Sohu’s first-quarter results offered a clear verdict on the state of its two core businesses: while the company’s online game division continues to deliver steady revenue and high margins, its media platform and marketing services are falling further behind.
The Beijing-based firm reported total revenues of USD 136 million for Q1 2025, down 3% year-on-year (YoY) but up 1% sequentially. That topline figure masks a widening gap between its performance in online gaming versus online media. Marketing services revenue, previously categorized as brand advertising, fell 15% YoY to just USD 14 million, its weakest level in years. Meanwhile, online game revenue held steady at USD 117 million, bolstered by fresh content updates and sustained traction from PC-based titles.
The disparity highlights an increasingly familiar challenge for legacy internet platforms: how to maintain relevance in an ecosystem now dominated by content-commerce hybrids like ByteDance’s Douyin, Xiaohongshu, and Tencent’s WeChat ad network. According to Grand View Research, China’s social commerce market is projected to grow at a 33.3% compound annual growth rate (CAGR) from 2023, reaching USD 4.5 billion by 2030. Sohu’s media arm, however, appears increasingly sidelined, unable to tap into the blend of community, video, and monetization that drives engagement on competing platforms.
CEO Charles Zhang pointed to improvements in social features and content distribution on Sohu’s platform, suggesting that the company remains focused on increasing user activity and monetization. “Through various unique events, we were able to engage with more users, while promoting vigorous social interactions and distributions on our platform and generating massive premium content at the same time,” Zhang said. “Leveraging our competitive advantage as a mainstream media platform and our unique IPs, we proactively explored greater monetization opportunities.”
But the numbers paint a starker picture. While the gross margin of marketing services improved to 10%, up from 1% a year ago, it still reflects limited operational efficiency. With the segment contributing just over 10% of overall revenue, its commercial importance continues to shrink.
In contrast, Sohu’s online game business, operated through its Changyou subsidiary, remains a profit engine. The unit posted a gross margin of 85%, backed by stable user metrics for its flagship PC titles. Average monthly active users (MAU) for PC games rose 3% YoY to 2.3 million. While mobile MAU declined 22%, paying accounts for mobile games climbed 6%, driven by newer titles like New Westward Journey (not to be confused with NetEase’s similarly titled franchise) and its international version, Journey Renewed: Fate Fantasy.
That performance mirrors broader momentum in China’s gaming sector. NetEase recently exceeded earnings expectations on the strength of both new and established games. Tencent, likewise, reported 24% growth in domestic gaming and double-digit gains in ad services powered by algorithmic optimization. Supporting this trend, gaming monitor sales in China surged in late 2024, propelled in part by the highly anticipated release of Black Myth: Wukong, according to TrendForce.
Despite these tailwinds, Sohu remains a niche player. Its gaming revenues, though stable, are modest compared to its peers. And signs of attrition in its mobile game audience, following peak engagement in 2024, suggest challenges in sustaining momentum.
On the earnings front, Sohu reported a GAAP net income of USD 182 million—a rare profit, driven entirely by a one-time USD 199 million tax reversal related to a prior US tax provision. Excluding that, the company posted a non-GAAP net loss of USD 16 million, consistent with a business in strategic transition.
The company has managed to rein in costs. GAAP operating expenses declined 9% YoY, narrowing the operating loss to USD 19 million. As of March 31, Sohu held approximately USD 1.2 billion in cash, short-term investments, and long-term deposits. Under its share repurchase program, it has spent USD 67 million to buy back depository shares, reflecting management’s confidence in long-term value.
Still, the outlook is tepid. For the next quarter, Sohu projects game revenue of USD 96–106 million, potentially down as much as 35% YoY. Marketing services revenue is expected to inch up to USD 16–17 million, though it remains well below historical levels. The company anticipates a net loss on both a GAAP and non-GAAP basis of between USD 20–30 million.
The broader market has taken note. While shares of NetEase and Tencent rallied on the back of strong quarterly performance, Sohu’s stock showed little movement following its earnings release, suggesting muted investor response.
If there’s a lesson in this quarter’s numbers, it’s that gaming remains Sohu’s lifeline, but not its launchpad. Without a sharper strategy to reinvigorate its media platform or tap into emerging ad formats, Sohu risks becoming a two-speed operation: profitable in niche gaming, stagnant everywhere else.