Sohu.com Q3 2023 Earnings Call Transcript

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November 13, 2023

There are 7 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After management's prepared remarks, there will be a Q and A session. Today's conference call is being recorded.

Operator

If you have any objections, you may disconnect at this time. I would now like to turn the conference over to your host for today's conference call, Hwang Zhu, Investor Relations Director of Sohu. Please go ahead.

Speaker 1

Thanks, operator. Thank you for joining us to discuss Sohu's Q3 2023 results. On the call are Chairman and Chief Executive Officer, Charles Zhang CFO, Joanna Liu and Vice President of Finance, James Stone. Also with us are Changyou's CEO, Dongwen Chen and CFO, Youbin Wang. Before management begins their prepared remarks, I would like to remind you of the commentary of our statements in connection with today's conference call.

Speaker 1

Except for the historical information contained herein, The matters discussed on this call may contain forward looking statements. These statements are based on current plans, estimates and projections, and therefore, you should not place undue reliance on them. Forward looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward looking statements. For more information about the potential risks and uncertainties, please refer to the Company's filings with the Securities and exchange commission, including the most recent annual report on Form 20 F.

Speaker 1

With that, I will now turn the call over to Charles Zhang. Charles, please proceed.

Speaker 2

Thanks, Huangpu, and thank you everyone for joining our call. In the Q3 of 2023, we continued to improve our product offering and enhance operational efficiency. Thanks to these efforts, we delivered both top and bottom line performance in line with our prior expectations. At Sohu Media Portal, we further refined our products and upgraded the user experience. At Sohu Video, with our teen engine strategy, we focused on the generation and distribution of compelling Short form content as well as live broadcasts.

Speaker 2

These efforts helped us further boost user engagement and social interactions, Same time, benefiting from our unique content marketing campaigns, we continue to explore a diverse range of monetization For Online Games, With consistent release of new content updates and operational efforts, game revenues remain stable. Before I go into more detail of our key financial results, please be reminded that the bankruptcy proceeding for Changyou's This release is related to continuing operations only. So, this includes the disposable So for this quarter for the Q3 of 2023, the total revenues were $145,000,000 down 22% year over year and 4% quarter over quarter. Brand advertising revenues $22,000,000 down 14% year over year and 8% quarter over quarter. Online game revenues were $117,000,000 down 21% year over year and 1% quarter over quarter.

Speaker 2

GAAP net loss attributable to Sohu dotcom Limited was $14,000,000 compared with a net loss of $22,000,000 in the Q3 of 2020 And a net loss of $21,000,000 in the Q2 of 2023. Non GAAP net loss attributable to sohu.comlimited It was $10,000,000 compared with a net loss of $17,000,000 in the Q3 of 2022 and a net loss of $18,000,000 in the Q2 of this year. So now let me go through our key businesses In more detail. 1st, media portal and Sohu Video. At Sohu Media Portal, we continue to upgrade our products And strengthened operational efficiency.

Speaker 2

We actively promoted the generation and social distribution of high quality content Through enhanced user engagement and interaction, both integrated cutting edge At Sohu Video, our focus remains on executing the teen strategy teen engine strategy. We further diversified Our long term long form content library and continuously promoted our unique live streamings and live streaming and short form content. We're committed to establishing a leading position in the field of knowledge And the science related live broadcasting, leveraging our distinctive IP, the Charles Physics class. And this IP has formed a multi dimensional dissemination Through live broadcasting, short videos, offline seminars, books and other means, which has driven Considerable traffic and engagement on various topics across our platforms. In addition, as a video social platform, we were Also proactively attracting broadcasters and users across various fields By refining our broadcaster ecosystem and organizing events centered on hot topics Such as the 2023 Sohu K Pop Dancing Festival and 2023 Sohu Broadcasters Conference, So user basically user conference.

Speaker 2

These live broadcasting events Enabled users to interact with each other online and offline and further enhanced their vitality And engagement on the Sohu Video platform. On the monetization side, despite The advertising budgets remained cautious. We totally followed the market trend and were developing Synergies between Sohu's product metrics and our advanced live broadcasting technology. These efforts Enabled us to execute unique high value marketing campaigns and unlock new monetization opportunities. During the quarter, we hosted traditional and innovative events such as Talk Under the Stairi Sky And the Boss 1 +1, high end dialogue.

Speaker 2

These events have been Disseminated across various social media platforms not only demonstrating our influence as a mainstream media Now turning to the online game business. Game revenues remained stable during the quarter, driven by consistent release of new content updates and robust Game Operations. Within our PC games business, we roll out promotional events for regular TLBB PC and further optimized its character development system. With TLBB Vintage, We launched a month long event during the Qixi Festival, which helped stabilize player engagement, The Chinese Valentine's Day. In our mobile game business, we introduced a new strategic plan a new strategic Clan war gameplay mode for legacy TLBB mobile.

Speaker 2

Next quarter we will launch expansion packs And the content update for the TLBB series and other titles to keep players engaged. We'll stick to our top game strategy going forward as gaming technology advances rapidly and the market Demand becomes deeper and more diversified. We will explore new ideas to better meet the players' needs, Allocate more resources to professional talent development and invest in content and technology innovation in order To bring more high quality games to the market. In terms of games Pipeline will maintain our core competitiveness in MMORPGs, while also producing card based So before I pass the call to Joanna

Speaker 3

to close

Speaker 2

our financial results in detail, We are pleased to announce that on November 11, 2023, 2 days ago, Our Board of Directors authorized a share repurchase program of up to $80,000,000 over a 2 year period. The repurchase program underscores the continued confidence we have in our long term growth prospects as well as our ongoing commitment to increasing shareholder value. So with that, I will now turn the call over to Joanna, please.

Speaker 4

Thank you, Chao. I will now walk you through the key financials of our major segments for Q3 of 2023. All the numbers on a non GAAP basis. You may find the reconciliation of non GAAP to GAAP measures on our IR website. For Sohu Media Portal, quarterly revenues were $16,000,000 compared with revenue of $80,000,000 in the same quarter last The quarterly operating loss was $33,000,000 compared with an operating loss of $39,000,000 in the same quarter last For Sohu Video, quarterly revenues were $11,000,000 compared with revenue of $60,000,000 In the same quarter last year, quarterly operating loss was $33,000,000 compared with an operating loss of $31,000,000 in the same quarter last year.

Speaker 4

For Changyou's online game business and 17,173, Quarterly revenues, dollars 180,000,000 compared with revenues, dollars 150,000,000 in the same quarter last year. Quarterly operating profit was $52,000,000 compared with the operating profit of $58,000,000 in the same quarter last year. For the Q4 of 2023, we expect Brand advertising revenues to be between $20,000,000 $23,000,000 This impacts annual decrease of 20% to 31% and a sequential decrease of 9% To a sequential increase of 4%, online game revenues to be between $106,000,000 at $116,000,000 This implies annual decrease of 4% to 13% and a sequential decrease of 1% to 9%. Non GAAP net loss attributable to sohu.com Limited to be between $10,000,000 $20,000,000 and the GAAP net loss attributable to sohu.comlimited to be between $30,000,000 $23,000,000 This forecast reflects Sohu's management's This concludes our prepared remarks. Operator, we would now like to open the call to questions.

Operator

Thank Our first question comes from the line of Thomas Chung from Jefferies. Please go ahead.

Speaker 5

Hi, good evening. Thanks management for taking my questions. My first question is relating to the advertising business. I saw our Q4 revenue guidance For brand advertising, sequential down 9% to 4% growth at the high end. So I just want to get some color from Charles, if I may know about the October and so far the performance in November.

Speaker 5

Under what situation should we expect it to be down by 9% or is that conservative guidance? And my second question is relating to AIGC. Given that Everyone, I think, talks about how AI can help to drive the conversion, the content creation. Just want to get some color from Sohu perspective, our strategies in coming quarters. And sorry, and finally, may I also Ask a quick follow-up, it's more relating to 2024 online advertising outlook.

Speaker 5

Thank you.

Speaker 2

All right. So the Q4 forecast is I think it's we just we are We are providing a range. And Q4 is quite similar to Q3. And there's nothing it's still The macroeconomic situation is really kind of bad and we're trying to have some innovative Marketing campaigns and events that attract advertisers, so that in Q4, we have About equal number of events or content activities like The Sohu Fashion Ceremony and also the Finance Conference. And also we have a few others like the K Pop Fast forward, the national contest and all these things.

Speaker 2

So I think the Q4 is similar to Q3. We're just providing a range. The AIGC, I think it's only have some incremental Improved with the application of AIGC to our content generation and it's only have now have a kind of Improvement of efficiency of content creation, but it's not so far it's not getting any It's a major impact on our business side, positive impact on business side yet. With basically like the video content, we have a better with the AI technology, we have better the titles, the words And translations and the voice to words And also for articles, we have using IGC to summarize to write the summarize Abstracts of the articles, so it's not a big deal yet.

Speaker 5

Got it. Thank you, Charles. May I also ask a very quick follow-up question is relating to How we should think about the advertising market in 2024? Any preliminary discussion? Yes, 2024, Do we have any preliminary discussion with the advertisers yet about next year spending?

Speaker 5

Thank you.

Speaker 2

Yes. I think overall the macroeconomic macroeconomy is doing Not that good. And so especially for example, there is The auto industry, which consists of a quarter of 25% of our advertising base, The marketers are more cautious now in spending Because all the across all the businesses, people are spending less because people have Consumers have limited disposal income to spend. So In this situation, the advertisers tend to Tend to center their budgets around some top tier user base, top tier platform. So with Sohu's current user base, we're not in a top tier, so that we have to have this kind of innovative Events and campaigns and others to attract the brand advertisers.

Speaker 2

So unless we have So I think the next year, 24th, things will be similar. And unless we have our Sohu News and Sohu Video have really the uptick Or the social media platform, social video, social media platform Have a major rise or explosive growth of user base. I think 2024 will be similar to 2023, but we definitely have some hope that in 2024, our social Media strategy will have some positive hope To expand rapidly.

Speaker 5

Got it. Thank you, Charles.

Operator

Thank you. We'll now move on to our next question. Our next Question comes from the line of Alicia Yap from Citigroup. Please go ahead.

Speaker 6

Hello. Thank you. Good evening, Charles, Johanna and team. Thanks for taking my questions. I have three questions.

Speaker 6

First, I wanted to follow-up is improving from what you are seeing in 3Q or about similar? Or is it no improvement and is it not getting worse in 4Q. So just any color as you compare to what you saw in 3Q would be great. So that's the first question.

Speaker 2

Well, I think in Q4, the Internet service We'll have some improvement, right? Because the Q3 is kind of a slow season for Internet services. Like Q4, that was double 11, right, in e commerce. And but Overall, the auto industry has been contracting. I mean, people are not spending because of competition and less budget Because the car sales is not as robust.

Speaker 2

So they are Coming more cautious in promoting their products or sales. Well, some industries like fast moving consumer goods industry, FMCG's industry seems have they're spending more. It's typical of economic downturn, right? People are drinking more, right? Drinking wines, consuming leisure time and Spending smaller small items, right?

Speaker 2

So that's a FMCG is only has some bright spot. Yes.

Speaker 6

I see. I see. That's very helpful. So second question is related to the games guidance for 4Q. I think I thought you mentioned there will be some expansion pack content update for TRBB series.

Speaker 6

So just wondering what's the reasons for the game's guidance to also experience sequential decline?

Speaker 3

The Update content updates in the Q4 are not major ones. So they cannot offset the natural declines from the game revenues.

Speaker 6

Can I follow-up on that one? Is that, so when you have new games launched next Sure then you would we should assume to see some sequential growth, right, in the coming quarters beyond 4Q?

Speaker 3

Yes. Typically, yes. But it also depends on the performance of the new game launched.

Speaker 6

Okay. Thank you. My last question is on your share buyback. So it is great that we are seeing this $80,000,000 buyback that newly authorized. Just assuming if we are using finish up all the $80,000,000 just wondering what's The next plan that management may have, would that be more buyback Down the road, if we finish that RMB 80,000,000 or is that will be some other things that you are thinking?

Speaker 6

Thank you.

Speaker 2

Well, we'll first So this $80,000,000 buyback, right? And then we'll think we'll decide next. I think Our focus is still on really to really make sure Our business grow and our social network strategy works. So there will be actually we haven't we've been refining our products both Sohu Video and Sohu News. And the battle to be to really to To really grow, our user base has not started.

Speaker 2

We've been refining our products and spending. So we definitely need the watch out to continue to launch, right, to the major product, I mean, to We expand to grow our products, the user base. So that's and we are confident actually. So that's why. And also gaming and yes.

Speaker 2

So once the social media and social video's user base grow, I would say, I hope exponentially, because social network that's the way it grows. It stays Flat and then suddenly you got the product right and explode or grow exponentially and we hope that day will come. And then our advertising dollar will grow Because it's all tied with this user base scale and also we Hope that our game will even better in the future.

Speaker 6

I see. All right. Good. Thank you, Charles.

Operator

Thank you. Thank you. As there are no further questions at this time, This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Sohu.com Q3 2023
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