What happened

Shares of Chinese internet company Sohu.com (NASDAQ:SOHU) dropped on Monday following a disappointing fourth-quarter report. Sohu missed analyst estimates across the board, and its first-quarter guidance was well below expectations. Sohu stock was down about 15% at 12:20 p.m. EST.

So what

Sohu reported fourth-quarter revenue of $510 million, up 24% year over year but down 1% compared to the third quarter. Analysts were expecting about $14 million of additional revenue. Brand advertising revenue tumbled 27% year over year to $72 million, while search advertising revenue jumped 62% year over year to $247 million. Online game revenue increased to $109 million, up 15% year over year.

A slumping stock chart.

Image source: Getty Images.

Non-GAAP earnings per share came in at a loss of $2.01, $0.57 below the average analyst estimate. For the first quarter, Sohu expects to produce revenue between $410 million and $435 million, along with a non-GAAP EPS loss between $1.65 and $1.90. Analysts were expecting revenue guidance of $475.5 million.

Sohu forecasts that its brand advertising revenue will tumble 26% to 32% in the first quarter, while the rest of the business is anticipated to produce growth.

Now what

CEO Charles Zhang expects profitability to improve in the video business this year thanks to cost-cutting: "For Sohu Video, 2017 was a transformative year when we shifted our focus to original content and began to significantly cut spending on traditional TV programs. The initiative should generate meaningful cost savings and narrow the losses in our video business in 2018."

Sohu's first-quarter guidance implies year-over-year revenue growth of just 13% at the midpoint, far slower than the past two quarters. With the company getting no closer to profitability, the market saw little to like about Sohu's report. This drop in the stock price follows a similar stumble after the third-quarter report in October.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool recommends Sohu.com. The Motley Fool has a disclosure policy.