Sohu.com (SOHU) Q3 Earnings: What's In Store This Time?

Sohu.com Inc. (NASDAQ:SOHU) is set to report third-quarter 2016 results on Oct 24. Let’s see how things are shaping up for this announcement.

Last quarter, the company delivered weak results. Not only did the loss widen from the prior-year quarter figure but revenues also lacked luster.

Factors at Play

The company’s business has been impacted by lower gaming and advertising sales. Specifically, its brand advertising business has remained sluggish because of the lower spending levels in China. In addition, the company is redefining its business strategy for Changyou, which will remain an overhang in the near term despite the benefits in the long run.

Furthermore, the company has been cutting down its spending levels, which makes market share gain more difficult due to stiffening competition from peers. These apart, in the past few months, Sohu got entangled in some lawsuits. Per media reports, Sohu was sued by rival Baidu (NASDAQ:BIDU) on allegations of maligning its popular food delivery service, Waimai.

Nonetheless Sohu can get some respite through strong traffic growth in search and mobile businesses. The company expects strength in Sogou to continue going ahead. Sogou is likely to benefit from increased investment in its search division.

For the third quarter of 2016, Sohu expects revenues in a range of $400 million–$430 million. Sales in brand advertising and online games are projected to be lower than the year-ago quarter while that from Sogou is expected to increase. The company expects non-GAAP loss per share to be between $2.35 and $2.60 in the to-be-reported quarter.

Earnings Whispers

Our proven model does not conclusively show that Sohu is likely to beat the Zacks Consensus Estimate in the third quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for Sohu is -45.12%. This is because the Most Accurate estimate of a loss of $2.38 compares unfavorably with the Zacks Consensus Estimate of a loss of $1.64.

Zacks Rank: Though Sohu’s Zacks Rank #3 increases the predictive power of ESP, we also need to have a positive ESP to be confident of an earnings surprise call.

Stocks to Consider

Here are a few companies which, according to our model, have the right combination of elements to post an earnings beat this quarter:

Amazon.com Inc. (NASDAQ:AMZN) has an Earnings ESP of +6.98% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Entergy Corporation (NYSE:ETR) has an Earnings ESP of +11.64% and a Zacks Rank #2.

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