quarter, the company's non-GAAP loss of $2.28 per share was much wider than a loss of $1.64 in the year-ago quarter. The company has beaten the Zack Consensus Estimate just once in the trailing four quarters.

However, Sohu's revenues increased 9.8% year over year to $461.2 million and beat the Zacks Consensus Estimate of $413 million.

Notably, the stock has gained 97.6% in the year-to-date period, significantly outperforming the 27.5% rally of the industry it belongs to.

Let's see how things are shaping up for this announcement.

Factors at Play

Sohu has been negatively impacted by lower revenues from advertising, which is a significant contributor to revenues. Its brand advertising business has remained sluggish due to lower spending levels in China. Management anticipates brand advertising revenues to decline 28% to 37% year over year in the range of $70 million to $80 million in the third quarter.

In the last reported quarter, the company's growth was mainly driven by solid performance of the Legacy TLBB mobile game, which it launched in mid-May. However, in the third quarter the company expects online game revenues in the band of $120-$130 million, hinting at a year-over-year decline of 22% to 32% and a sequential decline of 2% to a sequential improvement of 6%.

We note that Sogou search engine continues to gain popularity through increased product quality and effective marketing campaigns. In the to-be-reported quarter, Sogou revenues are expected in the range of $230 million to $240 million, representing 39% to 45% year-over-year increase.

Further, a narrower loss from the company's video business is expected in the quarter. Non-GAAP loss per share is projected to be between $1.00 and $1.25.

For the third quarter of 2017, Sohu expects revenues in the range of $480-$510 million. Acceleration of mobile and search traffic and monetization is expected to drive its topline.

However, stricter regulations, sluggish Chinese economy and stiffening competition continue to be overhangs.

Sohu.com Inc. Price and EPS Surprise

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

Earnings Whispers

Our proven model does not conclusively show that Sohu.com is likely to deliver a positive surprise this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Sohu's Earnings ESP is 0.00%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Sohu's Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are a few companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming release:

Applied Materials AMAT with an Earnings ESP of +0.37% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.

Kemet Corporation KEM with an Earnings ESP of +7.46% and a Zacks Rank #1.

NVIDIA Corporation NVDA with an Earnings ESP of +1.06% and a Zacks Rank #1.

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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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