Sohu.com Q3 2024 Earnings Report

Sohu.com EPS Results

• Actual EPS: -$0.39
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Sohu.com Revenue Results

• Actual Revenue: $151.99 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Sohu.com Announcement Details

• Quarter: Q3 2024
• Date: 11/12/2024
• Time: Before Market Opens
• Conference Call Date: Tuesday, November 12, 2024
• Conference Call Time: 7:30AM ET

Sohu.com (NASDAQ:SOHU) Limited is a Chinese internet company founded in 1996 by Charles Zhang. Headquartered in Beijing, the company operates online media and entertainment businesses serving users primarily in China. Sohu was one of China’s early internet portals and has developed a range of digital products and services over time.

The company’s media business provides online news, information, entertainment content and other portal services through Sohu-branded websites and mobile platforms. Sohu has also offered online video content and digital advertising solutions, connecting advertisers with audiences across its internet properties.

Through its Changyou business, Sohu is involved in the development and operation of online games, including massively multiplayer online games and mobile games. Sohu.com Limited’s American depositary shares trade on the Nasdaq under the symbol SOHU. Charles Zhang serves as the company’s chairman and chief executive officer.

Sohu.com Q3 2024 Earnings Call Transcript

Key Takeaways

• For Q3 2024, Sohu reported $152M in total revenues, up 5% YoY but down 12% QoQ, and a $60M GAAP net loss (non-GAAP net loss of $12M), marking a widening loss year-over-year.
• Sohu Media & Video strengthened user engagement and monetization through social features and high-profile events like the Autumn Convention for influencers and a K-Pop Dream Concert collaboration.
• Changyou’s online game segment outperformed Q3 guidance with $128M in revenues (+9% YoY) driven by TLBB PC updates, crossover events, and plans for new expansion packs and global R&D optimization.
• Q4 2024 guidance projects brand advertising revenues of $70M–$90M and online game revenues of $97M–$107M, implying year-over-year declines of up to 16% and 15% respectively, with a forecasted non-GAAP net loss of $26M–$36M.
• The board extended Sohu’s share buyback program to November 2026, having repurchased 3.4M ADS at ~$42M to date toward a $150M authorization to enhance shareholder returns.

Presentation

[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 the listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference call is being recorded. 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.

[Huang Pu, Director of Investor Relations at Sohu]

Thanks, Operator. Thank you for joining us to discuss Sohu's third quarter 2024 results. On the call are Chairman and Chief Executive Officer Dr. Charles Zhang, CFO Joanna Lv, and Vice President of Finance James Deng. Also with us are Changyou CEO Dewen Chen and CFO Yaobin Wang. Before the 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 here, 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.

[Huang Pu, Director of Investor Relations at Sohu]

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 Dr. Charles Zhang. Charles, please proceed.

[Charles Zhang, Chairman and CEO at Sohu]

Thanks, Huang Pu, and thank you everyone for joining our call. In the third quarter 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 continual 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 high-quality content updates and robust game operations, online game business delivered better-than-expected performance. Before going through each business unit in more detail, let me first give you a quick overview of our financial performance.

[Charles Zhang, Chairman and CEO at Sohu]

For the third quarter of 2024, total revenues: $152 million, up 5% year-over-year and down 12% quarter-over-quarter. Brand advertising revenues: $19 million, down 15% year-over-year and 6% quarter-over-quarter. Online game revenues: $128 million, up 9% year-over-year and down 13% quarter-over-quarter. GAAP net loss attributable to Sohu.com Limited was $16 million, compared with a net loss of $14 million in the third quarter of last year and a net loss of $38 million in the second quarter of this year. Non-GAAP net loss attributable to Sohu.com Limited was $12 million, compared with a net loss of $10 million in the third quarter last year and a net loss of $34 million last quarter, in the second quarter of 2024. Now I'll go through our key businesses in more detail. First, Sohu Media and Sohu Video.

[Charles Zhang, Chairman and CEO at Sohu]

During this quarter, we kept promoting the social distribution features, built 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. This event greatly enhanced the recognition of the Sohu Video platform among broadcasters and users and significantly improved user engagement and interactions. We also proactively hosted diversified events based on our influential online interest clubs and groups in different areas.

[Charles Zhang, Chairman and CEO at Sohu]

In October, we initiated a groundbreaking overseas collaboration with the event 2024 Dream Concert in South Korea, where we gathered 100 super top K-pop contestants who stood out after six months of intense competition nationwide, and we let the team provide them a chance to go to South Korea to dance together with their idols, the world-well-known idols. This event attracted lots of K-pop fans and generated hot discussions across various social media platforms. Sohu 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 dreams. Moreover, we consistently reinforced our leading position in knowledge and science-related live streaming. Our highly regarded physics class, My Charles' Physics Class, which has just celebrated its third-year anniversary and published its third physics book, has formed a dynamic multidimensional dissemination through various forums.

[Charles Zhang, Chairman and CEO at Sohu]

Together with Charles' Physics Class, we also have Charles' English Class and other native relative live contents that further strengthened 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 a large number of high-value audiences, and advertisers provided us with innovative monetization opportunities. Now, let me turn to the online game business. During the third quarter 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 Westward Journey, which was launched during the second quarter, mobile games revenues decreased on a sequential basis.

[Charles Zhang, Chairman and CEO at Sohu]

We launched a series of crossover events around the Chinese Valentine's Festival, Qixi Festival, for both regular TLBB PC and TLBB Vintage, featuring theme office maps and game players, which were well received by players. Besides, we also revamped the skill sets of a major clan of regular TLBB PC, which effectively drew back former players to the game. `For Legacy TLBB Mobile, we upgraded the skill sets of a clan based on players' feedback and introduced corresponding new storyline and activities, which players were happy with. Next quarter, we'll continue to launch expansion packs and content updates for the TLBB series, New Westward Journey, and other titles to keep players updated. For the TLBB series, the New Westward Journey and other titles could keep players engaged.

[Charles Zhang, Chairman and CEO at Sohu]

As market competition intensifies and user demand becomes more diversified, we'll forge ahead with our top game strategy and remain committed to a user-centric philosophy. We'll continuously optimize the R&D process, enhance execution, and expand our international presence. By doing so, we are confident that we can bring more high-quality games to the market. In terms of the game pipeline, we'll maintain our core competitiveness on MMORPGs going forward, while also exploring possibilities in multiple types of games, including card-based RPGs, sports games, and casual games, etc. Now, I'd like to give an update on the ongoing share purchase program. Sohu today announced that our board of directors has authorized to extend the period of the program for an additional one year to November 10, 2026. Previously, it was a two-year program of 2025.

[Charles Zhang, Chairman and CEO at Sohu]

So as of November 7th, 2024, this year, Sohu has repurchased 3.4 million ADS for an aggregate cost of approximately $42 million. So the total buyback program is $150 million. So it's about less than one-third of the total. So that's why we need three years, right? With that, I'll now turn the call over to Joanna. Joanna?

[Joanna Lv, CFO at Sohu]

Thank you, Charles. I will now walk you through the key financials of our major segments for the third quarter of 2024. All the numbers on the non-GAAP basis. You may find a reconciliation of non-GAAP to GAAP measures on our website. For Sohu Media and Sohu Video, quarterly revenues were $73 million, compared with $27 million in the same quarter last year. Quarterly operating loss was $72 million, compared with an operating loss of $66 million in the same quarter last year. For Changyou's online game business and 17173, quarterly revenues are $129 million, compared with $118 million in the same quarter last year. Quarterly operating profit was $62 million, compared with operating profit $52 million in the same quarter last year. For the fourth quarter of 2024, we expect brand advertising revenues to be between $70 million and $19 million.

[Joanna Lv, CFO at Sohu]

This implies annual decrease of 6%-16% and a sequential decrease of 9% to a sequential increase of 2%. Online game revenues should be between $97 million and $107 million. This implies annual decrease of 7%-15% and a sequential decrease of 16%-24%. Non-GAAP net loss attributable to Sohu.com Limited should be between $26 million and $36 million, and the GAAP net loss attributable to Sohu.com Limited should be between $30 million and $40 million. 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 questions.

[Operator]

Thank you. We will now begin the question and answer session. To ask a question, please press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. We will now take our first question from the line of Alicia Yap from Citigroup. Please ask your question, Alicia.

[Alicia Yap, Managing Director and Senior Equity Analyst at Citigroup]

Oh, hi. Thank you. Good evening, Charles and management team. Thanks for taking my questions. I have a few questions. First is that in terms of the advertising outlook, have you seen any improvement in terms of the ad budget spent by advertisers entering fourth quarter? 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. Second question is on your gaming guidance versus your reported revenue. So in 3Q, you guided very conservatively, and then yet you delivered a massive beat in third quarter, like $128 million. And then you guided 4Q again, very conservative.

[Alicia Yap, Managing Director and Senior Equity Analyst at Citigroup]

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? Thank you.

[Charles Zhang, Chairman and CEO at Sohu]

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

[Charles Zhang, Chairman and CEO at Sohu]

The GDP growth is slowing down.

[Charles Zhang, Chairman and CEO at Sohu]

Slowing down, yeah.

[Charles Zhang, Chairman and CEO at Sohu]

So the advertising market is still soft, not a strong, robust advertising market. But in Q3, we achieved the higher end of the forecast because our unique offline and online marketing events designed very unique and very unprecedented kind of events that provided some opportunity for advertisers to spend money on our projects, on the events. And because overall, the advertising amount is not that large, 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. I think recently there's some kind of a stimulus package on the policy side, and the effects will see that the entertainment market recover probably sometime in the next year. Yeah.

[Charles Zhang, Chairman and CEO at Sohu]

[Foreign language].

[Joanna Lv, CFO at Sohu]

The reason for the revenue beat in the third 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.

[Charles Zhang, Chairman and CEO at Sohu]

[Foreign language].

[Joanna Lv, CFO at Sohu]

The reason we guided quite conservatively for the fourth quarter is because the strategy for TLBB PC during the fourth quarter is mainly to maintain the user stability, to offer them more benefits instead of increasing the revenue. So it looks a bit conservative.

[Charles Zhang, Chairman and CEO at Sohu]

Yeah.

[Alicia Yap, Managing Director and Senior Equity Analyst at Citigroup]

Thank you.

[Charles Zhang, Chairman and CEO at Sohu]

Yeah, the buyback program. Yeah, it's because of the daily limit, right? Daily volume limit, we don't want to impact or shake the price too much. So there's a limitation of the number of shares we can buy. That's why two years is not enough. We probably can finish, can buy 50 million a year, probably. That's why we need to extend to 2026.

[Operator]

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

[Alicia Yap, Managing Director and Senior Equity Analyst at Citigroup]

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

[Operator]

Thank you.

[Charles Zhang, Chairman and CEO at Sohu]

All right.

[Operator]

As a reminder, to ask a question, please press star one one on your telephone keypad. Our next question comes from the line of Thomas Chong from Jefferies. Please ask your question, Thomas.

[Thomas Chong, Managing Director and Regional Head of Internet and Media at Jefferies]

Thanks to 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.

[Charles Zhang, Chairman and CEO at Sohu]

[Foreign language]. Your question is about the Changyou's game or the industry, the game industry 2025?

[Thomas Chong, Managing Director and Regional Head of Internet and Media at Jefferies]

About Changyou. Thank you.

[Charles Zhang, Chairman and CEO at Sohu]

Changyou, of course. [Foreign language].

[Charles Zhang, Chairman and CEO at Sohu]

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 obtained license approval, including one game called NBA Absolute Superstar, [Foreign language] and the other one called Heroes of Three Kingdoms, [Foreign language].

[Charles Zhang, Chairman and CEO at Sohu]

Chuan, sorry. We will start testing recently. And besides, we also have a new version of the TLBB PC game that we're going to have monetization test recently.

[Charles Zhang, Chairman and CEO at Sohu]

This is my mic. This is Sohu.

[Charles Zhang, Chairman and CEO at Sohu]

Okay. We will have started the test for a new version of our TLBB PC game.

[Charles Zhang, Chairman and CEO at Sohu]

Thank you.

[Operator]

Great. Thank you.

[Operator]

Very nice.

[Operator]

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. Thank you for your participation. You may now disconnect.

[Charles Zhang, Chairman and CEO at Sohu]

Okay. Thank you.

Participants

Analysts

• Thomas Chong, Managing Director and Regional Head of Internet and Media at Jefferies
• Charles Zhang, Chairman and CEO at Sohu
• Joanna Lv, CFO at Sohu
• Huang Pu, Director of Investor Relations at Sohu
• Alicia Yap, Managing Director and Senior Equity Analyst at Citigroup
• Translator 2