Sogou beats by $0.02, misses on revs; guides Q3 revs below consensus
- Reports Q2 (Jun) earnings of $0.09 per share, excluding non-recurring items, $0.02 better than the Capital IQ Consensus of $0.07; revenues rose 42.9% year/year to $301.42 mln vs the $304.46 mln Capital IQ Consensus.
- Recent Developments
- Chinese regulatory authorities, including the Beijing Office of the Cyberspace Administration of China and the Beijing Administration for Industry and Commerce, initiated an investigation of Sogou after certain advertisements involving content that the authorities believed insulted a national hero were displayed on its platform. The advertisements were developed and reviewed by Douyin, a Chinese short-form video platform, and displayed on Sogou Search in June 2018. Following the investigation, the regulatory authorities instructed Sogou to amend its advertising practices. Sogou fully cooperated with the authorities in their investigation and the Company has taken steps to revise its advertising policies and audit procedures to ensure compliance with relevant regulations. In connection with implementing such remedial measures, Sogou suspended part of its advertising business for ten days commencing July 1, 2018. This is expected to result in a one-time reduction in revenues in the third quarter of 2018.
- Sogou recently adjusted its smart hardware strategy to better leverage the Company's AI capabilities to improve product competitiveness. The adjustment followed the recent launch of two translation devices that were well-received in the market due to Sogou's industry-leading translation technologies. As a result of the change in strategy, Sogou will phase out hardware products that are not AI-enabled, such as some legacy models of Teemo Smart Watch, and transition to products that integrate the Company's leading AI technologies. Sogou expects that this will result in a reduction in hardware revenues in the second half of 2018.
- Co issues downside guidance for Q3, sees Q3 revs of $275-285 mln vs. $352.35 mln Capital IQ Consensus Estimate. The guidance for the third quarter takes into account the one-time impact of the regulatory investigation, lower hardware sales following the adjustment of the smart hardware strategy, and the depreciation of the RMB.
