Sohu.com Inc. Earnings Cheat Sheet: Shrinking Margins for Fifth Consecutive Quarter, but Net Income Rises

Sohu.com Inc. (NASDAQ:SOHU) reported net income above Wall Street’s expectations for the third quarter. Sohu.com is an Internet company that, through its subsidiaries, provides online products and services with news, information, entertainment and communication in China.

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Sohu.com Earnings Cheat Sheet for the Third Quarter

Results: Net income for the internet information provider rose to $46.8 million ($1.17 per share) vs. $41 million ($1.01 per share) in the same quarter a year earlier. This marks a rise of 14.2% from the year earlier quarter.

Revenue: Rose 41.9% to $232.9 million from the year earlier quarter.

Actual vs. Wall St. Expectations: SOHU reported adjusted net income of $1.26 per share. By that measure, the company beat the mean estimate of $1.18 per share. It beat the average revenue estimate of $228.1 million.

Quoting Management: Dr. Charles Zhang, chairman and chief executive officer of Sohu.com commented, “I am pleased to report strong third quarter results with year-over-year revenue growth of 42%, driven by solid performance of our online advertising and online gaming businesses. For online advertising, two of the fastest growing areas, Sogou and Sohu video continued to deliver exciting news. Sogou’s quarterly revenue grew 244% year-over-year, comfortably exceeding our prior guidance. Sohu video, for the first time, in September, both the number of visitors and total number of video viewed rose to the second place in China, according to Comscore.” Dr. Zhang added, “For online game, our online gaming subsidiary Changyou once again exceeded its top-line and bottom-line financial goals, while making planned investments in marketing and promotion of Duke of Mount Deer. Our flagship game Tian Long Ba Bu, or TLBB, continued to expand player numbers with the release of new expansion pack. Duke of Mount Deer, or DMD, appeals to hard-core game players with its new technologies and advanced cross-server game play.”

Key Stats:

The company has enjoyed double-digit year-over-year percentage revenue growth for the past five quarters. Over that span, the company has averaged growth of 32%, with the biggest boost coming in the most recent quarter when revenue rose 41.9% from the year earlier quarter.

Last quarter marked the fifth straight quarter that the company saw shrinking gross margins as gross margin fell 2.4 percentage points to 71.3% from the year earlier quarter. Over that time, margins have contracted on average 1.4 percentage points per quarter on a year-over-year basis.

The company has now seen net income rise in three straight quarters. In the second quarter, net income rose 32.3% and in the first quarter, the figure rose 48.4%.

The company has now topped analyst estimates for the last four quarters. It beat the mark by 4 cents in the second quarter, by 4 cents in the first quarter, and by 9 cents in the fourth quarter of the last fiscal year.

Looking Forward: For the next quarter, analysts are growing pessimistic about the company’s expected results. The average estimate for the fourth quarter is $1.25 per share, dropping from $1.27 a month ago. For the fiscal year, the average estimate has moved down from $4.68 a share to $4.65 over the last thirty days.

Competitors to Watch: Baidu.com, Inc. (NASDAQ:BIDU), SINA Corporation (NASDAQ:SINA), Google Inc. (NASDAQ:GOOG), NetEase.com, Inc. (NASDAQ:NTES), Yahoo! Inc. (NASDAQ:YHOO), Ku6 Media Co., Ltd. (NASDAQ:KUTV), Shanda Interactive Entertainment Ltd ADR (NASDAQ:SNDA), Youku.com Inc (NYSE:YOKU), and Rediff.com India Ltd. (NASDAQ:REDF).

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(Source: Xignite Financials)

 

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