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Sohu.com Stock Hits New Highs After Earnings

Growth is back in style at Sohu.com (NASDAQ: SOHU), and Wall Street's loving it. The Chinese dot-com pioneer posted a return to year-over-year top-line growth on Monday, and the market is responding by rewarding the shares with a new 52-week high.

Sohu's revenue clocked in at $461.2 million for its second quarter, 9.8% higher than its top-line results during the same period a year earlier. It may seem like modest growth, but the report follows six consecutive quarters of declining revenue. Sohu's top-line showing is also a sequential uptick, but that's not much of a feat: Sohu has always posted higher revenue during the second quarter when pitted against the first quarter. 

Image source: Sohu.com.

Rising above

Sohu's report was a better-than-expected performance across most of Sohu's businesses. The online advertising, search, and gaming specialist was calling for just $390 million to $420 million in revenue back in late April. It would've been a welcome return to growth if it had merely landed just above the high end of that range, but Sohu wound up barreling through its forecast by topping $461 million in revenue.  

The double-digit drop it was targeting for its original brand advertising business played out as a 24% drop, with Sohu once again blaming the slide on a decrease in its video and real estate advertising categories. The decline it was eyeing for gaming -- essentially its Changyou (NASDAQ: CYOU)-led online gaming business -- turned in a surprising 23% increase. Sohu and Changyou credit the successful launch of Legacy TLBB the spike in revenue. The mobile game was launched in mid-May, making the top-line surge that much more impressive as it was only out during the second half of the quarter.

Finally, we get to Sogou, China's third most popular search engine. Sogou's revenue rose 20% to $211 million, now accounting for nearly 46% of the revenue mix at Sohu. Growth in mobile traffic and improving monetization have been the big drivers at Sogou in recent quarters. The refreshing reversal at Changyou may be the biggest reason for Sohu landing well ahead of its earlier guidance, but it's the thriving growth at Sogou that has kept the stock near its 52-week highs before Monday's results sent it even higher. 

The news wasn't as encouraging on the bottom line where Sohu posted an adjusted deficit of $1.85 a share. The results were in line with its earlier guidance of an adjusted loss per share between $1.80 and $2.05. Sohu has now posted a loss in 13 of the past 14 quarters.

Continuing growth at Sogou and the hot start to Legacy TLBB naturally find Sohu in a cheery mood as it looks ahead to the current quarter. Sohu's modeling $480 million to $510 million in revenue for the third quarter, which at the midpoint would be its second biggest quarter ever. Sohu sees a 28% to 37% decline in brand advertising more than offset by a 39% to 45% surge at Sogou and a 22% to 32% increase in its online gaming business. It sees another loss, naturally, calling for a loss between $1 and $1.25 a share for the third quarter -- but the stock hitting new 52-week highs is proof that Sohu doesn't need to be perfect to be appreciated. 

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Sohu.com. The Motley Fool has a disclosure policy.