Sohu.com Posts Wider Q4 Loss as Revenue Falls

(Beijing) -- Sohu.com Inc. reported a wider quarterly loss as brand advertising and online game revenue continued to decline as the popular Chinese web portal refocuses its business.

For the fourth quarter ended Dec. 31, Sohu said it had a non-GAAP loss of $69 million, compared with a loss the year earlier of $13 million. Operating revenue declined by 12% to $412 million, Sohu said Tuesday.

That brought the 2016 loss for the Beijing-based company to $219 million, compared with a loss of $4 million the previous year. Revenue for 2016 dropped by 15% to $1.65 billion.

Sohu Chief Executive Officer and Chairman Charles Zhang blamed the sluggish economy, intensified completion and tightening regulation of the search industry. Sohu said video advertising revenue declined while production costs increased. Online game revenue fell because of lower popularity for older games and the 2015 sale of the web-game unit Seventh Avenue.

As web news portals lose popularity to mobile platforms, traditional web portal operators Sohu, NetEase Inc. and Sina Corp. have all been seeking ways to transform their businesses. NetEase is aiming to make online gaming its pillar while exploring e-commerce. Sina is focusing on the commercialization of Weibo, its micro-blog business.

At Sohu, Zhang has bet on online video. But as intense competition from rivals such as iQiyi.com, Youku Tudou and Tentcent Holdings and rising copyright prices drive up content cost, Sohu has found it hard to remain a first-tier player. Zhang recently defended Sohu Video’s strategy as a subscription-based platform and said he expected the segment to profit in 2019.

“We made original (video) production one of our top priorities...and the exclusive content helped us rapidly expand our subscriber base,” said Zhang in the press release. Sohu also made artificial intelligence another long-term strategic direction, he said.

Sohu’s search engine unit Sogou, the other piece of Zhang’s refocusing strategy, provided the only highlight in the 2016 results. Sogou benefited from 70% growth in mobile search traffic. But traffic acquisition costs rose, so the gross margin for the search business fell 4% year-over-year. Even so, mobile search traffic and revenue for Sogou continued to outpace the industry, Zhang said.

At the same time, Sohu predicted more bad financial news for the first quarter. Sohu said it expects a loss of $60 million to $70 million in the current three months with revenue in the range of $345 million to $375 million.

Brand advertising revenue in the first quarter will probably drop by 32% to 40%, and online gaming revenue, by 12% to 22%. Search-engine revenue may fall by as much as 2% or rise by as much as 5%, Sohu said.

NetEase last week reported that unaudited net profit reached 3.7 billion yuan ($530.5 million) in the fourth quarter, up from 2.2 billion a year earlier. The company’s net revenue for the fourth quarter rose 53% year-on-year to 12 billion yuan, mainly boosted by mobile games.

Sina is scheduled to release financial results Wednesday.

Contact reporter Han Wei (weihan@caixin.com)