On Monday, Citi has increased its price target for Sohu.com (NASDAQ:SOHU) shares to $18 from $17, reaffirming a Buy rating on the stock. The adjustment follows Sohu's first quarter 2024 financial results, which showed revenues matching expectations and a net loss that was smaller than anticipated. The company's guidance for the second quarter of 2024 presents a mixed outlook, with brand advertising revenues expected to grow by 12-24% quarter-over-quarter. However, a more substantial increase is anticipated in gaming revenues, projected at 13-21% quarter-over-quarter growth, buoyed by the strong performance of newly launched games, though this is somewhat tempered by a slight decrease in older games.
The anticipated wider adjusted net loss for the upcoming quarter is attributed to increased marketing expenditures for the promotion of new game launches. Management has indicated that the overall macroeconomic environment remains subdued, but specific sectors such as electric vehicles (EV) and fast-moving consumer goods (FMCG) are showing a demand increase in advertising spending.
Despite these challenges, management also commented on the slower-than-expected pace of the company's stock buyback program, which is constrained by daily trading volumes. Following a revision of estimates, Citi's sum-of-the-parts (SOTP) valuation has been adjusted to $18, looking ahead to the company's 2025 estimates. The firm maintains a Buy rating, citing Sohu's valuation below cash and the support from the ongoing buyback program.
InvestingPro Insights
As Sohu.com (NASDAQ:SOHU) navigates through a mixed financial outlook, analysts and investors are closely monitoring its performance metrics and market valuation. Based on recent data from InvestingPro, Sohu holds a market capitalization of $387.26 million, with a notably low Price / Book multiple of 0.37 as of the last twelve months ending Q4 2023, signaling that the stock may be undervalued relative to its assets. This aligns with Citi's perspective on the company's valuation below cash.
The company's impressive gross profit margin stands at 75.73%, showcasing its ability to maintain profitability on its products and services despite revenue contraction. However, it's important to note that Sohu's net income is expected to drop this year, with analysts not anticipating profitability within the current financial year. These expectations may be factored into the company's strategic decisions, including increased marketing expenditures to promote new game launches. Despite these challenges, Sohu's stock has seen a strong return over the last three months, with a price total return of 27.46%.
For investors seeking a more in-depth analysis, there are additional InvestingPro Tips available, including insights on Sohu's cash position relative to debt, valuation implications on free cash flow yield, and liquidity factors such as the coverage of short term obligations. With these insights, investors can better understand the company's financial health and future prospects. Those interested in further analysis can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to a total of 12 InvestingPro Tips for Sohu.com.
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