Sohu.com Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 21, 2023

Key Takeaways

  • In Q4 2022 Sohu reported total revenue of $160M, down 17% YoY, with a GAAP net loss of $7M (Non-GAAP net loss $2M); full year revenue was $734M, down 12%, and GAAP net loss was $17M.
  • The online games segment delivered Q4 revenues of $122M (down 16% YoY) and an operating profit of $54M, and will launch expansion packs, holiday events and diversify into kart, RPG, strategy, sports and idle titles in 2023.
  • Sohu Media Portal and Sohu Video continued heavy investment in product, technology and premium content—including live broadcasting—resulting in Q4 operating losses of $32M and $21M respectively, and wider full‐year losses as user acquisition spending rose.
  • Q1 2023 guidance calls for brand advertising revenue of $20–23M (3–16% YoY decline) and online game revenue of $121–131M (7–23% YoY decline but slight sequential growth), with continued GAAP and Non-GAAP net losses amid ongoing macro uncertainty.
  • Management signaled potential share buybacks in 2023 and plans to invest in AI technologies—outsourcing core OpenAI‐style algorithms—to enhance social network features and user interactivity.
AI Generated. May Contain Errors.
Earnings Conference Call
Sohu.com Q4 2022
00:00 / 00:00

There are 8 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining Sohu's 4th Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded.

Operator

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

Speaker 1

Thanks, operator. Thank you for joining us to discuss Sohu's Q4 2022 results. On the call are Chairman and the Chief Executive Officer, Doctor. Charles Zhang CFO, Joanna Liu and Vice President, Finance, Gemstone. Also with us are Changyou, Seodou Wen Chen and CFO, Alvin Wang.

Speaker 1

Before management begins their prepared remarks, I would like to remind you of the Company's Safe Harbor statements in connection with today's conference call. 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.

Speaker 1

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

Speaker 2

Thanks, Fang Wu. Thank you, everyone, for joining our call. During the Q4 full year of 20 22, we continue to refine our products and optimize operating efficiency with strict budget control. Despite the negative impact of COVID-nineteen and the macroeconomic challenges, thanks to our efforts, Brand advertising revenue and bottom line performance both exceeded our prior guidance for the Q4 of 2022. At Sohu Media Portal, we continue to dedicate ourselves to improving user experience by providing rich premium content And making significant improvements in both product and technology.

Speaker 2

At Sohu Video, based on our teen engine strategy, we continue to develop both live broadcasting with our advanced live broadcasting technology. Meanwhile, we proactively explored the range of monetization opportunities with our differentiated content marketing campaigns. Online games delivered stable performance with revenue in line with our prior guidance. I'll go into detail about each of these businesses in a moment, but first, A quick overview of our financial performance. For the Q4 of the year 2022, total revenues $160,000,000 down 17% year over year and 13% quarter over quarter.

Speaker 2

Brand advertising revenues were $29,000,000 Online game revenues are 121,000,000, down 16% year over year and 18% quarter over quarter. GAAP net loss attributable to sohu.comlimitedwas7000000 dollars compared with a net income of $4,000,000 in the Q4 of 2021 And net loss of 22,000,000 in the Q3 of 2022. Non GAAP net loss attributable to Suzhou.com Limited was $2,000,000 compared with a net income of $200,000 in the Q4 of 2021 and a net loss of $17,000,000 in the Q3 of this year of 2022. For the full year of 2022, total revenues $734,000,000 down 12% compared with 2021. Brand advertising revenue, dollars 103,000,000 down 24% Online GAAP revenue was $585,000,000 down 8% compared with 2021.

Speaker 2

GAAP net loss attributable to zu.com's earnings was $17,000,000 compared with a net income of $69,000,000 in 2021. Non GAAP net income attributable to sohu.comlimited was $2,000,000 income compared with a net income of $79,000,000 in 2021. So now let me go through our key business in more detail. First Media Portal and Sohu Video. At Sohu Media Portal, during 2022, we upgraded algorithms, technologies and products through refinements to each We're hard at improving our user experience and keeping users engaged by offering a wide range of premium content And the self media content and also their social distribution, We kept a strict control of budget and made a continuous improvement in operating efficiency.

Speaker 2

With these efforts, we were able to further reinforce Our reputation as a mainstream media platform by leveraging our advanced live broadcasting technology and rich media resources. At Vidyo, we focus on our trend engine strategy by providing compelling content in both long and short form. We launched several original dramas and reality shows including and the 5th season of our On Her Way Home, The 5th season. Audiences were enthusiastic about both of these. We have several new original dramas in our pipeline to be released in coming quarters.

Speaker 2

In terms of short term content short form content, we launched a successful series of science related live broadcasting during the year, including highly regarded IP of my physics trucks, Charles' physics truck, which I taught online. This IP has drawn significant attention and attracted hundreds of leading professional broadcasters in the right field. Consolidating I've attracted 100 of leading professional broadcasters and influencers in a variety of fields, On the monetization side of the COVID-nineteen pandemic The macroeconomic uncertainties have negatively impacted the whole market. Even under these conditions, we And we'll continue to host additional flagship events as well as unique and innovative content marketing campaigns. For example, these events and campaigns provide us Great premier content, same time, strengthened our brand influence and brought us new and significant financial opportunities.

Speaker 2

In 2022, we successfully Hosted the Sohu News Marathon, a traditional item IP and Sohu Finance Annual Conference, The Talk Under Stary Sky, a new program and others. This quarter, we hosted Fantastic Factories Tailored to a advertiser, which not only drew a significant tension across media platform, but also Consolidated Sohu's competitive advantage brand advantages and captured advertisers' budgets. Now turning to online game business. During the Q4 of 2022, online game revenues were in line with the company's prior guidance. In our business line for PC games, we adjusted the Battlefield map and the gameplay of regular TLBB PC's cross server Clan, ore system.

Speaker 2

We launched a new expansion pack of TLBB Vintage To celebrate this anniversary with the expedition of its first new clan, in mobile games, we introduced a survival mode PVP event for Lexi TLBB Mobile. In the Q1 of 2023, we keep players engaged To keep players engaged, we will launch expansion packs to celebrate Chinese New Year and a series of holiday events for TLBB PC I'd like to tell BB Mobile and other games. We have done that now. As demand in the online games market becomes deeper and more diversified. We intend to stick with our top game strategy by promoting professional talent development as well as innovation in content technology and roll out more high quality mobile games of different types.

Speaker 2

In terms of game pipelines, while maintaining our core competitiveness in MMORPGs, we'll also invest in more games of multiple types, including kart, RPGs, strategy, sports and idle games. Now I'll turn the call to Joanna, our CFO, who will walk you

Speaker 3

Thank you, Charles. I will now walk you through the financials of our major segments For the Q4 and full year of 2022, 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 down 16% year over year and up 9% quarter over quarter. The quarterly operating loss was $32,000,000 compared with an operating loss of $38,000,000 In the same quarter last year, for the full year 2022, Sohu Media Portal revenues were $61,000,000 down 19% compared with 2021. The full year operating loss was $156,000,000 compared with an operating loss of $134,000,000 in 2021.

Speaker 3

For Sohu Video, Quarterly revenues were $16,000,000 down 28% year over year and up 1% quarter over quarter. Quarterly operating loss was $21,000,000 compared with an operating loss of $11,000,000 in the same quarter last year. For the full year 2022, Sohu Video revenues were $63,000,000 down 28% compared with 2021. Full year operating loss was $99,000,000 compared with an operating loss of $47,000,000 in 2021. For Changyou's online games business and 17,173, quarterly revenue, dollars 122,000,000 down 16% year over year and 18% quarter over quarter.

Speaker 3

Quarterly operating profit was $54,000,000 compared with operating profit of $55,000,000 in the same quarter last year. For the full year 2022, Changyou's total revenues were $592,000,000 down 9% compared with 2021. The full year operating profit, dollars 282,000,000 compared with an operating profit of $310,000,000 in 2021. For the Q1 of 2023, we expect Brand advertising revenues to be between $20,000,000 $23,000,000 This implies annual decrease of 3% to 16% and a sequential decrease of 20% to 71%, online game revenues to be between $121,000,000 $131,000,000 This implies annual decrease of 70% to 23% and a sequential increase of NIO to 8%. Non GAAP net loss attributable to Sohu dotcom Limited to be between $50,000,000 $25,000,000 and GAAP net loss attributable to Sohu dotcom Limited to be between $20,000,000 $30,000,000 Our guidance reflects our current and preliminary view, which is subject to substantial uncertainties.

Speaker 3

This concludes our prepared remarks. Operator, we would now like to open the call

Operator

Our first question comes from the line of Thomas Chong from Jefferies. Please ask your question, Thomas.

Speaker 4

Hi, good evening. Thanks management for taking my questions. My first Question is about the overall advertising industry outlook in 2023. Can management comment about The sentiment so far and on Songhu, how should we should think about the advertising spending Among OTCO FMCG Internet Services. And my second question is more about the use of cash And our investment strategies for this year.

Speaker 4

And finally, may I also get some color from management About our thoughts on the recent ChargeGPC and how it reshape the Internet sector? Thank you.

Speaker 2

Okay. So the first overall advertising market after the Basically, the lift of the lockup and after the COVID-nineteen, I think the economy is picking up Kind of optimistic about the overall independent market compared with last year, 2022, Because companies are starting to spend start marketing events, start spending money to market their products And brand, brand building. In terms of industry, specific industry, I think auto is doing the first one to come, right? Auto and followed by FMCG is doing right? Yes.

Speaker 2

Yes. Internet service in Q4 is doing Yes. Actually, for both part of the Q4, we're still at in the Lockdown error, right? So but because of our some live broadcasting activities, We have growth, right? Advertising up, right?

Speaker 2

Improvement of 12% in Q4, but that was still during the lockup Yes. And so 2023, we're kind of optimistic. We see the economy is picking up and the And investment strategy, I think, First of all, we will have we will continue to invest in the products, refining our products And building the and also the social networks and also To spend user acquisition with the products ready and with its features with Improving stickiness, we're going to spend money

Speaker 4

on

Speaker 2

user acquisition, As we did in 2022 on video, Sohu Video, spending more than before On Fugu Video, that's why you see the loss of video business widening, right, So this year, we'll spend both on video and on the Sohu News, Sohu Media Portal, When we believe that our product is ready and with stickiness And to acquire users and make sure they come and they stay. In terms of more investment, probably with AI technology and chat GPP and Actually, our news premium account our news recommendation algorithms is Deep application of AI technology like deep learning and all these algorithms or AI. But for to have the whole chat GTT type of OpenAI services, it's This is already Sogou, we already sold Sogou, so we don't this need to have the whole develop the whole algorithm from all of our office, It's really need the kind of company that with a search engine background. Now, we are already sold Sogou. So, Right now, we are not able to develop the whole OpenAI system, but we can outsource The fundamental layers of those algorithms to Some other companies and then to just use applications, apply them to our for our social network because it's about questioning and answering and interactivity.

Speaker 2

So it fits well with our total network strategy. Yes. Well, I hope I answered your question.

Operator

Thank you. Our next question comes from the line of Eddie Leung from Bank of America Merrill Lynch. Please ask your question, Eddie.

Speaker 5

Good evening, guys. Just two questions. The first one is about games. Just wondering if that one Has any I won't say guidance like any outlook on the potential launch time of some of the new games? And then secondly, I think Charles should talk a little bit about that.

Speaker 5

So in terms of use of cash, because you guys still have a very good Cash balance. In addition to investment, will there be any potential plan for example,

Speaker 6

Currently, we plan to launch new TLBB in Q3 this year.

Operator

Got that. Thank you.

Speaker 2

So we will I will or we will not exclude the possibility of share buybacks this year. Yes, it's possible, Remain.

Speaker 5

Understood, Charles. Thank you.

Operator

Thank you. Our next question comes from the line of Alicia Yap from Citi. Please ask your question Alicia.

Speaker 7

Hi. Can you hear me? Hi. Good evening, management. Yes.

Speaker 7

Thanks for taking my questions. I have a couple of questions. First, follow-up on the gaming business. So the driver for your sequential improvement for your gaming business that you guided for Q1, Is that mainly on some of the expansion packs that has released and been doing well? So that's your guided Slight improvement on the gaming for 1Q.

Speaker 7

That's the first question within the gaming. And then follow-up on the new TLBB launch, because we also noticed there is another similar title, which is called TLBB 2 By perfect word, so would that be can you comment, would there be any confusions or any cannibalization effect from this similar title? And then for advertising business, can you also elaborate a little bit In terms of the Q1 guidance, do you think this is actually considering an improving trend? Because it does look like your guidance On the year over year basis, it's still a negative growth despite the entire year already having decline. And But is it because of the Chinese New Year in Q1?

Speaker 7

So would you expect Q2 onwards we should start to get positive year over year growth. So yes, thank you.

Speaker 6

Because we launched some promotional activities for our existing games in the Q1 around Yes. First of all, we are aware of that New TLBB and TLBB 2 are open makes for mobile games, and we are sure there will be some kind of impact. But from our past experiences, especially like legacy TLBB Mobile or TLBB Owner, When they launched the market, there was some kind of positive impact to the existing TLBB franchise games. So We can only see the results by then after the games 2 games are launched.

Speaker 2

Okay. All right. In terms of advertising, so The Q1 of 2022 is basically before it's prior it's Before the real lockdown that happened in Q2, right? So it's a relatively a more normal quarter, right, Q1. But this quarter, the Q1 of 2023 is as in Q4, we already pick up some And then it becomes something, but it's due to some of our special unique offering of this class, this class.

Speaker 2

But Q1, first of all, it's a slow season, but it's also a it's still Restoring, right? It's resuming, but still not fully to its prior guidance prior lockdown The quarter, right? That's why it's kind of decreased. Yes. Did I answer your question?

Speaker 7

Yes, I see what you mean. In terms of the year over year comp, it is a very

Speaker 2

high level. Q2 is going to pick up speed. Yes. I'm sure Q2 will definitely be better than Q2 in 2022. I see.

Speaker 2

I think Q2 and Q3 3 of 2022 were worst, right, because the lockdown is in the lockdown with Shanghai and then So this Q1 is we already see some hope, right? So it's picking up, but it's still not fully Resume, Gordon.

Speaker 7

I see. I see. Thank you, Charles, and also thank you, Dylan, for the answer. I just have one very quick follow-up. In terms of the Sohu Media and Sohu Video, do we have any plans or target to narrow the loss this year?

Speaker 2

Actually, the answer is no, Because we are going to spend, as you know, you were asking the question about how do we We have a cash good cash balance, right? So that's why we need the wall chat to really develop in order to Ultimately, we have the profitable platform. We have to have larger user base. You have to have the scale of the user base. And that's the only way for a platform to make money, right?

Speaker 2

So but to reach that, you need to spend. That's why we're going to this year, as I said, when we have when we believe that the kind of product that we are designing or we have been Perfecting or developing already have the right kind of stickiness And so to make the users stay, then we're going to spend as we did on video, Kind of spending a little more on video on 2022. So and we see the user base actually grow Quite well. So we're going to spend

Operator

both All right. I am showing no further questions. And with that, we conclude today's conference call. Thank you for participating. You may now disconnect.

Powered by Quartr