Sohu.com Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 5, 2024

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 2020 4 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, Huang Ku, Investor Relations Director of Sohu. Please go ahead.

Speaker 1

Thanks, operator. Thank you for joining us to discuss Sohu's Q2 2024 results. On the call are Chairman and Chief Executive Officer, Doctor. Charles Zhang CFO, Joanna Liu and Vice President of Finance, Jim Stone. Also with us are Changyou's CEO, Duwen Chen and CFO, Alvin Wang.

Speaker 1

Before 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 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 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 notes written 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, Honpu, and thank you, everyone, for joining our call. In the Q2 of 2024, we hit the high end of our prior guidance in brand advertising revenues, while our online game revenues came in well came in well above expectations. Our bottom line performance was in line with our prior guidance. For Sohu Video Sohu Media and Sohu Video, leveraged by our increasingly integrated and sophisticated product metrics, We further promoted the generation and consumption of premium content and vigorously boosted social interactions among users. Benefiting from our differentiated events and marketing campaigns, we were able to continually strengthen our brand influence and explore diverse range of monetization opportunities.

Speaker 2

Online games performed well with revenues exceeding 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 Q2 of 2024, total revenues were $172,000,000 up 13% year over year and 24% quarter over quarter. Brand advertising revenues, US20 $1,000,000 down 17% year over year and 24% up quarter over quarter. Online game revenues $147,000,000 up 24% year over year and 25% quarter over quarter.

Speaker 2

GAAP net loss attributable to silver.com Limited was $38,000,000 compared with a net loss of $21,000,000 in the Q2 of last year and a net loss of $25,000,000 in the last quarter. Non GAAP net loss attributable to sohu.comlimited was $34,000,000 compared with a net loss of $18,000,000 last year Q2 of last year and a net loss of $22,000,000 in the Q1 of this year. Now let me go through the key businesses in more detail. 1st, the Sohu Media and Sohu Video together. We consistently optimized our products, introduced innovative features and further enhanced user experiences.

Speaker 2

We have built up a close connection among the platforms, content creators and at the same time they are also users. These enhancements increasingly promoted a continuous generation and distribution of diversified content, improved user engagement and inspired active social interactions. During the quarter, we focused on stimulating content innovation through various online and offline events and actively explored opportunities in developing our influential online interest clubs in different verticals. For example, the 2024 Sohu Video K Pop Master Class has attracted nationwide attention and recognition from large number of K Pop fans. We'll follow this up by launching 2024 Sohu K Pop Dancing Festival, the second last year, we also did that, so 2nd annual event this year.

Speaker 2

In early August, besides K Pop, we have also hosted various events related to the traditional Chinese Hanfu costume and photography. These events have gained notable traction and recognition as younger users with same interest flocked to our flourishing online interest clubs. Meanwhile, in June, we hosted our traditional flagship event of 16th Sohu News Marathon in Shenzhen this time. During the marathon, entrepreneurs, sports celebrities and pop stars actively share their ideas via pictures by broadcasting short video clips on Sohu News app and Sohu Video app, the also the social network channel. These has provided us with abandoned premium content, stimulated user engagement and social Furthermore, we continue to enrich our video content library by acquiring exclusive dramas, rolling out unique original content, introducing short form dramas short form clips short form dramas.

Speaker 2

Our original drama President is President and Olympic variety show topic variety show, reality show, Be A Hero, were both well received by audiences and generated widespread discussions across various social media platforms. Although advertisers remain relatively cautious in the quarter, thanks to our knowledge based video platform and advanced and live broadcasting technology and the strong dissemination ability, we were able to strengthen our differentiated advantages and continue to explore innovative monetization opportunities. For example, we integrated our distinctive My Own Child Physical Trust into various marketing campaigns, which were highly appreciated by advertisers. And this class helped us capture advertising budgets because through these various events, we not only help audiences simultaneously comprehend the physics knowledge behind especially the auto industry auto companies, the products, the cars, the physics, knowledge behind the products, also promoted branding for advertisers. So meanwhile, we kept integrating advertisers' needs into our traditional content marketing campaigns to maximize the monetization value we offered.

Speaker 2

Next, turning to online game business. During the quarter, online game business performed well with revenues exceeding prior guidance as well our TLBB series has remained stable, while new Western Westworld Journey, a licensed card based RPG that we launched during the quarter performed well. In our PC game business, we launched various events for regular TLBB PC to celebrate its anniversary. We also supplemented and optimized its gameplay and the content based on player feedback. With TLBB Vintage, we introduced a team PVP event to set aside players' demands of combat.

Speaker 2

In our mobile games business, we launched an expansion pack for legacy TLBB mobile for its anniversary, updating its graphics and adding a fun strategic gameplay, which were well received by players. Next quarter, we will continuously launch expansion packs and content updates for TLBB series, series' new Westworld journey and other titles to keep players engaged. As market competition intensifies, the market demand becomes more diversified, we will forge ahead with our top game strategy, continuously optimizing the R and D process, enhancing execution and expanding our international presence. In addition, we will 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. We'll maintain our core competitiveness on MMORPGs going forward, while also seeking to make breakthroughs in multiple players of multiple types of games, including card based RPGs, sports games and casual games, etcetera.

Speaker 2

Now I would like to give the an update on the ongoing share repurchase program for Sohu. As of August 1, 2024, Sohu has repurchased $2,300,000 ADS for an aggregate cost of approximately $26,000,000 With that, I now turn the call to our CFO, Joanna. Joanna, please?

Speaker 3

Thank you, Charles. I will now walk you through the key financials of our major segments for the Q2 of 2024. 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 and Sohu Video, quarterly revenues were $24,000,000 compared with $32,000,000 in the same quarter last year. Quarterly operating loss was $72,000,000 compared with an operating loss $67,000,000 in the same quarter last year.

Speaker 3

For Changyou's online games business and the 17,173, quarterly revenues are $148,000,000 compared with $120,000,000 in the same quarter last year. Quarterly operating profit was $32,000,000 compared with operating profit $49,000,000 in the same quarter last year. For Q1 of 2024, we expect brand advertising revenues to be between $70,000,000 $90,000,000 This implies annual decrease of 14% to 23% and a sequential decrease of 4% to 14%. Online game revenues should be between $104,000,000 $114,000,000 This implies annual decrease of 3% to 11% and a sequential decrease of 22% to 29%. Non GAAP net loss attributable to sogou.comlimited to be between $30,000,000 $40,000,000 and GAAP net loss attributable to sohu.comlimited to be between $34,000,000 $44,000,000 This forecast reflects Sohu's management's current and preliminary view, which is subject to substantial uncertainty.

Speaker 3

This concludes our prepared remarks. Operator, we would now like to open the call to questions.

Operator

Thank

Speaker 4

you.

Operator

The first question comes from Thomas Chong of Jefferies. Please go ahead.

Speaker 4

Hi, good evening. Thanks management for taking my question. My first question is about the brand advertising business. Can management comments about how the macro headwinds affect the advertising market quarter to date? Because if I look at the guidance, we are expecting a sequential decline of 4% to 14%.

Speaker 4

Just want to get some color with regard to sectors like auto, FMCG, Internet service and property sector. How are we seeing the quarter to date so far? And my second question is about our gaming business. Given that we are expecting our gaming business to decline by about 22% to 29%, I just want to get some color with regard to the sequential decline. Is it mainly due to Restwood Journey?

Speaker 4

How should we think about TLBB series? And my first question is about our share repurchase program. Given that we have 150,000,000 share repurchase program, how should we think about the share repurchase in the second half, if any color? Thank you.

Speaker 2

Okay. Thank you for the question. And let me first of all, on advertising, the overall macroeconomic situation is not that good, the downward trend. So there's advertising is still a challenge, I mean, a big challenge because advertisers are very cautious in spending and some advertisers tend to have the effect driven advertising, right? You want to brand side is spending less.

Speaker 2

So overall, it's not good. But because of as I just said, I just said that, non scripted report that we've been using innovative marketing campaigns and this platform innovative platform to was able to attract some brand advertising spending, so that we achieved a 24% quarter to quarter increase over Q1. And of course, in Q1, the in Q2, the auto industry spending is more spend more compared with the Q1. And in the long run, auto industry is still is hopeful, it looks promising. But it's still very competitive and there's the electric car, BV, I think, is upcoming and increased, but the luxury cars are really phasing out of the because of the price wars and everything.

Speaker 2

So Q2, the auto now have 25% of our overall advertising and then also Internet services. So Q2, the auto spend more and also Q2 is the e commerce quarter, especially like the Liuba in June 18. And in the summer, the FMCG is coming up because of the hot weather and the drink company beverage companies start spending. So that's the overall and yes, we yes, that's the underlying situation. About Changyou, so

Speaker 5

The sequential decrease of the 3rd quarter gaming revenue guidance is mainly because Westward Journey, which accounts about half of the decrease and the natural decline of other older games accounts the other half.

Speaker 2

And then about the share repurchase, we spent $26,000,000 out of the we have a program of $150,000,000 purchase, right? So we'll keep the same pace in Q3 to because of the limitation of the volume, the total volume percentage volume, right, each day. That's why we're not able to purchase faster or so or same pace in Q3.

Speaker 4

Got it. Thank you, Charles.

Speaker 2

All right.

Operator

Thank you for the questions. One moment for the next question. Next question comes from the line of Alicia Yap from Citigroup. Please go ahead.

Speaker 6

Thank you. Good evening, Charles and management. Thanks for taking my questions. A few questions here. Number 1, I wanted to follow-up on the gaming question.

Speaker 6

So 3Q guidance obviously implying there is a sequential reversal or decline mainly as you mentioned half of it is driven by Western Journey. I'm just wondering will this game actually have a chance to rebound in the later quarters or you actually would expect after the decline, there's probably less hope for that to recover

Speaker 1

back to

Speaker 6

the 2Q level. And then second question is on your sales and marketing spend. Obviously, 2Q due to the game promotion, you spent a very big number, which I think is you guided. But then for 3Q, the last guidance, it also seems to be implying the expenses size seems to be winning quite high. So can you maybe elaborate a little bit among the expense in terms of the gross margin trend and also the sales and marketing trend?

Speaker 6

And then just related to that on the last question is that any planning or initiative for you to think about to narrow your operating loss in the coming quarter? Thank you.

Speaker 5

We think there is possibility for New Westward Journey to rebound because it's a nice game. And before we have some we were kind of divided about the game's improvement and its development direction with a 3rd party developer. And recently, we have agreed upon it and the center will be around the users' experience. And we do we did a lot of user research. If those measures are effective, we think you should have chance to recover.

Speaker 5

Thank you. Really, the retention rates before 30 days are excellent. And the main problem realizing the content after 30 days. So we actually we have postponed our overseas plan for overseas release plan. And we hope we can improve the game, modify the game, solve the problem.

Speaker 5

And after that, we will release the game in the overseas market. The gross margin for online game will recover in the 3rd quarter because the marketing expenditure and as well as the revenue sharing payments will decrease as well.

Operator

Thank you for the questions.

Speaker 2

Okay. Thank you for

Operator

the question. As a reminder to ask questions sorry, please

Speaker 2

go ahead.

Speaker 6

Sorry, I wanted to follow-up on the any plans or initiative to narrow the operating loss in the coming quarters?

Speaker 2

In terms of game or the overall Sogou?

Speaker 6

Overall business. I mean, probably on the Well, a lot

Speaker 2

depends on the gaming spend because that's the large part, right? So if the game does not risk rebound in Q3, then our spending will not be much. So gross margin definitely will improve for the gaming part. For Sohu, I think we are at people often ask us about the with our cash, how are we going to spend our cash? Besides repurchasing of the shares, we are actually still in a battlefield, right?

Speaker 2

So we need to build a user base. And only when we have a sizable user base that we can of user base that we can turn the Sohu part, the media part to be turned into profitable term profitable. So we need to invest in the building the products, developing the products and also acquire new users, and that's where we're going to spend. So I think the on the Sohu part, the gross margin will be similar, right? Or yes, we'll spend keep spending.

Speaker 6

I see. Thank you, Tom. Maybe just slip in one last one regarding the cash position. I mean, given there is some 20% daily limit restriction, any other thinking about other shareholder return policy that in your mind?

Speaker 2

No, no, no, no. Yes, buyback is one of the main one. And then the best one is we are very confident, we're hopeful that we are going to be successful in building up the user base and then to turn the whole into a profitable turn the yes, into a highly profitable company, that's the best reward for your shareholders.

Speaker 6

Okay. Thank you, Charles.

Operator

Thank you for the questions. There are no more questions on the line. I would like to conclude today's conference call. Thank you for your participation. You may now disconnect your lines.

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Earnings Conference Call
Sohu.com Q2 2024
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