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Brean Capital Reviews Changyou, Sohu Earnings

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Changyou.Com Ltd (NASDAQ: CYOU) and Sohu.com Inc (NASDAQ: SOHU) both reported quarterly results on Monday after market close. On Tuesday, Brean Capital's China Consumer and Internet analyst Fawne Jiang opined on both earnings reports.

Changyou.com: Mobile On Track, PC Lackluster

According to Jiang, Changyou reported "solid" first quarter results, but its second quarter guidance was "soft" with both revenue growth and margin outlook falling short of expectations.

Jiang said the company's ramp of mobile games is seeing initial success but there are still "moving parts" associated with Changyou's revenue and earnings growth as the company is still in the early stages of mobile gaming. Moreover, revenue from PC games continued to decline as they have entered a mature stage of growth.

The analyst also noted that the company will continue to execute "stringent" cost control measures while exploring new business opportunities on its mobile platform. As such, the company may see further improvements in its margin in the near-term.

Bottom line, Jiang suggested investors "remain on the sidelines" until the company can offer a better visibility on its portfolio performance, growth outlook and margin rebound.

Shares remain Hold rated with no assigned price target.

Sohu.com: Sogou Robust, Video Still Challenging

Jiang noted that Sohu's first quarter results were above expectations, but like Changyou, the company's second quarter revenue and earnings guidance fell short of expectations.

The analyst said that Sogou continues to deliver "robust" growth with improving leverage, Sohu as a whole is still facing "significant" challenges in its game business, media portal business and video business. Moreover, Jiang stated that intense competition in online video and escalated content costs will result in continued losses within Sohu's video division.

Moving forward, Sogou will continue to expand its cooperation with Tencent, particularly with Weixin, to further differentiate its market position and improve its competitiveness. However, the analyst added that with improved profitability, Sogou will continue to increase its investments in mobile that could lead to some fluctuation on profitability in 2015.

Bottom line, Sohu is likely to see continued margin pressure in the near term due to continued investments. As such, investors are urged to "remain on the sidelines" until the company offers an improved visibility and outlook for profit.

Shares remain Hold rated with no assigned price target.

Latest Ratings for SOHU

DateFirmActionFromTo
Oct 2017DowngradesBuyHold
Aug 2017UpgradesUnderweightEqual-Weight
Apr 2017Initiates Coverage OnHold

View More Analyst Ratings for SOHU
View the Latest Analyst Ratings

Posted-In: Brean Capital Changyou.com China China Media Fawne Jiang mobile gamingAnalyst Color Analyst Ratings

 

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