Sohu.com Q1 2023 Earnings Call Transcript

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May 15, 2023

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining Sohu's First 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, Wang Pu, Investor Relations Director of Sohu. Please go ahead.

Speaker 1

Thanks, operator. Thank you for joining us to discuss Sohu's Q4 2023 results. On the call are Chairman and Chief Executive Officer, Doctor. Charles Zhang CFO, Joanna Liu and Vice President of Finance, John Stone. Also with us are Changyou's CEO, Devin Chen and CFO, Yaobin Wang.

Speaker 1

Before management begins their prepared remarks, I would like to remind you of the Company's Safe Harbor statement 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. Therefore, you should not place undue reliance on them. Forward looking statements involve inherent risks and uncertainties.

Speaker 1

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

Speaker 2

Thanks, Wangfu, and thank you, everyone, for joining our call. In the Q1 of 20 23, we hit the high end of our prior guidance for brand advertising revenue, while our Both my performance came in well above expectations despite the impact of seasonality. At Sohu Media, we further improved operating operational efficiency and focused on enhancing user experience Through product and algorithm refinements, we closely monitored market trends and provided Innovative marketing solutions to our advertisers. At Sohu Video, we continue to develop both long form And short form original content under our tune engine strategy, leveraging the advantages of our product mix Metrics. We were able to consolidate our resources and proactively explore a diverse Online games remained stable During the quarter, with revenues in line with the prior guidance now let me go into detail about each of our businesses.

Speaker 2

I'll go into our each of our business in a moment, but first, a quick overview of the overall financial performance. For the Q1 of 2023, total revenue $162,000,000 down 16% year over year, Up 1% quarter over quarter. Brand advertising revenue, dollars 23,000,000 down 5% year over year and 22% quarter over quarter. Online game revenues, RMB 129 1,000,000, Down 18% year over year and up 7% quarter over quarter. GAAP net loss attributable to sohu.comlimited It was $18,000,000 compared with a net income of $3,000,000 in the Q1 of 2022 And net loss of $7,000,000 in the Q4 of 2022.

Speaker 2

Non GAAP net loss attributable to sohu.com Limited was $13,000,000 compared with net income of $9,000,000 in the Q1 of last year and a net loss of $2,000,000 in the Q4 of 2022. Now I'll go through our key businesses in more detail. First Media Portal and Sohu Video. At Sohu Media Portal, we harnessed the cutting edge technology To steadily optimize our products and algorithms as a mainstream media platform, We not only deliver reliable and real time news and information to our users, but also stimulate high quality self media content Generation among users and expand their our social network distribution. Through these efforts, We have continuously improved the user experiences and further strengthened our brand influence.

Speaker 2

At Sohu Video, We focus on developing high quality long form and short form content. For the long form content in the Q1, we have rolled out Both of which won acclaim from audiences. In April, we released The A Crime Themed Idol Romance Love of Replica, Winnie, Ni Guang Erlang the upgraded So the Love of Replica became a hit show again at the time of its release actually last week and further boosted our audience base. For reality shows, we saw the successful release of On Her Way Home special edition for the spring festival, and The On Her Way Home series has gained widespread attention and generated in-depth discussion of various social issues, helping its rich and penetrate to larger audiences. In terms of short form content, we continue to focus on the social science related live streaming And supported by our advanced live streaming broadcasting technology, with abundant and professional reserve of broadcasters Across numerous verticals such as and the rich offering of high quality content, Sohu Video continues to consolidate its reputation as a leading On the monetization front, the overall market recovered moderately during the quarter.

Speaker 2

As advertising demand bounced back, we proactively explored various monetization opportunities in differentiated scenarios. For example, during the quarter, we successfully hosted the annual Sohu Fashion Award. An offline event, which has become a distinctive IP for Sohu and demonstrates our position as a mainstream media platform. The Sohu Fashion Award, Together with the Charles' physics class, my teaching physics, and also the talks under the There is Guy and the talk on the shore of Stone Mountain. These are the interview program Generated significant attention and created various hot topics and discussions on our product metrics as well as across various social media platforms.

Speaker 2

These unique campaigns leveraging By our new platform of Sohu Video and Sohu News reinforced our strong brand influence And our good content and provided our at the same time, I provided our advertisers with ample market exposures. So next, turning to online game business. During the Q1 of 'twenty three, Online game revenues were in line with the company's prior guidance. Within our PC games business, we launched some Chinese New Year themed holiday events and promotions for the regular TLBB PC, Continue to improve the functionality of TLBB Vintage based on players' needs and also introduced a new Cross server PVP event that matches players randomly. In our mobile game businesses, we launched updates for legacy TLBB mobile to celebrate the Chinese New Year, Introducing not only a series of holiday events, but also optimization of clan skills.

Speaker 2

In the Q2 of 2023, we will launch expansion packs and content updates for TLBB PC, As technology in the game business industry keeps advancing and market demand becomes deeper and more diversified, We intend to stick with our top game strategy, allocating more resources to professional talent development as well as content and technology innovation In order to roll out more high quality mobile games, in terms of the game pipeline, while maintaining our core competitiveness In MMORPGs, we also produce games in various types, including card based RPGs, Strategy, sports and idle games. I will now turn the call over to our CFO, Joanna, who will walk you through our financial results. Joanna?

Speaker 3

Thank you, Charles. I will now walk you through the key financials of our major segments. For the Q1 of 2023, all the numbers on the non GAAP basis, You may find the reconciliation of net GAAP to GAAP measures on our IR website. For Sohu Media Portal, Quarterly revenues were $80,000,000 compared with revenues $80,000,000 in the same quarter last year. The quarterly operating loss was $35,000,000 compared with an operating loss of $45,000,000 in the same quarter last year.

Speaker 3

For Sohu Video, quarterly revenues were $30,000,000 compared with revenue of $50,000,000 in the same quarter last year. Quarterly operating loss was $32,000,000 compared with an operating loss of $21,000,000 in the same quarter last year. For Changyou's online game business and 17,173, quarterly revenues, dollars 131,000,000 Compared with revenue of $160,000,000 in the same quarter last year, quarterly operating profit was $55,000,000 Compared with an operating profit of $85,000,000 in the same quarter last year, For the Q2 of 2023, we expect brand advertising revenues to be between $23,000,000 And the $26,000,000 this implies annual decrease of 8% to an annual increase of 4% And a sequential increase of 2% to 15%, online game revenues to be between $112,000,000 and $122,000,000 This implies an annual decrease of 22% to 29% And a sequential decrease of 6% to 13%, non GAAP net loss attributable to Sohu dotcom Limited attributable to Sohu dotcom Limited to be between $80,000,000 $28,000,000 Our guidance reflects our current and preliminary view, which is subject to substantial uncertainty. This concludes our prepared remarks. Operator, we would now like to open the call to questions.

Operator

Thank you. We will now begin the question and answer session. There will be a short silence while questions are being collected. Thank you for your patience. One moment for the first question.

Operator

Our first question comes from Thomas Chong of Jefferies. Please proceed.

Speaker 1

Thanks management for taking my question. I have two questions. The first one is about advertising industry in 2023 outlook And also, advising spending budget among OTO, FMCG, Internet Service and Property Service Advisors. And my second question is about online game outlook and our game pipelines in 2023. Thanks.

Speaker 2

So for 2023 advertising, we see The top 3 categories are the auto 25%, FMCG 15% and Internet service 15%. We see some opportunities for auto industry Probably in Q2 or Q3 later this year. For Q1, it's Because there is a new policy for the July 1 policy for a stricter Emission standard, so some car auto companies are trying to lower the price and Trying to get rid of their stockpiles. So there's some advertising on Q1 is kind of soft. There's a negative impact on that, but for the whole year, it seems there's some opportunity, there's more competition in the auto industry, especially And for FMCG, we see some people have less money In spending on large item spending, but for small items, it seems there's kind of recovery because Q1 and this year is the Q1 and 1st year after the Basically, after the lifting of the lockup or the lockdown or the 0 Kabi's policy, so everything in Q1 and Q2 will be very indicative of the normal economy, The economy should be.

Speaker 2

It seems it's less it's bouncing back not as much as we Expected, but we do see some, I would say, the lipstick Economy, lipstick economy effects, right, because people had less money, so this is not spending On large items, but then they left with more they're not buying real estate, they're not buying houses, They're not spending on large items, but they have that's why leave them with more some cash to spend small spending, Including the spend some pay some monthly subscription

Speaker 4

In terms of game pipeline, we will release new TLBB mobile In the Q3 of this year, it has got the license approval in February. And the other one is New Western Journey Mobile Project. It is applying for the license, and we plan to launch it in the Chinese, Hong Kong, Macau and Taiwan Regions in the Q3 of this year. And if we can get the license this year, we will release it in Chinese mainland probably before year end or the Q1 next year. For the overseas market, we licensed a game, a Japanese manga game called And we'll release it in Korean, South Korea and Japan in Q4 this year.

Speaker 4

And also self developed the game Sea of Dawn, we plan to launch it in South Korean and also American and Europe Over the next quarter in the Q3 of this year. For overall gaming business this year, we our goal is to

Speaker 1

Thank you.

Operator

Thank you for the questions. Next up, we have the lines from Alicia Yap from Citigroup. Please proceed.

Speaker 5

Hi. Good evening, Charles, Joanna and management team. Thanks for taking my questions. I do have follow-up on both the advertising and gaming. So first of all, on advertising, Charles, I think you mentioned During the Q1, it was recovering moderately.

Speaker 5

And then you did also explain some of the big ticket items, small ticket items. But then what about in general in terms of the overall ad sentiment? So For advertisers that are in the industry that is still kind of lacking, are they Also preparing maybe they wanted to spend more or they're actually still cautious on the spending. Do you expect second half Some of these big ticket items spending could be improving and hence will be driving the advertising growth. So this is the first question.

Speaker 5

And then second question on the gaming is the 2nd quarter guidance. So it does look like the guidance was relatively weaker compared to what we have delivered for the first quarter. Is it because there's lack of new games and also the seasonality? And then given we're going to launch the TRBB In Q3, should we expect a pretty meaningful sequential bounce in the Q3 and then Q4? Thank you.

Speaker 2

All right. So the first question basically answering continue with the previous question About advertising, I want to draw the attention your attention that actually In Q1 and also the Q2 forecast, our advertising in terms of R and D It actually represents a growth of 2%, both 2% in Q1 and 2% in Q2, 3% in between growth in terms of guidance because of the after the currency exchange, I mean, adjustments. That's what I want to point it out. I think real estate is just basically no hope, okay? So advertising on real estate is just not at all not possible, Any growth or and those this is one of the big ticket item.

Speaker 2

And in terms of Auto industry, yes, we do see some opportunities, and I hope that in Q3, you have some pickup of Advertising recovery, because competition, especially The electric car industry, intense competition drive the marketing, especially if we can provide some Unique differentiated marketing package, unique that can really have their brand Exposed across the whole social network of the industry That represents our ability to spend money on our platform. And I have more hope for this small ticket item, FMCG and so the good thing about our advertising platform is that the Any businesses, any products, they need market, they need to have a brand building, they will they need our platform. So if one industry just went down, there's other industries emerging And people spending, as I mentioned, the co home Jingdi lipstick effect, Pigou, in some small item area, FMCG or even some luxury goods, I mean, some yes, the Cosmetics and all those places and actually, they represent some opportunity, Yes, because people have the money now. Just like now people as people during the May holiday, People go to Zubo to have Kauru. That's the kind of really low cost spending, right?

Speaker 2

People don't have much large items to go to the I sent the hotels and or to have the sports clubs to health clubs to spend, but people do have some Let's use the money to spend on other small item things, and that's the FMCG side that we see some opportunity in the later half of the year. So we look at the growth. Yes.

Speaker 4

The second quarter guidance is we expect fewer promotions in Q2 than in Q1. Some of our older teams, including TLBB, will have some natural decline. It is still too far to

Operator

We are pleased to have no further questions at this time. Thank you, everyone. That concludes today's conference call. You may now disconnect your lines.

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