Online media company Sohu.com Inc. (SOHU) on Monday reported a drop in net profit available to shareholders from last year, as net income attributable to the company's non-controlling interest in online game maker Changyou.com (CYOU) increased from the year-ago period. Total revenues grew 13% year-on-year. Looking ahead, Sohu issued its fourth-quarter earnings projection within analysts' estimated range.
Net income attributable to Sohu.com for the third quarter decreased to $37.35 million or $0.88 per share from $40.26 million or $1.02 per share last year.
The Beijing, China-based company's net income for the quarter increased to $47.08 million from $40.24 million in the previous year. Net income attributable to non-controlling interest in Changyou was $9.73 million, compared to a net loss attributable to non-controlling interest of $22 thousand in the prior year.
Changyou's massively multi-player online role-playing games, or MMORPG, business began operations as a business unit within Sohu.com Inc. in 2003. Changyou was carved out as a
separate, stand-alone company in December 2007.
On a non-GAAP basis, excluding share-based compensation expense, quarterly net income attributable to the company was $40.92 million or $0.96 per share, lower than $42.82 million or $1.08 per share reported in the previous year.
On average, 11 analysts polled by Thomson Reuters expected the company to report earnings of $0.89 per share. Analysts' estimates typically exclude special items.
The company had previously projected third-quarter adjusted net income to be in the range of $50.0 million and $52.0 million. After deducting adjusted share of net income to non-controlling interest in Changyou, Sohu expected net income to be between $36.0 million and $38.0 million, and earnings per share to be between $0.92 and $0.97.
Total revenues grew to $136.59 million from $120.68 million in the prior-year quarter. Analysts expected revenues of $136.36 million. Sohu's revenue forecast for the quarter ranged between $133.5 million and $137.5 million.
Advertising revenues for the quarter decreased to $50.79 million from $51.14 million in the prior year. Revenue from Brand advertising slipped to $48.50 million from $49.40 million, while Sponsored search generated $2.29 million, up from last year's $1.74 million.
Third-quarter revenue from the Online games segment increased to $68.68 million from $54.60 million reported for the year-ago quarter. Revenue from Game operations in the latest period advanced 29% to $66.9 million, mainly due to increased popularity of Changyou's flagship game, Tian Long Ba Bu or TLBB. Wireless and others generated $17.11 million in revenues compared to $14.94 million last year.
Gross margin was 76% in the third quarter of 2009, compared to 74% in the year-ago period. Non-GAAP operating profit margin was 42% in the just concluded period, compared to 38% in the third quarter of 2008.
Total cost of revenues advanced to $33.19 million from $31.91 million. Total operating expenses increased to $50.80 million from $45.00 million in the prior year, reflecting increases in salaries and compensation expenses due to a rise in headcount and an increase in professional fees.
Aggregate registered accounts for Changyou's games as of September 30, 2009 increased 46% from last year to 75.1 million, whereas Aggregate active paying accounts, or APA, for Changyou's games increased 20% year-on-year to 2.4 million. Aggregate peak concurrent users increased 18% to approximately 910,000. Average revenue per active paying account, or ARPU, increased 7% year-on-year to RMB190.
For the second quarter, the company's net income attributable to shareholders declined to $33.54 million or $0.79 per share from $40.19 million or $1.02 per share in the year-ago quarter. Revenues for the quarter grew to $127.09 million from $101.98 million generated last year.
For the first three quarters of the fiscal, net income attributable to the company rose to $115.48 million or $2.82 per share from $102.01 million or $2.61 per share in the prior year. Total revenues grew to $379.41 million from $307.48 million.
Commenting on the third-quarter results, Dr. Charles Zhang, Chairman and CEO of Sohu.com, said, "This quarter marks another achievement of record total revenues as we continue successes in both our portal and online game businesses. Our investments in branding, online content and advanced technologies are attracting new users and advertisers and are helping us to deliver on our long-term strategy to build China's leading mainstream media platform."
Sohu noted that it continued to maintain a debt-free balance sheet and a strong cash position of $596.4 million as of September 30, 2009.
Looking ahead to the fourth quarter, Sohu estimates non-GAAP net income for the fourth quarter of 2009, before deducting the share of non-GAAP net income pertaining to the Non-Controlling Interest in Changyou, to be between $49.5 million to $51.5 million. After deducting the share of non-GAAP net income pertaining to the non-Controlling Interest in Changyou, the company sees non-GAAP net income in the range of $35.0 million to $37.0 million. Non-GAAP earnings per share for the fourth quarter are projected to be between $0.90 and $0.95.
Analysts expect the company to earn $0.99 per share for the fourth quarter, with estimates in the range of $0.89-$1.10 per share.
Sohu estimates total revenues for the fourth quarter to be between $134.5 million and $138.5 million, with advertising revenues of $48.0 million to $50.0 million. Wall Street looks for quarterly revenues of $134.53 million-$140.00 million with a consensus of $140.77 million.
Meanwhile, Changyou.com said Monday that its third-quarter net income increased to $37.79 million from $32.08 million in the year-ago period. Net income per ADS for the quarter improved to $0.71 from $0.68 posted a year earlier. Total revenues for the third quarter rose to $68.68 million from $54.60 million in the comparable period.
SOHU closed Friday's regular trade at $71.35, down $2.61 or 3.80%, on 1.17 million shares. For the past year, the stock traded in the range of $34.10-$72.29.
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