Sohu (SOHU) Q3 2026 earnings review
Sohu's PC games hold steady, but its media losses widen
Sohu's older computer games held their players after last year's launch boom, but its media portal still drains the group's profit. Total revenue fell 26% from a year ago to $133 million as the gaming unit lapped the release of its Tian Long Ba Bu: Return title, and the Chinese internet group swung back to a $15 million net loss. Chief executive Dr. Charles Zhang said advertising sales reached the top end of the company's plan, yet the fourth-quarter outlook points to a wider net loss.
| Online game revenue | $113.9M -30% from a year ago (-2% from last quarter) |
|---|---|
| Marketing services revenue | $14.9M +10% from a year ago (-0.2% gross margin) |
| Net loss, excluding one-offs | -$14.5M +$0.5M profit last quarter |
| Q4 revenue and loss outlook | New Ads down 18–24% YoY; net loss $17–27M |
⚖️ Verdict: 🔴 Bearish
The story got worse because the nascent advertising recovery reversed in the fourth-quarter plan and earned nothing after direct costs. Advertising revenue rose 10% this quarter, but the cost of delivering those ads rose faster and left a negative gross margin, while the fourth-quarter plan has ad sales dropping about 21% from a year ago by our math. On the brighter side, computer game paying accounts rose from last quarter and the gaming outlook steadies.
The question now is whether Sohu will curb its media losses or return more of its $1.15 billion cash pile once the current share buyback finishes. Either management cuts portal spending and authorises a new buyback after the last $16 million runs out, or the media business keeps burning every dollar the game studio earns. The next two quarterly reports will show whether the board extends cash returns and trims non-game costs.
🐂 Bull Case
PC Games Held Steady Past Launch Spike
Changyou, Sohu's online gaming unit, makes role-playing games led by the Tian Long Ba Bu (TLBB) series. Last year's third quarter included the launch of TLBB: Return, which created a high comparison base. Online game sales fell 30% from a year ago to $113.9 million, which the release said was "mainly due to a natural decline from a high comparison base driven by content updates released for TLBB PC and the launch of TLBB: Return in the third quarter of 2025".
Sequential numbers show the player base held up. Game revenue slipped only 2% from the second quarter, and active paying accounts on personal computers rose 4% from last quarter to 1.0 million while monthly active accounts stayed at 2.6 million. The fourth-quarter plan calls for $111 million to $121 million in game sales, which rises 1.9% at the middle of the range from this quarter by our math.
What to watch: fourth-quarter PC active paying accounts in the next release. Another sequential gain would show that expansion packs can keep PC revenue above $110 million a quarter without a new game launch.
Buybacks Cut Share Count Nearly Ten Percent
The Chinese internet group has been buying back its American depositary shares (ADSs, the US-traded shares) under a $150 million programme. Because the board removed the programme's November expiration date in August, the company kept buying through the autumn. By November 5, it had repurchased 10.1 million shares for $134 million, spending about $10 million on 0.7 million shares over the last three months by our math.
Those purchases lowered the diluted share count by 9.9% from a year ago, to 24.8 million shares from 27.5 million. Only $16 million remains under the current $150 million cap, which will run out in about five months at the recent pace.
What to watch: a board decision on a new buyback authorisation once the remaining $16 million is spent. Stopping the programme after the current cap would leave shareholders with no cash return from the $1.15 billion cash pile.
🐻 Bear Case
Ad Recovery Vanishes in Fourth-Quarter Plan
Marketing services, the brand advertising business on Sohu's news and video portals, grew 9.5% from a year ago to $14.9 million. Chairman and chief executive Dr. Charles Zhang said the unit "hit the high end of our guidance" and pointed to "innovative and customized marketing solutions to unlock monetization potential". After years of shrinking ad sales, management had framed this quarter as a return to growth.
Two facts in the financial tables undercut that framing. First, the cost of marketing services rose 23% from a year ago to $14.9 million, so the ad business lost money at the gross level, with gross margin falling 10.7 percentage points by our math to -0.2%. Second, the fourth-quarter outlook projects ad sales of $13 million to $14 million, a drop of 18% to 24% from a year ago.
Because custom events cost more to stage than standard banner ads, bringing in extra ad dollars did not bring in any gross profit. And because the fourth-quarter plan returns to a 21% annual drop at the middle of the range, the third-quarter gain was only a bounce against an easy year-ago comparison.
What to watch: fourth-quarter cost of marketing services against the $13 million to $14 million revenue plan. If costs stay near $15 million while revenue drops, the ad unit will post a multi-million-dollar gross loss before overhead.
Media Losses Drain Game Profits Every Quarter
Sohu combines a profitable gaming subsidiary, Changyou, with a loss-making media portal and corporate headquarters. In the third quarter, Changyou earned $59 million in operating profit excluding one-offs, helped by "a decrease in salary and benefits expenses, as well as a decrease in marketing and promotional spending for our online games". Even so, the whole company posted an operating loss excluding one-offs of $18.1 million.
- Non-game operating loss: $77.1 million by our math, widened from $74.0 million last quarter
- Product development expense: $63.6 million, up 13.5 percentage points of revenue from a year ago to 47.8%
- Sales and marketing expense: $43.7 million, up 5.2 percentage points of revenue from a year ago to 32.8%
- Fourth-quarter net loss outlook: $17 million to $27 million, worse than this quarter's $14.5 million loss
That matters because the media and corporate loss eats up more than all of the gaming unit's profit unless game revenue spikes on a major launch. While Changyou cut its operating expenses by 23% from a year ago to $42 million, non-game spending rose.
What to watch: the gap between Changyou's operating profit and the group's operating loss in the fourth quarter. The net loss outlook of $17 million to $27 million implies the non-game loss will top $75 million again.
Mobile Players Keep Leaving Older Games
While PC games held their audience, Changyou's mobile games kept shrinking. Monthly active user accounts on mobile fell 24% from a year ago and 16% from last quarter to 1.4 million. Active paying accounts on mobile dropped 25% from a year ago and 4% from last quarter to 0.2 million, which the company blamed on "the natural decline of Changyou’s older games".
Mobile paying accounts have fallen by athird since early 2025, leaving the gaming unit dependent on about 1.0 million paying PC players who spend roughly $95 a quarter each by our math. The release gave no launch dates for new mobile titles to replace the departing players.
What to watch: mobile monthly active user accounts in the fourth quarter. A drop below 1.2 million would show that content updates are failing to slow player departures on phones.
Risks this quarter didn't answer
Three standing concerns received no numbers or updates in the third-quarter earnings release.
- Media platform user numbers: Zhang spoke of "fostering genuine connections among users and boosting active user interactions across multiple verticals", but Sohu gave no user counts or revenue figures for Sohu Video or Sohu News.
- New game release dates: the release did not mention when any new mobile or PC titles will launch to reduce reliance on the aging TLBB franchise.
- Cash access and holding structure: management gave no plan for returning cash after the $150 million buyback finishes, leaving $1.15 billion parked inside the company.
👓 Other Themes
Missing Tax Benefit Exposed Underlying Loss
Sohu reported a net profit excluding one-offs of $0.5 million last quarter only because it reversed $13 million of previously recorded tax expenses for uncertain tax positions. Without that tax benefit, last quarter's continuing net result was a $12.5 million loss by our math. In the third quarter, income tax returned to a normal expense of $4.5 million, bringing the reported net loss to $14.5 million.
💲 Other KPIs
Receipts in advance and deferred revenue — cash players and advertisers have paid for virtual items and ads not yet delivered — rose 4.8% from a year ago and $1.5 million from last quarter. After staying flat near $54.9 million in the second quarter, the higher balance supports the fourth-quarter game revenue plan.
Total cash and bank deposits slipped by $6.9 million from the second quarter's $1,161.7 million and by $26.5 million since the end of 2025, by our math. The company carries no debt, and interest income plus other operating gains brought in $8.6 million during the quarter, partly offsetting the operating loss and share buybacks.
🔮 Guidance
New. The plan calls for game revenue between an 8% drop and a 1% gain from a year ago, or a 3.6% decline at the middle of the range by our math, and a 1.9% rise from this quarter. Last year's fourth quarter is a normal comparison after the third-quarter launch spike. The gaming unit has beaten the middle of its plan for seven straight quarters; if the 4.4% average beat over the last four quarters holds, game sales would reach $121.1 million by our math.
New. Management expects ad sales to fall 18% to 24% from a year ago and 6% to 13% from this quarter. That reverses the third quarter's 9.5% annual growth and puts fourth-quarter ad sales below the $17.0 million recorded a year ago, even though the company beat the top of its ad range in three of the last four quarters.
New. Both GAAP and non-GAAP net losses are projected to widen from this quarter's $14.5 million loss excluding one-offs to $22 million at the middle of the range. The wider loss follows the planned drop in fourth-quarter ad revenue and typical year-end promotional spending, though Sohu has finished near or better than the top end of its loss plan for seven straight quarters.
❓ Key Questions
Why did ad costs equal ad revenue this quarter?
Cost of marketing services rose 23% from a year ago to $14.9 million, wiping out all gross profit on $14.9 million of ad sales. Did custom brand events drive that cost jump, and will ad gross margin turn negative in the fourth quarter?
What happens when the $150 million buyback finishes?
Sohu has spent $134 million of its $150 million share repurchase cap, leaving $16 million while holding $1.15 billion in cash and deposits. Will the board authorise a new buyback or dividend once the remaining allowance is used?
How many users visit Sohu's social media apps?
The non-game business lost $77.1 million at the operating level this quarter by our math while building social features. What are the active user counts and revenue targets for Sohu Video and Sohu News?
When will Changyou launch its next mobile game?
Mobile active paying accounts have fallen to 0.2 million and mobile monthly active accounts dropped 16% from last quarter to 1.4 million. Which new titles are scheduled for release over the next two quarters?