Sohu.com Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 7, 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 Second 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 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 call, Wang Pu, Investor Relations Director of Sohu. Please go ahead.

Speaker 1

Thanks, operator. Thank you for joining us to discuss Sohu's Q2 2023 results. On the call are Chairman and Chief Executive Officer, Charles Zhang CEO, Johnny Liu and Vice President, James Stone. Also with us are Changyou's CEO, Wen Chen and CEO, Robin Wang. 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.

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 key 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 2

Thanks, Huangpu, and thank you everyone for joining our call. In the Q2 of 2023, we delivered stable performance with both revenues and the bottom line meeting our expectations. At Sohu Media, we enhanced the user experience Through continuous refinements to our products and technology and by offering users a steady stream of reliable content in real time. At Sohu Video, with consistent execution of our tune strategy tune engine strategy, we expanded our portfolio of long and from video content and proactively improve their social distribution. Leveraging our advanced live broadcasting technology and Sohu product metrics, We hosted traditional flagship events and innovative content marketing campaigns, which generated abundant Premium content attracted more users and this also put us in a position to explore more monetization opportunities And again, advertising dollars.

Speaker 2

Online games remain steady, generating revenues in line with our prior guidance. Now let me first give you a quick overview of the financial performance. For the Q2 of 2023, total revenues $152,000,000 down 22% year over year and 6% quarter over quarter. Brand advertising revenues $24,000,000 down 4% year over year and up 6% quarter over quarter. Online game revenues $118,000,000 down 25% year over year and 9% quarter over quarter.

Speaker 2

GAAP net loss attributable to suhu.comlimitedwas21,000,000 compared with a net income of $9,000,000 in the Q2 of last year And net loss of $18,000,000 in the Q1 of 2023. Non GAAP net loss attributable to sohu.com Limited was $18,000,000 compared with a net income of $12,000,000 in the Q2 of last year and the net loss of $30,000,000 in the Q1 of this year. Now, I'll go through our key businesses in more detail. 1st, media portal and Sohu Video. At the Oumu Media Portal, we continue to focus on refining our product and optimizing the algorithms.

Speaker 2

We further enhanced the user experience by integrating cutting edge technology into our products and expanding Thanks to our continuous dedication and integration of rich media Resources, we strengthened our advantage and influence as a mainstream media platform. At Sohu Video, we continue to execute our twin engine strategy. For the long form video content, we During the quarter, to widespread popularity and further expanded our audience base, At the same time, we launched several reality shows like This is Me, which is the 6th season These shows have created a lot of engaging discussions online and attracted millions of viewers across various social media platforms. In terms of short form content and live streaming, We kept concentrating on knowledge and science related live broadcasters, driven by our distinct IP of Myself's physics class, which is becoming very popular. And we further promoted high quality content generation and its social distribution, attracting more users to produce video content and interact with On the monetization side, we closely monitored Market trends and explored potential opportunities leveraging our advanced live broadcasting technology and the Your platform of Sohu Media and Sohu Video, we provided advertisers with unique and diversified online and offline marketing strategies that catered to their needs and boosted our other paying dollars.

Speaker 2

In the Q2 of this year, we hosted The traditional content marketing event, the 15th Sohu News Marathon in Xi'an, Demonstrating the reinvigoration and the popularity of traditional Chinese culture as well as Sohu's positive and upward social values. We also proactively developed new monetization opportunities By integrating innovative ideas into diversified events and expanded Application scenarios using our advanced live broadcasting technology. We integrated the Charles Physics class into Sohu Tech Conference and further extending this IP into a new series of other activities called Talk Under the Stairs Guide. These events have generated an abundance of premium content and obtained recommendation from advertisers. Next, turning to the online game business.

Speaker 2

During the Q2 of 2023, online game revenues were in line with our prior guidance. Within our PC game business, we optimized the character development system of regular TLBB PC to make players' Investments more worthwhile and also improved the social relation system for TLBB Vintage. In our mobile game business, we launched an expansion pack for the anniversary of Legacy TLBB Mobile with the addition of the limited time player versus player event to satisfy demand for traditional for additional in game combat. Next quarter, we will launch new TLBB mobile, our next generation TLBB product, along with the expansion packs and content updates. Along with expansion packs and content updates for other games to maintain player engagement.

Speaker 2

Nowadays, as technology in the game industry advances rapidly and market demand became deeper and more diversified, We intend to stick to our top games strategy, allocating more resources for research and development to generate ideas, professional talent development, as well as content and technology innovation in order to roll out our more high quality Mobile games. In terms of games pipeline, we will maintain our core competitiveness In the MMORPGs, while also producing various game other game types, including card based RTPs, sports and casual games. Now I'll turn over the call to Our CFO, Joanna, will walk you through our financials. Joanna?

Speaker 3

Thank you, Charles. I will now walk you through the key financials Major segments for the Q2 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 $17,000,000 compared with revenues of $20,000,000 in the same quarter last year. The quarterly operating loss was $35,000,000 compared with an operating loss of $44,000,000 In the same quarter last year, for Sohu Video, quarterly revenues were $50,000,000 compared with revenues of $60,000,000 in the same quarter last year.

Speaker 3

Quarterly operating loss was $32,000,000 compared with an operating loss of $25,000,000 in the same quarter last year. For Changyou, for Changyou's online gaming business and 17,173, quarterly revenues, dollars 190,000,000 Compared with revenues of $159,000,000 in the same quarter last year, quarterly operating profit was $49,000,000 compared with an operating profit of $85,000,000 in the same quarter last year. For Q3 of 2023, we expect brand advertising revenues to be between $21,000,000 $24,000,000 This impacts annual decrease of 7% to 18% and a sequential decrease of NIO to 12%. Online game business, online game revenues to be between $108,000,000 $180,000,000 This implies annual decrease of 21% to 27% and a sequential decrease of 9%. Non GAAP net loss attributable to sohu.comlimited to be between $20,000,000 $30,000,000 and GAAP net loss attributable to Sohu dotcom Limited to be between $23,000,000 $33,000,000 Our guidance reflects our current and preliminary view, which is subject to substantial uncertain.

Speaker 3

Also, please be noted that the above guidance excludes projections for the new TLBB mobile game, which is Scheduled to launch in the Q3 of 2023. Given that the game is not yet launched, Revenue projections for the game remain uncertain. Therefore, the company believes that it is appropriate to take a conservative approach with the Q3 guidance. This concludes our prepared remarks. Operator, we would now like to open the call for questions.

Operator

Thank 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. I have a question on the advertising first. Bruce, when I look into the Q3 guidance, it seems that the low end of the guidance and the high end seems the range is quite high. If I try to exclude the foreign exchange impact looking into a local currency, It seems that there's a chance that we would have a positive sequential growth.

Speaker 4

So I just want to ask management about how's the Pizing sentiment so far we are seeing in the month of July versus June and how we should think about the advertising trend Of course, different categories like auto, FMCG and Internet services. Thank you.

Speaker 2

So you said sequential growth, but is that sequential growth for Q3? Q3 So in terms of RMB, right? Yes. So overall, For the Q2, the advertising revenue is not So the whole overall market is now bouncing back as expected. So that's why Compared with last year, the Q2 revenue dropped, right, 4%.

Speaker 2

But we are still holding steady because in terms of RMB, it's still a 2% growth for Q2. Normally, we have a better Q3 normally, right, than the normal economy situation. But because of the sluggish economy, as I said, the bounce back is not as expected. We are forecasting a Downward. And revenue for Q3.

Speaker 2

And Yes, because we are holding up the revenue Because of our innovative marketing solutions to advertisers, as I just said in the script, But overall, in terms of the categories, and so the Real estate is basically it's not right, it doesn't exist anymore. So our top advertisers, auto 26%, internet service 18%, FMCG 16%. With auto, it seems not doing well, because the Automakers are now more hesitant in spending much and not with the big marketing campaigns, not They did, because of the overall economy and in our service as well is the same thing, same, because our people are Less, even buying less and online. So, MSCG seems a little bit It's okay, but it's still with a smaller percentage of our overall Revenue, so that's the kind of that's overall picture. Did I answer your question, Thomas?

Speaker 4

Yes. Thank you, Charles, for the detailed answer. May I have a quick follow-up that is about AIGC and I just want to seek management's thoughts about how AIGC can benefit

Speaker 2

We believe that AIGC is a major technology advancement. It's and it's very, very important. It's revolutionized The way, formally, it's a search engine, now it's totally different way of delivering information or So it's a very important opportunity, especially for media and information providers like Sohu. So we are not investing in the large model, Big data model, large model, we will probably outsource The large model to use some services, service providers, third party provider to us, but and then we are We developed those applications in our consumer and services like Sohu News and Sohu and social network. Like for example, we are now for each article we have a machine generated Abstract.

Speaker 2

Abstract, yes, exactly, abstract. And also some of our products actually are using AIGC. So we are going to be a Heavy user of AIGC and we're closely monitoring its development and also To turn those development into the real practical applications and turn it into a user consumer side product.

Speaker 4

Got it. Thank you, Charles. I will get back to the queue.

Speaker 2

Okay.

Operator

Right. Thank you, Thomas. Our next question comes from Alicia Yap from Citi. Please go ahead, Alicia.

Speaker 5

Hi. Yes. Good evening, Charles, Johanna and management. Thanks for taking my questions. I have Three questions.

Speaker 5

First, I wanted to follow-up on the previous Thomas' questions on the advertising, Charles. So can you elaborate? You mentioned it was a little bit sluggish and bouncing back is a little bit weaker than expected. So do you expect the situation to actually continue into the next few months and also the rest of the year. Internally, Is that worse than what you had previously expected?

Speaker 5

Or is this like worse than everybody has expected? So this is the first question on advertising, just a follow-up.

Speaker 2

I think it's probably throughout Throughout the year, not just the quarter. And just like everyone, In Q2, you probably remember last quarter, a phone call or conference call that we have, we seems after the 3 years of the Kabi lockdown after we everyone expected A stronger bounce back of economy, but then now in the middle of Q3, we are seeing we're not seeing that strong bounce back like everyone did. Like everyone is seeing.

Operator

So it's pretty

Speaker 2

post targeted.

Speaker 5

Understood. Would you also kind of attribute some of the recent Natural event like the flooding to maybe kind of like amplify the magnitude The overall macro sentiment is also getting softer or worse because of some of the natural events that happened as well?

Speaker 2

The flooding just happened. It's nothing to do with the flooding, but I think it's the overall macroeconomic The export, the people had less disposal income Because people are still not having enough disposable income, people are not buying things or and then the if you don't have to export And people are not buying does not have the money to buying things, then those products that have there's no sales of those products, those companies Then stop hiring, jobs opportunity, no job So it's a negative downward, it's a spiral downward, right, trend. But I think In terms of entire companies and a company like Sohu, I think I'm still Now that's pessimistic, because if our people are not Spending large item spending like buying cars or buying houses. Then in terms of cash, they probably have more cash to buy little things. So like the subscription of the monthly subscription of our video Drama membership or just playing games, playing online games and Consuming the social networks and then so if the auto and some large item advertisers are kind of The spending is declining a little bit, then probably some small item FMCG side Because China's economy is still large and the population and the consumers number of consumers is pretty it's still the largest.

Speaker 2

So I'm still kind of optimistic. So that's why we are investing to Continue to develop our social network and information delivery and also social networks so that At this economic downtime, we take advantage of the we have we actually we are more we are actually cash rich and we can Spend to grow our user base. So it's a good time

Speaker 5

to grow

Speaker 2

our user base.

Speaker 5

Okay. Thanks, Charles, the second question I wanted to ask is gaming. You just mentioned the small items there. So I think I understand your guidance hasn't Bei in the new TRBB launch, just anything that you can share in terms of your expectation? Is it something that the game Potentially, it could be a title that you guys you haven't seen it for a long time that you guys actually are looking Very much looking forward for that launch.

Speaker 5

That's going to attract back some of the gamers and also potentially brings in the growth for the gaming business again. So any expectation that you can share would be helpful.

Speaker 6

Yes. The game is developed by Changyou itself and will be published by Tencent. And now before its launch, it's Being prepared and in our registration phase. So because Tencent is So we're in charge of the process. So we just did the monetization test in June, and the testing results met with our prior Expectations for the testing phase, but for sure, we cannot do any projections for the mid to long term Gaming's performance.

Speaker 6

So to be conservative, we just didn't put it into our guidance.

Speaker 5

Okay. Thank you. And then lastly, Charles, can you also share with us any updated views or thoughts On the cash use and also the shareholder return policy, for example, any thinking about

Speaker 2

Well, we currently, right now, we don't have any Plan for dividend or buyback plans. We are still have a huge task of growing our user base And we've been working on our products for the last few years to refine it and to develop the new applications, On the social network side, we and our battlefield will enter into the stage of Major user acquisition, yes, stage of user acquisitions that will so we need The fund to do that, so the use of cash will be continue to be to develop our user base. We don't have any currently don't have much other plans to

Speaker 5

Okay. All right. Thank you, Charles. Thank you, management.

Speaker 2

Thank you.

Operator

Thank you. There are no

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