Sohu.com Q3 2024 Earnings Call Transcript

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November 12, 2024

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 Third Quarter 2024 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 Ku, Investor Relations Director of Sohu. Please go ahead.

Speaker 1

Thanks, operator. Thank you for joining us to discuss Sohu's Q3 2024 results. On the call are Chairman and Chief Executive Officer, Doctor. Charles Zhang CFO, Joanna Liu and Vice President of Finance, James Stone. Also with us are Changyou's CEO, Devin Chen and CFO, Robin Wang.

Speaker 1

Before management begins their prepared remarks, I would like to remind you of the company's prepared statements in connection with today's conference call. Except for the historical information contained herein, the matters discussed on the 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.

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 Doctor. Charles Zhang. Charles, please proceed.

Speaker 2

Thanks, Hong Hu, and thank you, everyone, for joining our call. In the Q3 of 2024, our brand advertising revenue met the high end of our previous guidance, while both our online game revenues and our bottom line performance exceeded expectations. For Sohu Media and Sohu Video, in addition to continued product refinements and user experience improvements, we continued to integrate resources and host various unique events and marketing campaigns. With these efforts, we were able to effectively stimulate social interactions among users, strengthen our brand influence and secure more monetization opportunities. As a result of for game, as a result of high quality content updates and robust game operations, online game business delivered better than expected performance.

Speaker 2

Before going through each business unit in more detail, let me first give you a quick overview of our financial performance. For the Q3 of 2024, total revenues, dollars 152,000,000 up 5% year over year and down 12% quarter over quarter. Grand and the flight revenues, dollars 19,000,000 down 15% year over year and 6% quarter over quarter. Online game revenues, dollars 128,000,000 up 9% year over year and down 13% quarter over quarter. GAAP net loss attributable to sohu.comlimited was $60,000,000 compared with a net loss of $14,000,000 in the Q3 of last year and a net loss of $38,000,000 in the Q2 of this year.

Speaker 2

Non GAAP net loss attributable to sohu.comlimited was $12,000,000 compared with a net loss of $10,000,000 in the Q3 last year and a net loss of $34,000,000 last quarter in the Q2 of 2024. Now I'll go through our key businesses in more detail. 1st, Sohu Media and Sohu Video. During this quarter, we kept promoting the social distribution features, build up connections between users and meet their increasing needs, further consolidated our brand influence, we carry out unique and influential events covering various verticals. In September, we successfully hosted the 2024 Autumn Convention of Sohu Video Influencers, where users, broadcasters and pop stars met in person to share their thoughts and build their social network through our platform.

Speaker 2

This event greatly enhanced the recognition of the Sohu Video platform among broadcasters and users and significantly improved user engagement and interaction. We also proactively posted diversified events based on our influential online interest clubs and groups in different areas. October initiated a groundbreaking overseas collaboration with the event 2024 Dream Concert in South Korea, where we've gathered 100 Superb Top K Pop contestants who stood out after 6 months of intense competition nationwide, and we led the team to provide them a chance to go to South Korea to dance together with those idols their idols, the world 12 known idols. This event attracted lots of K Pop fans and generated the hard discussions across various social media platforms. So the video has become a leading platform for K Pop dance enthusiasts in China, drawing a large number of fans and providing them with the stage to realize their game their dreams.

Speaker 2

Moreover, we consistently reinforce our leading position in knowledge and science related live streaming, our highly regarded physics class, my child's physics class, which has just celebrated its 3rd year anniversary and published its 3rd physics book, has formed a dynamic multinational insemination through various forms. And together with Charles' physics class, we also have Charles' English class and other native relative live contents that further strengthen our core competitiveness in this field. We continuously innovated our content offerings and combined it to customize brand marketing solutions for advertisers. This helped us gain recognition from large number of high value audiences and advertisers, provided us with innovative monetization opportunities. Now let me turn to the online game business.

Speaker 2

During the Q3 of 2024, Changyou's online game revenues exceeded our prior guidance. As TLBB PC performed better than expected and our PC game revenues increased on a sequential basis. Meanwhile, due to the natural decline of New Westworld: Journey, which was launched during the Q2, mobile games revenue decreased on a sequential basis. We launched a series of crossover events around the Chinese Valentine Festival, Qixi Festival for the both regular TLBB PC and TLBB Vintage featuring same office, maps and the gameplay plays, which were well received by players. Besides, we also revamped the skill sets of a major clan of regular TLBB PC, which effectively flew back former players to the game.

Speaker 2

For Legacy TLBB Mobile, we upgraded the skill sets of a plan based on player feedback and introduced the corresponding new storyline and activities, which plays which players were happy with. Next quarter, we'll continue to launch expansion packs and content updates for the TLBB series. New Westworld's Journey and other titles to keep players yes, to update for the TLBB series, the new Westworld Journey and other titles to keep players engaged. As market competition intensifies, user demand becomes more diversified, we will forge ahead with our pop game strategy and remain committed to a user centric philosophy. We'll continuously optimize the R and D process, enhance execution and expand our international presence.

Speaker 2

By doing so, we are confident that we can bring more high quality games to the market. In terms of the game pipeline, we will maintain our core competitiveness on MMORPGs going forward, which are also while also exploring possibilities in multiple types of games, including card based RPGs, sports games and casual games, etcetera. Now I'd like to give an update on the ongoing, the share purchase program. Sohu today announced that its Board of our Board of Directors has authorized to extend the period of program of the program for an additional 1 year to November 10, 2026. Previously, it was a 2 year program of 2025.

Speaker 2

So as of November 7, 2024 this year, Sohu has had purchased repurchased 3,400,000 ADS for an aggregate cost of approximately $42,000,000 So the total buyback program is $150,000,000 So it's about onethree less than onethree of the total. So that's why we need 3 years, right? With that, I'll now turn the call over to Joanna. Joanna?

Speaker 3

Thank you, Carl. I will now walk you through the key financials of our major segments for the Q3 of 2024. All the numbers on the NANDAS basis, you may find our reconciliation of NANDAS to GAAP measures on our website. For Sohu Media and the Sohu Video, quarterly revenues were $73,000,000 compared with $27,000,000 in the same quarter to last year. Quarterly operating loss was $72,000,000 compared with an operating loss of $66,000,000 in the same quarter last year.

Speaker 3

For Chaoyue's online game business and 2017,173, quarterly revenue of $129,000,000 compared with $118,000,000 in the same quarter last year. Quarterly operating profit was $62,000,000 compared with operating profit $52,000,000 in the same quarter last year. For the Q4 of 2024, we expect brand advertising revenues to be between $70,000,000 $90,000,000 This implies annual decrease of 6% to 16% and a sequential decrease of 9% to a sequential increase of 2%. Online game revenues should be between $97,000,000 $107,000,000 This implies annual decrease of 7% to 15% and a sequential decrease of 16% to 24%. Non GAAP net loss attributable to sohu.com Limited to be between

Speaker 4

$26,000,000

Speaker 3

$36,000,000 and the GAAP net loss attributable to zougu.com Limited to be between $30,000,000 $40,000,000 This forecast reflects Sohu's management's current and preliminary view, which is subject to substantial uncertainties. This concludes our prepared remarks. Operator, we would now like to open the call to participants.

Operator

Thank We will now take our first question from the line of Alicia Yap from Citigroup. Please ask your question, Alicia.

Speaker 5

Hi. Thank you. Good evening, Charles and management team. Thanks for taking my questions. I have a few questions.

Speaker 5

First is that in terms of the advertising outlook, have you seen any improvement in terms of the ad budget spend by advertiser entering Q4? Do you think overall advertiser sentiment has improved slightly heading into the remaining of the year? And then given your guidance actually implying year over year decline is narrowing for your ad revenue guidance, Is that what you are seeing is an improving trend? And also possible if you could also resume positive growth as we enter 2025? 2nd question is on your gaming guidance versus your reported revenue.

Speaker 5

So in 3Q, you guided very conservatively and then yet you delivered a massive beat in Q3 like 128,000,000 and then you guided 4Q again very conservative. So just what are the main reasons for you to guide conservatively? Which game performance that you have not factored into the guidance for 4Q? And then last question is, it seems like it takes a little bit slow to execute your buyback given the trading liquidity. Just wondering if management could think of any better way to enhance the return to shareholder or would you consider to speed up is there any way you consider to speed up the buyback in more shares in the shorter term period?

Speaker 5

Thank you.

Speaker 2

In terms of advertising, the economy is well, it's steady, but gradually it's losing a little bit gross rate, right?

Speaker 3

The GDP growth has slowed down.

Speaker 2

Slowing down, yes. So the advertising market is still soft, not a strong robust advertising market. But in Q3, we achieved a higher end of the forecast because our unique offline and online marketing events designed very unique and very unprecedented kind of events that provide some opportunity for advertisers to spend money on our projects, on the events. And because overall, our overall the advertising amount is not that large. So it's so we did better than we thought because not that much related to the macroeconomic situation because it's a very small percentage of the total.

Speaker 2

I think there's recently there's some kind of stimulus package on the policy side and the fact we'll see that the anti market will recover probably sometime in next year.

Speaker 4

The reason for the revenue beat in the 3rd quarter is mainly because the new content and new servers that we launched during the quarter for both TLBB Vintage and regular TLBB PC, their performance are better than our expected. The reason we guided quite conservatively for the 4th quarter is because the strategy for TLBB PC during the Q4 is mainly to maintain the user stability to offer them more benefits instead of increasing the revenue. So it looks a bit conservative.

Speaker 1

Thank you.

Speaker 2

Yes, the buyback program. Yes, because of daily limit, right? Daily volume limit, we don't want to impact or shake the price up too much. So there's a limitation of the number of shares we can buy. That's why 2 years is not enough.

Speaker 2

We probably can finish can buy $50,000,000 a year probably. That's why we need to extend to $20,000,000

Operator

Great. Thank you. Do you have any follow-up question, Alicia?

Speaker 5

No. Thank you. That's it. Thank you so much. Thank

Speaker 3

you.

Speaker 2

All right.

Operator

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

Speaker 3

Thanks management for taking my question. I have two questions. First, how should we expect the 2025 online games outlook? And my second question is that how should we expect the operating margin trend in the next few years? Thank you.

Speaker 2

Your question is about the Changyou's game or the industry, the game industry 2025?

Speaker 3

About Changyou, thank you.

Speaker 2

Changyou, yes of course.

Speaker 4

For 2025, our goal is to maintain the stability of our older games, and we will strive to make them grow. We have around 10 games under development now, with some of them having achieved having obtained the license approval, including one game called NBA Absolute Superstar and the other one called Heroes,

Speaker 3

3 Kingdoms, Shanghai, Shanghai, Shanghai, sorry.

Speaker 4

We will start testing recently. And besides, we also have a new version of the VVPC game that we're going to have monetization test recently. Okay. We will have started the test for a new version of our TLBB PC game.

Speaker 2

Thank you.

Operator

Great. Thank you. We have now reached the end of the question and answer session. Thank you all very much for your questions. And with that, we conclude our conference call today.

Operator

Thank you for your participation. You may now disconnect.

Speaker 2

Okay. Thank you.

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Earnings Conference Call
Sohu.com Q3 2024
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