Growth continues to go the wrong way at Sohu.com (SOHU 1.72%), but at least the situation appears to be stabilizing. Shares of the Chinese dot-com pioneer opened higher on Tuesday after posting results that exceeded its earlier guidance, even if was ultimately Sohu's fifth consecutive quarter of year-over-year top-line declines.
Revenue for the fourth quarter checked in at $411.8 million, 12% lower than the prior year's showing for the same period but a slight sequential uptick from the $410.6 million it clocked in at for the third quarter. This may not sound very scintillating to folks that were used to Sohu's chunky growth in its prime, but merely holding its ground sequentially is a surprising achievement. Sohu's earlier guidance for the quarter was targeting just $370 million to $400 million in revenue. Ho-hum as sequential growth and a double-digit percentage year-over-year decline in revenue may seem, Sohu managed to blow through its own mid-October forecast.
Sohu's biggest laggard was its brand advertising revenue, suffering an 11% sequential slide and a 30% year-over-year plunge. This used to be Sohu's largest segment, but it's now accounting for less than a quarter of the revenue mix. Sohu's performance is being weighed down by a major funk with its video advertising business.
Online gaming -- essentially its ownership stake in Changyou (CYOU) -- continues to be a problem for Sohu. Revenue there fell 3% sequentially and 25% since 2015's fourth quarter. Changyou has too much riding on its older releases including TLBB and TLBB 3D, and unlike some of China's other PC and mobile gaming specialists that are thriving in this climate, Changyou isn't getting the job done.
The bright spot at Sohu remains Sogou, emerging as China's third most popular search engine. It's a far cry from Baidu (BIDU 1.02%) in terms of reach, but with search and search-related revenue of $153 million -- a slight 1% year-over-year and sequential increase -- it now accounts for a beefy 37% of Sohu's overall revenue mix. The 1% increase may not send confetti shooters launching, but it reverses the sequential dip that Sogou experienced during the third quarter.
Image source: Sohu.com
Searching for more
The slight bounce at Sogou should come as welcome news to Baidu shareholders. Baidu reports on Thursday, and the consensus there is that China's leading search engine will post a decline in revenue. Baidu stock opened marginally higher on Tuesday, but coughed up those gains early in the trading day.
China's search market has been hit hard since last year's springtime death of a cancer victim that sought treatment at a bogus medical center he found on Baidu. Regulators responded by clamping down on the way that Baidu, Sogou, and other search engines serve health-related ads, crushing a once lucrative revenue stream.
Sohu posted another quarterly loss, but its adjusted deficit of $1.79 a share was a lot less red ink than it was expecting. Sohu's late October guidance called for a deficit of at least $2.20 a share. Sohu has now posted a loss in 11 of the past 12 quarters.
The losses and sluggish growth will continue. Sohu expects revenue of $345 million to $375 million during the seasonally sleepy first quarter. It's eyeing an adjusted quarterly loss between $1.55 and $1.80 a share. Sohu's weakest quarter has historically been the holiday-stacked first quarter so the sharp sequential top-line slide isn't scary, but it's still another 12% year-over-year decline at the midpoint of that range. Sohu was able to rise above its conservative guidance on Tuesday morning. Investors better hope that it will happen again in a couple of months.
