Sohu.com Q1 2024 Earnings Call Transcript

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May 20, 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 First 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 Pu, Investor Relations Director of Sohu. Please go ahead.

Speaker 1

Thanks, operator. Thank you for joining us to discuss Sohu's Q4 2024 results. On the call are Chairman and Chief Executive Officer, Doctor. Charles Zhang CFO, Joanna Liu and Vice President Finance, James Deng. Also with us are Changyou's CEO, Dovin Chen and CFO, Yaobin Wang.

Speaker 1

Before management begin 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 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 any risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in our 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, Wangfu, and thank you to everyone for joining our call. In the Q1 of 2024, our top line performance was in line with our expectations and our bottom line performance exceeded our guidance despite the impact of seasonality. For Sohu Media and Sohu Video, we continue to enhance user experience by refining products and optimizing algorithms. We proactively integrated our product metrics and resources to stimulate content generation, consumption and social distribution. Meanwhile, leveraging our unique ITs and differentiated advantages, we continued to host various events and campaigns, which not only stimulated users' interaction and content provision on our platforms, but also help us gain more monetization opportunities.

Speaker 2

Online games delivered stable performance with 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. For the Q1 of 2024, total revenues were $139,000,000 down 14% year over year and 1% quarter over quarter. Brand advertising revenues were $16,000,000 down 29% year over year and 20% over quarter over quarter. Online game revenues $118,000,000 down 9% year over year and up 3% quarter over quarter.

Speaker 2

GAAP net loss attributable to suhu.comlimited was $25,000,000 compared with a net loss of $18,000,000 in the Q1 of last year and a net loss of $30,000,000 in the Q4 of last year. Non GAAP net loss attributable to soho.comlimited was $22,000,000 compared with a net loss of $13,000,000 in the Q1 of 2023 and a net loss of $11,000,000 in the Q4 of 2020 3.

Speaker 3

Now, I

Speaker 2

will go through our key businesses in more detail. First, Sohu Media and Sohu Video. We continue to improve our products, upgrade algorithms, enhance the user experience during the quarter. We deeply integrated the Sohu News and Sohu Video apps to allow users to generate and distribute premium content across both platforms simultaneously. This resulted in a substantial addition of high quality content to our product metrics, which in turn drove even greater content consumption and distribution.

Speaker 2

We held a variety of offline campaigns and continue to refine operations of online interest clubs in various verticals. As a result, our user metrics and interactions have steadily increased. In this quarter, we hosted various events to improve user engagement interactions and further stood out a vigorous video social ecosystem, especially among the young generation. We successfully hosted the offline event, 2024 Spring Convention of Sohu Video Influencers, where users and live broadcasters in different verticals came together in person to share their perspectives and interact with each other. This event further fueled broadcasters' overall enthusiasm and the vitality on our platform.

Speaker 2

During this quarter, we also launched 2024 Sohu Video K Pop Master Class, which attracted a large number of K Pop fans and to participate in our events, generating lots of fascinating K Pop related content and widespread discussions and distributions across various social media platforms. Besides, we hosted several noteworthy events promoting Hanfu, the traditional Chinese culture, Chinese customs, which also gained a lot of traction and recognition. We have consistently focused on building our unique ITs in the field of knowledge, live broadcasting and kept exploring innovative monetization opportunities. For example, we integrated Charles' Physics class, myself is giving a physics class for the last 2 years, into the 2020 4 Beijing International Automobile Exhibition, Beijing, China, which further expanded our brand influence, while at the same time increasing our monetization capabilities. To cater to the needs of advertisers, we also adopted a new approach of live exhibition at the 24 China Home Appliance and Consumer Electronics Expo in Shanghai.

Speaker 2

This not only allowed audiences to gain a deeper understanding of the product and helped advertisers to achieve better marketing outcomes, but they also highlighted the unique monetization value we offer. Going forward, we will continue to leverage the advantages of Sohu product metrics to provide differentiated marketing solutions for advertisers and drive advertising budgets. Next, turning to online game business. During the quarter, online game ad revenues were in line with our expectations, Winning our TV games business, we rolled out holiday events around Chinese New Year and Valentine's Day, as well as promotional events for regular TLBB PC, which increased players' willingness to play to pay. In addition to holiday events, we fully upgraded simulation gameplay for TLBB Vintage, which was quite popular among players.

Speaker 2

In our mobile games business, we launched an expansion pack for legacy TLBB mobile to celebrate the Chinese New Year and continue to optimize the skills of each clan, which resulted in user engagement stabilizing. Next quarter, we will launch expansion packs and content updates for the TLBB series and other titles to keep players engaged. For new games, we launched a licensed card based RPG New Westworld Journey in the Chinese mainland on May 16 this month. Its current performance is in line with our expectations. As gaming technology rapidly advances and the market demand becomes deeper and more diversified, Under our top game strategy, we will creatively explore new ways to better meet players' needs, expand our portfolio for international markets, and continue to invest in professional talent development, as well as content and technology innovation in order to bring more high quality games to the market.

Speaker 2

We'll maintain our core competitiveness in developing MMORPGs going forward. We're also producing multiple types of games, including card based RPGs, sports games and casual games, etcetera. Now, I'd like to give an update on give an update on the ongoing share repurchase program. As of May 16, 2024, Sohu had repurchased 1,700,000 ADS for an aggregate cost of approximately $17,000,000 With that, I will now turn the call to Joanna, our CFO.

Speaker 4

Thank you, Charles. I will now walk you through the key financials of our major segments for the Q1 of 2024. All the numbers on a non GAAP basis. You may find a reconciliation of non GAAP to GAAP measures on our IR website. For Sohu Media and Sohu Video, quarterly revenues were $20,000,000 compared with revenues $30,000,000 in the same quarter last year.

Speaker 4

The quarterly operating loss was $74,000,000 compared with operating loss of $67,000,000 for the same quarter last year. For Changyou's online game business and the 1,000,173, quarterly revenues, dollars 190,000,000 compared with revenue of $131,000,000 in the same quarter last year. Quarterly operating profit was $55,000,000 flat with the same quarter last year. For the Q2 of 2024, we expect brand advertising revenues to be between $80,000,000 $20,000,000 This implies an annual decrease of 16% to 25% and a sequential increase of 12% to 24%, online gaming revenues to be between $133,000,000 $143,000,000 This implies annual increase of 12% to 21% and a sequential increase of 13% to 21%. Non GAAP net loss attributable to sohu.comlimited to be between $27,000,000 $37,000,000 and the GAAP net loss attributable to sohu.comlimited to be between $30,000,000 $40,000,000 This forecast reflects Sogou's management's current and preliminary view, which is subject to substantial uncertainty.

Speaker 4

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 Our first question comes from Thomas Chong from Jefferies. Please ask your question, Thomas.

Speaker 3

Hi, good evening. Thanks management for taking my question. My first question is about our advertising business. How should we think about the advertising sentiment in the coming quarters? In particular, we have Olympics in Q3.

Speaker 3

Should we expect advertising back to positive year on year growth in the second half? And that's my first question. And then my second question is about our online game guidance in Q2. Should we assume the sequential growth is mainly coming from our new license team? Or can we actually break out the contribution from our license team in Q2?

Speaker 3

That will be great for. And then my first question is more about our capital allocation strategy. I think, Charles, you also mentioned that the aggregate amount that we repurchased is about USD 17,000,000. Just want to get some color with regard to our full year, Ken. Should we assume that any color about how much share repurchase we will do in the remainder of the year?

Speaker 3

Or should we think about the 150,000,000 share repurchase program should be fully used up in 2 years' time? Thank you.

Speaker 2

Well, let me answer your 3rd question first, okay. So we've been bought $70,000,000 and we have $150,000,000 because of the daily volume that we can buy. So our plan is to finish all the $150,000,000 buyback and probably takes 2 years. And so limited by daily volume trade. And so the first question on advertising, I think the well, the macroeconomic situation is still kind of with a lot of uncertainty.

Speaker 2

So, economy, yes, so the there is some recovery in certain sectors in Q2, but not very strong and advertisers spending are kind of cautious. So we do have in Q2, we do have a Q2Q increase for brand advertising compared with Q1. But compared with last year, I'm not sure we can compare with 2023, we'll achieve growth or

Speaker 4

Decrease.

Speaker 2

Yes, still decrease. Yes. It all depends on we are able to because we need to continue to develop our user base so that we have scale up our user base, that's a time when we can achieve advertising growth. Yes, then the second question is about online gaming and about whether the sequential increase

Speaker 4

The sequential decrease of our revenue is mainly from Haikyu Fly High, which we launched in Japan and South Korea at the end of March and also from New West World Journey that we launched in May 16th in the Chinese mainland. And at the same time, there are some there will be some decrease of our older games.

Speaker 2

So the allocation of capital besides the buyback, we will we still need to have the cash level to find better right to market our products and to develop our products.

Speaker 3

Got it. Thank you, Charles.

Speaker 2

Okay.

Operator

Thank you. Our next question comes from the line of Alicia Yap from Citi. Please ask your question, Alicia.

Speaker 5

Hi, yes. Thank you. Good evening, Charles, Johanna and management team. Thanks for taking my questions. I have a couple of questions follow-up.

Speaker 5

So number 1 is the follow-up on the guidance. So I understand the sequential growth in the gaming guidance. But however, I think given gaming is a high margins and profitable business, the sequential increase in revenue and profit from gaming should support overall group profitability? And why is your 2Q net loss guidance is actually wider than you deliver for the first quarter. So any color if you can share with us on the expense side, that will be great.

Speaker 5

And the follow-up questions on the buyback, just wanted to make sure I got it correct. So I think last quarter, you mentioned you bought back about $12,000,000 as of February the end of February and now that you have $17,000,000 So is that true that you actually executed about $5,000,000 dollars over the last like 3 months or so? And is it just because of the daily volume that is the limitations? Or is there anything on the money transfer or kind of like moving out the money? Is there any restrictions on that?

Speaker 5

Thank you.

Speaker 2

No, just I think the last question is the daily limit. We'd like to buy them all, right, buyback the order to carry out all the 150,000,000 buyback, but we can't because of daily volume limit. So, yes, I think your calculation is right, right? The last 2 months, we bought 5,000,000 back. Yes, we are trying to we hope that in the future, the volume will improve so that we can buy more, so that we can finish this 150,000,000 as early as possible.

Speaker 2

As to the Q2 expense, right?

Speaker 4

Because in Q2 net loss, the guidance is lower than Q1 because of we spend more on the marketing expense for the Changyou's new game. Yes.

Speaker 5

Oh, I see. So it's only for the game promotion, but nothing on like a step up for the video or the media business?

Speaker 2

The

Speaker 4

media, we

Speaker 2

a few TV drama, right, that already spent, the money already spent in Q1, right? Yes. Yes. So no increase in media side spending.

Speaker 5

I see. Okay. Helpful. Maybe can I attribute last questions on also the follow-up? I think Charles you mentioned while the macro kind of remain a little bit uncertain, but you did see a little bit of some recovery in certain sector in the Q2.

Speaker 5

Can you share with us which vertical or industry vertical that you actually see a little bit improvement in the second quarter?

Speaker 2

I think FMCG is getting better with beverage and the food and then yes. And also the electric vehicle industry is competition is very, very intensified and people are because of the completion, people are forced to spend some money, although they're spending much less than before, but still there is some spending in the auto industry, right? And but overall still advertising is still very cautious.

Speaker 5

I see. So maybe I see, I see. Thank you, Charles. Maybe just a quick follow-up with recent positive policy measure from the government, especially on the real estate side. Do you think overall sentiment from advertisers will be improving in maybe in the second half?

Speaker 2

I think that is particular that's it's about real estate industry, right? It has nothing to do with other, right, the recent policies about the real estate and but that real estate does not reflect any not I don't think the people consumers income will be improved. So spending of consumers spending will not be will not increase. So that's when consumers are not spending, but they do are it seems they are spending a lot on traveling, the travel business is coming back a little bit. But overall spending willingness is not as strong.

Speaker 2

So the product that means when people are not buying things, then the company's products will not you will not expect sales, then advertising will not so it's not direct. The recent policy does not have a direct impact, positive impact on the advertising market.

Speaker 5

I see. Okay. That's very helpful. Thank you, Charles.

Speaker 2

Great.

Operator

Thank you. Well, I'm showing no further questions. Thank you very much for all of your questions. And with that, we conclude today's conference call. Thank you for participating.

Operator

You may now disconnect.

Speaker 2

Okay. Thank you.

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Key Takeaways

  • In Q1 2024, Sohu reported total revenues of $139 million (down 14% YoY, down 1% QoQ) and a GAAP net loss of $25 million, with non-GAAP loss of $22 million, both wider than a year ago but the bottom line beat guidance.
  • The Sohu Media & Video segment improved user experience by integrating its News and Video apps, hosting offline events like the Spring Convention for Video Influencers and K-Pop Master Class, which drove higher content generation, consumption and advertiser interest.
  • Online games delivered stable performance with $118 million in revenues (down 9% YoY, up 3% QoQ), boosted by holiday and promotional events, the launch of the RPG New Westworld Journey and planned expansion packs to sustain player engagement.
  • Sohu has repurchased 1.7 million ADSs for ~$17 million under a $150 million buyback program and plans to complete the full amount over two years, limited by daily trading volumes.
  • For Q2 2024, the company guides brand advertising of $80–100 million, online game revenues of $133–143 million and expects a non-GAAP net loss of $27–37 million, reflecting continued marketing investments for new game titles.
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Earnings Conference Call
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