Sohu reported a return to profit in the fourth quarter of 2025, driven primarily by a one-time tax reversal at its gaming subsidiary, even as operating losses continued and revenue declined sharply from the previous quarter.
The company posted revenue of USD 142.3 million for the quarter, up 6% year-on-year (YoY) but down 21% sequentially. GAAP net income attributable to Sohu totaled USD 223.3 million, compared with a net loss a year earlier. The swing was largely due to the reversal of about USD 285 million in previously accrued withholding tax related to Changyou, its online gaming unit.
Stripping out that benefit, Sohu remained in the red at the operating level. The company moved from a GAAP operating profit in the third quarter to a GAAP operating loss in the fourth, as lower revenue and weaker margins more than offset cost controls. Management also guided for another net loss in the first quarter of 2026.
“Our non-GAAP bottomline performance, excluding the impact of the Changyou withholding income tax reversal, came in at the high end of our prior guidance,” CEO Charles Zhang said on the February 9 earnings call, characterizing the profit as an accounting outcome rather than a step change in underlying operations.
The quarter again highlighted the split between Sohu’s two main businesses: Changyou continued to generate operating profit, while the media platform remained persistently unprofitable.
On a non-GAAP basis, the media business generated about USD 21 million in revenue during the quarter and recorded an operating loss of roughly USD 72 million, largely unchanged from a year earlier. Changyou, by contrast, posted USD 120.4 million in revenue and an operating profit of USD 45 million.
Management said Sohu will continue investing in engagement and monetization on the media side through events, live broadcasts, and customized advertising formats. “We continue to improve our products and algorithms to address user needs and enhance their experiences across different scenarios,” Zhang said.
Even so, profitability in marketing services remained constrained. Gross margin in the segment was 6% for the quarter, flat from a year earlier and lower than the prior quarter, underscoring the difficulty of translating advertising growth into earnings.
The games business delivered mixed results. Online game revenue rose 10% YoY in the fourth quarter but fell 26% sequentially, following a strong third quarter that benefited from the launch of Tian Long Ba Bu (TLBB) Return and more aggressive in-game promotions.
“With fewer launches of the in-game promotional activities for TLBB PC and a net decline of our new PC game TLBB Return, online game revenues decreased on a sequential basis,” Zhang said.
User trends were uneven across the portfolio. PC games saw higher YoY activity, supported by updates to the Tian Long Ba Bu franchise. Mobile games, however, continued to lose users and paying accounts compared with last year, reflecting the gradual decline of older titles.
Looking ahead, visibility remains limited. The company does not plan to launch any new games in the first quarter of 2026, leaving performance dependent on content updates and live operations for existing titles.
“As we will have no new game launching in the first quarter, the level of the revenue depends on the existing games’ performance,” said Yaobin Wang, president of Changyou.
Advertising showed a short-term rebound. Marketing services revenue rose about 25% sequentially in the fourth quarter and exceeded prior guidance, supported by branded events and customized campaigns. Management attributed the improvement to differentiated formats rather than a broad-based recovery in brand spending.
That momentum is not expected to continue. For the first quarter of 2026, Sohu guided marketing services revenue of USD 10–11 million, implying a steep sequential decline.
Zhang attributed the drop primarily to seasonality. “It’s mainly due to the seasonality because this year, [the Lunar New Year] is kind of late,” he said, adding that advertisers typically resume campaigns only after the holiday period.
The guidance highlights how quickly advertising revenue can reverse, particularly in a low-margin segment that remains sensitive to timing and demand conditions.
Sohu ended the year with about USD 1.2 billion in cash, short-term investments, and long-term time deposits. Long-term tax liabilities declined sharply following the withholding tax reversal, strengthening the balance sheet. The company also continued to repurchase shares during the quarter.
At the same time, ongoing operating losses and guidance for another quarterly loss reinforce Sohu’s dependence on its gaming business and balance sheet to offset weakness elsewhere.
Overall, the results followed a familiar pattern. Headline profitability was driven by a one-off accounting adjustment, while underlying performance remained uneven. Games continued to generate profit, though revenue remained closely tied to launch timing and promotional cycles, and the media platform showed little progress toward sustainable profitability.
The quarter did not signal a clear deterioration in the business, but it also did little to resolve the central question facing Sohu: whether it can move beyond episodic gains and accounting effects to deliver more stable, repeatable earnings.