Sohu, Changyou up slightly after mixed results, light sales guidance


Sohu (SOHU +1%) expects Q3 revenue of $427M-$442M and EPS of -$0.75 to -$0.85 vs. a consensus of $451.4M and -$0.97. Subsidiary Changyou (CYOU +0.9%) expects Q3 revenue of $186M-$192M and EPS of -$0.11 to $0.00 vs. a consensus of $200.1M and -$0.04.

While respectively up 275% and 86% Y/Y, Changyou's sales/marketing and R&D spend fell 14% and 30% Q/Q in Q2 to $69.4M and $49M. That helped both Changyou and Sohu beat EPS estimates in spite of revenue misses. Sohu's total opex fell 8% Q/Q and rose 67% Y/Y to $267M.

Changyou notes it "scaled back its advertising and promotion of its PC-based and mobile-based software applications" in Q2. The R&D spend decline is attributed to lower expenses related to employee incentive plans.

Each company saw declining gross margins: Changyou's GM fell to 76% from 78% in Q1 and 83% a year ago, and Sohu's fell to 58% from 62% in Q1 and 66% a year ago. In addition to Changyou, Sohu's GM was dinged by lower advertising margins caused by higher content/bandwidth costs.

While Changyou's gaming revenue fell 9% Y/Y to $154M, Sohu's search/other revenue grew 84% Y/Y to $85M, and its brand ad revenue grew 33% Y/Y to $133M.

Revenue related to the Sogou search engine (largely search/other) rose 30% Q/Q and 82% Y/Y to $91M. Average monthly active accounts for Changyou's games fell 14% Q/Q and 33% Y/Y to 24M. Changyou's platform channel accounts grew 5% Q/Q and 196% Y/Y to 252M.

Q2 results: Sohu, Changyou

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