Sohu.com Q4 2023 Earnings Call Transcript

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Provided by Quartr
March 4, 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 4th 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 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, Johnny Liu and Vice President of Finance, James Zeng. Also with us are Changyou's CEO, Wen Chen and CFO, Yaobin Wang.

Speaker 1

Before management begin their prepared remarks, I would like to remind you of the conference 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, 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 Doctor. Charles Zhang. Charles, please proceed.

Speaker 2

Thanks, Huangpu, and thank you, everyone, for joining our call. In the Q4 and full year of 2023, we continue to optimize operating efficiency with strict budget control. Despite the external economic environment and cautious budgeting by advertisers. Thanks to these efforts, our bottom line performance hit the high end of our guidance for the Q4 of 2023. At Sohu Media Portal, we further refined our products, upgraded technology and expanded premium content offerings, resulting in an enhanced user experience.

Speaker 2

At Sohu Video, we continue to execute our tune engine strategy by developing engaging long and short form content. In addition to the social distribution of social network distribution of short form content, we also worked hard on science based live broadcasting and other live broadcasting events, which further boosted user interactions and engagement on our platforms. We also proactively explored diversified monetization opportunities by integrating our advantages resources and hosting various content marketing campaigns with our unique IPs. Lastly, our online game business remained stable, delivering revenues in line with our expectations. Before going through each business unit in more detail, let me first give you a quick overview of our financial performance.

Speaker 2

For the Q4 of 2023, total revenues, dollars 141,000,000 down 12% year over year and 3 quarter over quarter. Brand advertising revenues, dollars 20,000,000 down 30% year over year and 9% quarter over quarter. Online game revenues, dollars 115,000,000 down 5% year over year and 2% quarter over quarter. GAAP net loss attributable to sohu.comlimited13 $1,000,000 compared with a net loss of $7,000,000 in the Q4 of 2022 and a net loss of $14,000,000 in the Q3 of 2023. Non GAAP net loss attributable to sohu.com Limited was $11,000,000 compared with a net loss of $2,000,000 in the Q4 of 2022 and a net loss of $10,000,000 in the 3rd quarter of 2023.

Speaker 2

For the full year of 2023, total revenues $601,000,000 down 18% compared with 2022. Brand advertising revenues $89,000,000 down 14% compared with 2022. Online game revenues $480,000,000 down 18% compared with 2020 2. GAAP net loss attributable to Sood.com Limited was $66,000,000 compared with a net loss of $17,000,000 in 2022. Non GAAP net loss attributable to sohu.comlimited was $51,000,000 compared with net income of $2,000,000 Now, I will go through our key businesses in more detail.

Speaker 2

First, media portal and Sohu Video. At Sohu Media Portal, in 2023, we focus on improving the user experience through algorithms and products optimization. We continue to refine our operations, expand our premium content offerings and diversify their delivery formats, which resulted in stable user metrics and user stickiness. Simultaneously, we also focused on the generation and distribution of premium content. While driving the content consumptions, we continuously enhanced the social features, social network features, which not only enhanced interactions between users, but also stimulated the generation and social distribution of more high quality content.

Speaker 2

At Sohu Video, we continued to execute our tune engine strategy to expand and diversify our offerings across different formats, including live streaming content. In 2023, we released several original content, including the crime themed idol romance drama, Love of Replica, Reality Shows, This is Mi, and High Summer, Friends, Shu Yueng, Xiaotian, and Chuan Qi Tu Bu. These series have generated widespread discussions across various social media platforms. For short format, we and live streaming, we reinforced our leading position in knowledge and science related live streaming with highly recurring regarding IT, Charles Physics class, leading the way since the launch of the Charles Physics class in November 2021. The class has live streamed over 200 online live broadcast, held more than 20 offline seminars and published 2 science books and the third one is coming, forming a continuous multi dimensional dissemination.

Speaker 2

We launched a series of online, offline, and child's business class during the quarter, attracting millions of viewers of all ages, especially the younger generation across different platforms. These further consolidated our position and unique competitive advantages in the popular science and knowledge dissemination verticals and demonstrated an upward value and our commitment to being a socially responsible media platform. We also proactively promoted the social distribution features and enhanced the broadcasters ecosystem by hosting various events centered on hot topics. In the Q4 of 2023, we successfully hosted the 2023 Sohu Dancing Festival, the K Pop and 2023 Sohu Hanfu Festival. These live broadcasting events brought together users with common interest to our platform, enhancing the vitality and engagement within our user community, both online and offline.

Speaker 2

On the monetization side, despite advertisers' cautious approach, we explored monetization opportunities by strategically integrating resources across our product metrics. Empowered by our distinctive IP, the physics class, we hosted various innovative content marketing campaigns, such as Talk Under the Stary Sky and Talk on Top of Snow Mountain, which served as a continuous source of premium content and sparked discussions and disseminations across multiple platforms. These events gained widespread recognition from advertisers, significantly expanded our monetization abilities and highlighted our competitive advantage. Besides these innovative events, we also continue to host our traditional flagship events, such as Sohu Finance Annual Forum, Sohu Fashion Awards and leveraging these high profile events, we were able to better meet advertisers' needs and further consolidate our influence and differentiated advantages as mainstream media platform. Next, turning to the online game business.

Speaker 2

During the Q4 of 2023, online game revenues were in line with our expectations. Within our PC game business, we revamped the skill sets of each clan in regular TLBB PC to highlight their respective characteristics and allow players to combine skills more freely. With TLBB Vintage, we introduced new gear and a related development system to enrich players' battle strategies. In our mobile game business, we upgraded character attributes and many other aspects of a major clan in Legacy TLBB Mobile, which helped to increase player engagement. Next quarter, we will launch expansion packs and the content updates for the TLBB series and other titles to keep players engaged.

Speaker 2

Our top games strategy will continue to guide us going forward as gaming technology rapidly advances and the market demand becomes deeper and more diversified. We will creatively explore new ways to better meet players' needs, expand our portfolio for international markets, allocate additional resources to professional talent development, and invest in content and technology innovation to bring more high quality games to the market. We'll maintain our core competitiveness in developing MMORPGs going forward, while also producing card based RPGs, sports games and casual games. Before I pass the call to Joanna to go through our financial results in detail, we are pleased to announce that March second, a few days ago, 2024, our Board of Directors authorized an increase in Sohu's previously announced share purchase program from up to $80,000,000 to up to $150,000,000 of the outstanding ADS shares of Sohu over a 2 year period. As of February 29, 2024, Sohu had repurchased approximately 1,300,000 ADS share ADS under the share purchase program for an aggregate cost of approximately $12,000,000 With that, I will now turn the call over to Joanna.

Speaker 2

Joanna, please?

Speaker 3

Thank you, Charles. I will now walk you through the key financials of our major segments for the Q4 and the full year 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 Songhu Media Portal, quarterly revenues were $16,000,000 compared with revenue of $71,000,000 in the same quarter last year. The quarterly operating loss was $36,000,000 compared with an operating loss of $33,000,000 in the same quarter last year.

Speaker 3

For the full year 2023, Sohu Media Portal revenues were $66,000,000 compared with revenue of $77,000,000 in 2022. The full year operating loss was $139,000,000 compared with an operating loss of $161,000,000 in 2022. For Sohu Video, quarterly revenues were $9,000,000 compared with revenue of $16,000,000 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 the full year 2023, Q2 video revenues was $47,000,000 compared with revenues $63,000,000 in 2022.

Speaker 3

Full year operating loss was $130,000,000 compared with an operating loss of $99,000,000 in 2022. For Changyou's online game business and 17,173, quarterly revenues were $116,000,000 compared with revenues $122,000,000 in the same quarter last year. Quarterly operating profit was $47,000,000 compared with an operating profit of $54,000,000 in the same quarter last year. For the full year 2023, Chaoyou's online games business and 17,173 revenues were $485,000,000 compared with revenues of $592,000,000 in 2022. The full year operating profit was $203,000,000 compared with an operating profit of $282,000,000 in 2022.

Speaker 3

For the Q1 of 2024, we expect brand advertising revenues to be between $50,000,000 $70,000,000 This implies an annual decrease of 25% to 33% and a sequential decrease of 16% to 26%. Online game revenues to be between $110,000,000 $120,000,000 This implies annual decrease of 7% to 15% and a sequential decrease of 4% and a sequential increase of 5%. Non GAAP net loss attributable to sohu.comlimited to be between $23,000,000 $33,000,000 and the GAAP net loss attributable to sohu.comlimited to be between $26,000,000 $36,000,000 This forecast reflects management's 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 Our first question comes from the line of Thomas Chong of Jefferies. Please go ahead.

Speaker 4

Hi, good evening. Thanks management for taking my questions. I have two questions. My first question is about our thoughts about the impact of macro headwind to the advertising market in 2024. And for Sohu brand advertising, how's the trend so far across auto, FMCG, Internet Services and Property sectors?

Speaker 4

And my second question is about our capital allocation strategies. What makes us increase the authorized amount from $18,000,000 to $115,000,000 as we repurchased only about $12,000,000 as of the end of February? Thank you.

Speaker 2

So your first question is about the advertising trends. So the macroeconomic situation is not as good. So it will trending down basically the advertisers are being cautious in their budgets. So our exposure to real estate is really small. So the property market, property advertising is not a lot.

Speaker 2

We'll continue we'll see a continual percentage of advertisers industries are number 1 is auto and the Internet services and FMCG is the 3 sectors, but it's trending down. Yes, we increased the repurchase from $80,000,000 to $150,000,000 but it's we've been able to purchase repurchase $4,000,000 so far due to daily volume there is limitation to daily volumes. That's why we would not be we would like to complete them all, but it takes some takes time because daily volume is really low. Yes. Did I answer your question?

Operator

Thomas, your line is still open. If you have any follow-up questions, please ask ahead.

Speaker 4

Yes. Thank you.

Operator

Thank you for the questions. Next question comes from Alicia Yap from Citigroup. Please go ahead.

Speaker 5

Hi. Can you hear me okay? Hi, management.

Speaker 4

Yes.

Speaker 5

Yes. Hi. Thank you, Charles. Good evening. I have

Speaker 1

a couple of questions. First is that

Speaker 5

your Q1 guidance, I think the advertising came a little bit softer than our estimate. Can you elaborate a little bit the current macro environment that you have seen and the advertiser budget sentiment? Is that been trending weaker than you previously expected? Or is it in line with what you are expecting? And then do you expect the macro to turn better in the second half this year?

Speaker 5

Or do you think the weak macro could last a little bit longer? And then second question is on your loss guidance. If we are keeping some of the cost of revenue, I mean the cost of revenue for online advertising, does that suggest that the gross profit for online advertising in the Q1 could be actually negative? Just kind of a little bit color like how you guided so much wider on the loss. And then lastly, on the share buyback, is there any reason the buyback pace during the quarter has been a little bit slow?

Speaker 5

Is that the limit on the daily trading volume? Or is it a predetermined price that prevent you from getting more aggressive? Thank you.

Speaker 2

Yes, I think the advertising market seems is trending even down faster than we expected, right? We can see that. And also this year's spring festival, the Chinese New Chinese New Year is kind of February 10, so it's late in the middle later than last year, right. So people are most of the Q1, people are in holidays. So many of the companies or our advertisers, they're just they start to plant for the year only after the Chinese New Year and then after after 15th, right, of the year.

Speaker 2

So that's why we only started talking to these advertisers last few days, because they all came back to work and that's why Q1 is even a slower quarter compared with the Q1 of last year. So it seems I don't see any definitely the seasonality definitely will not be no problem with Q2, right? There is no seasonality issue since Q2 is normally is a strong quarter for advertising, but the macro economy situation is not in it seems not improving in the near future, right? So, we expect not much improvement, but definitely will be better than Q1 because of seasonality. And also, I hope to do it better to because we have some also some continue our effective and innovative marketing campaigns that bring advertisers.

Speaker 2

Cost of revenue or gross profit widening because our current goal or our ambition is really to have strong products and attrition of basically to develop large user base. And with the cash we have, we're still fighting, we're not retreating or we're still fighting, we need to develop user bases. So that in the coming years, months or year, we're spending more on marketing and on building our products and the video social network and live streaming user generated content in the product. So that explains that we have forecast a wider loss for Q2. Share repurchase pace is purely due to the daily volume limitation.

Speaker 2

It's not the price target, no, we don't have a tight price target to limit the purchase.

Speaker 5

Okay. Thank you, Charles.

Speaker 2

Right.

Speaker 5

Yes. Thank you, Charles.

Operator

Thank you for the questions. There are no further questions at this time. I would like to conclude the call. Thank you for participating in today's conference call that you may now disconnect your lines.

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Key Takeaways

  • In Q4 2023, Sohu reported total revenues of $141 M (down 12% y/y, 3% q/q) and a GAAP net loss of $13 M, while full-year revenues fell 18% to $601 M with a GAAP net loss widening to $66 M.
  • At Sohu Media Portal and Sohu Video, the company optimized algorithms, expanded premium content offerings and diversified delivery formats—including science-based live broadcasts like the Charles Physics class—to boost user engagement and monetize through high-profile events and content campaigns.
  • The online game segment delivered stable revenues of $115 M in Q4 and continues to invest in product updates for titles like TLBB PC and Legacy TLBB Mobile, while pursuing new MMORPG, card-based RPG, sports and casual game opportunities in domestic and international markets.
  • Sohu’s board increased its ADS share repurchase authorization from $80 M to $150 M, with approximately $12 M repurchased as of February 29, 2024, constrained by low daily trading volumes.
  • For Q1 2024, the company forecasts brand advertising revenues of $50–70 M and online game revenues of $110–120 M, reflecting weak macro headwinds and post-Chinese New Year seasonality, though management expects seasonal improvement in Q2.
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Earnings Conference Call
Sohu.com Q4 2023
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