What happened
Shares of China-based online search specialist Sogou (SOGO) fell as much as 14% on Monday morning, following the release of mixed second-quarter results. As of 10:50 a.m. EDT, the stock had recovered to an 11.1% decline compared to Friday's closing prices.
So what
On the top line, Sogou's second-quarter sales rose 43% year over year to land at $301.4 million. Adjusted earnings landed at $0.09 per diluted share -- or per American depositary share (ADS) -- up from $0.07 per share/ADS in the year-ago period. Wall Street's consensus estimates had called for earnings of roughly $0.07 per ADS on something like $301 million of total revenue, so Sogou exceeded one analyst target while falling short of the other one.
Looking ahead to the third quarter, the midpoint of management's revenue guidance stopped at $280 million -- far short of the current Street view, which points to approximately $337 million.
Image source: Getty Images.
Now what
Sogou CEO Xiaochuan Wang called the second-quarter report "solid." He also explained that the soft third-quarter outlook stems from a regulatory investigation that forced the company to pause its online advertising operations for 10 days in July. The company has taken steps to ensure compliance with Chinese regulations in the future, so that issue should be firmly in the rearview mirror at this point -- though the financial impact will follow in the third-quarter report.
"We are confident that our twin growth engines [of search and mobile keyboard apps] and AI-focused strategy will lead to sustainable growth over the long term," Wang said.
The market-moving impact of Sogou's weak guidance was amplified by the fact that the company only recently entered the public markets, so investors and analysts are still getting a grip on the rapid-growth business model. It's no surprise to see the stock making a big move on earnings and guidance news under these circumstances.
