Please ensure Javascript is enabled for purposes of website accessibility Starts to Click in 2019

By Rick Munarriz - Updated May 2, 2019 at 9:40AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Chinese dot-com pioneer has seen its stock soar 34% in the first two trading days since posting its first-quarter results. (SOHU 0.27%) is bouncing back this week after a better-than-expected financial report, and that's a welcome break for investors. The stock was hitting a 14-year low earlier in the month, but it has roared back with a 34% gain through the first two trading days of the week since its Monday morning earnings release. Sohu spinoffs Sogou (SOGO) and (CYOU) have risen 4% and 20%, respectively, in that time. 

Revenue of $431.4 million for the first quarter is a 5% decline when pitted against its prior year showing, and it's also an 11% dip sequentially. Negative growth may not seem very applause worthy, but the Chinese online advertising, search, and gaming specialist was bracing investors for an uglier showing. Sohu was targeting just $390 million to $415 million in revenue for the quarter three months ago, a 9% to 14% year-over-year tumble. The sequential slide is normal given the seasonality of the lunar new year, as Sohu has seen a decline between the fourth and first quarters every year since 2008 according to data provided by S&P Global Market Intelligence.'s logo.

Image source: Sohu.

Sohu's your daddy  

We're now at three straight quarters of year-over-year declines in revenue, but investors are relieved that things aren't as bad as Sohu itself was modeling earlier this year. 

Sohu's Sogou-led search revenue rose 6% to $234 million for the first three months of the year, better than the 3% to 7% reduction that it was forecasting for the division that continues to account for more than half of its revenue. Its original brand advertising business experienced a hefty 24% slide -- worse than the 11% to 20% drop it was forecasting -- but at $43 million it now accounts for just 10% of the total revenue. Its Changyou-helmed online gaming arm slipped 6% to $99 million, a welcome contrast to the 13% to 22% plunge it was expecting.  

It's surprising to see Sogou shares be the lone holdout from the double-digit percentage rally this week given its starring role in the blowout results, but Sohu and Changyou investors aren't complaining. Losses do continue at Sohu, but the adjusted net loss of $48 million is roughly half of the prior year's $97 million deficit. 

The guidance it initiated earlier this week for the current quarter is mixed. Sohu is projecting revenue of $469 million to $494 million for the second quarter. It clocked in at $486 million a year earlier, so we're looking at anywhere between a decline of 4% to a gain of 2%. If it lands at the high end of its range, it will break the current streak of three straight periods of year-over-year top-line declines. For its three segments, Sohu sees a 1% to 4% increase at Sogou, a 15% to 24% decrease in brand advertising, and a 9% dip to a 1% boost at its Changyou-led division. Sohu's bottom-line outlook calls for an adjusted loss per share between $0.95 and $1.20. 

Armed with a cash-flush balance sheet and the start of a turnaround at Sogou and possibly Changyou, Sohu is starting to bounce back. It will need to keep momentum going in the next few quarters if Sohu wants to keep its stock moving away from last month's 14-year low. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned Inc. Stock Quote Inc.
$14.64 (0.27%) $0.04 Limited Stock Quote Limited
Sogou Inc. Stock Quote
Sogou Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.