Sohu.com, Changyou.com Q2 Profits Up, But Revenues Miss View; Issue Weak Outlook

(RTTNews) - Sohu.com Inc. (SOHU), a China-based web-portal and online game developer, on Monday reported a 69 percent year-over-year surge in profit for the second quarter on higher revenues and margins. However, revenues missed analysts' estimates. Looking ahead, the company forecast results for the third quarter below Street expectations.

Meanwhile, Changyou.com Ltd (CYOU), Sohu's online game developer subsidiary, reported a 9 percent increase in profit for the second quarter from last year. However, Changyou's revenues for the quarter also missed analysts' expectations and the company forecast third-quarter results below estimates.

Shares of Sohu are down almost 9 percent in the regular trading session, while shares of Changyou are down almost 18 percent.

Sohu's second-quarter net income attributable to the company was $21.63 million or $0.56 per share, up from $12.78 million or $0.28 per share in the same quarter last year.

Adjusted net income for the quarter was $22.50 million or $0.58 per share, compared to $16.36 million or $0.42 per share in the same period last year. On average, analysts polled by Thomson Reuters expected the company to report earnings of $0.49 per share for the quarter. Analysts' estimates typically exclude special items.

Total revenues for the quarter grew 33 percent to $338.90 million from $255.73 million in the prior-year quarter, but missed analysts' consensus revenue estimate of $340.27 million.

Total online advertising revenues, which include revenues from brand advertising and search and others businesses, surged 49 percent from the year-ago period to $146.36 million. Online game revenues rose 24 percent to $168.30 million, while wireless revenues declined 2 percent to $15.31 million.

Sohu's gross margin for the quarter rose to 66 percent from 61 percent in the same period last year. Operating margin increased to 19 percent from 17 percent in the prior-year period.

Looking ahead to the third quarter, Sohu forecasts adjusted net income attributable to the company between $19 million and $21 million or $0.50 and $0.55 per share, and total revenues of $358 million to $370 million. Analysts expect the company to report earnings of $0.56 per share for the quarter on revenues of $361.30 million.

Assuming no new grants of share-based awards, Sohu estimates that compensation expenses relating to share-based awards will be around $3 million to $4 million. The company estimates the impact of this expense to reduce its earnings per share for the third quarter by $0.07 to $0.09.

Meanwhile, Changyou.com's net income for the second quarter rose to $75.17 million or $1.41 per ADS from $69.06 million or $1.29 per ADS during the same period last year. Adjusted earnings per ADS for the quarter were also $1.41, compared to $1.35 in the prior-year quarter.

On average, seven analysts polled by Thomson Reuters expected the company to report earnings of $1.37 per share for the quarter. Analysts' estimates typically exclude one-time items.

Total revenues for the quarter grew 24 percent to $182.37 million from $147.34 million in the year-ago period, but missed analysts' consensus revenue estimate of $183.35 million.

Online game revenues also rose 24 percent year-over-year to $168.3 million, while online advertising revenues increased 11 percent to $10.1 million. Internet value-added services or IVAS revenues, which consist of revenues generated from the operation of third-party web games by the 17173 business, grew 13 percent to $1.4 million.

Looking ahead to the third quarter, Changyou forecasts adjusted earnings per ADS in a range of $1.33 to $1.38 and revenues of $180 million to $186 million. The Street expects the company to report earnings of $1.48 per share for the quarter on revenues of $190.95 million.

On Saturday, July 27, Changyou's board of directors authorized a share repurchase program of up to $100 million of the company's outstanding ADS over a two-year period from July 27, 2013 to July 26, 2015.

In Monday's regular trading session, SOHU is trading at $63.75, down $6.25 or 8.93 percent on a volume of 1.48 million shares. CYOU is trading at $33.68, down $7.39 or 17.99 percent on a volume of 539,640 shares.