Sohu.com Limited (NASDAQ:SOHU) Q2 2023 Earnings Call Transcript

Sohu.com Limited (NASDAQ:SOHU) Q2 2023 Earnings Call Transcript August 7, 2023

Operator: Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu’s Second Quarter 2023 Earnings Conference Call. [Operator Instructions]. 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’ll now turn the conference over to your host for today’s call, Huang Pu, Investor Relations Director of Sohu. Please go ahead.

Huang Pu: Thanks, operator. Thank you for joining us to discuss Sohu’s second quarter 2023 results. On the call are Chairman and Chief Executive Officer, Charles Zhang; CFO, Joanna Lv; and Vice President of Finance, James Deng. Also, with us are Changyou’s CEO, Dewen Chen; and CEO, Yaobin Wang. Before management begins their prepared remarks, I would like to remind you of the 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. Therefore, you should not place undue release 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 containing any forward-looking statements. 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’ll now turn the call over to Charles Zhang. Charles, please proceed.

Charles Zhang : Thanks, Huang Pu, and thank you, everyone, for joining our call. In the second quarter of 2023, we delivered stable performance with both revenues and the bottom line meeting our expectations. At Sohu Media, we enhanced the user experience through continuous refinements to our products and technology and by offering users a steady stream of reliable content real-time. In Sohu Video, with consistent execution of our Twin Engine strategy, we expanded our portfolio of long and short-form video content and proactively, improved their distribution. Leveraging our advanced live broadcasting technology and Sohu product metrics, we hosted traditional flagship events and innovative content marketing campaigns, which generated abundant premium content and attracted more users.

And this also put us in a position to explore more monetization opportunities and again advertising dollars. Online games remained steady, generating revenues in line with our prior guidance. Now let me first give you a quick overview of the financial performance. For the second quarter of 2023, total revenues, $152 million, down 22% year-over-year and 6% quarter-over-quarter. Brand advertising revenues, $24 million, down 4% year-over-year and up 6% quarter-over-quarter. Online game revenues, $118 million, down 25% year-over-year and 9% quarter-over-quarter. GAAP net loss attributable to Sohu.com Limited was $21 million compared with a net income of $9 million in the second quarter of last year and a net loss of $18 million in the first quarter of 2023.

Non-GAAP net loss attributable to Sohu.com Limited was $18 million compared with a net income of $12 million in the second quarter of last year and the net loss of $30 million in the first quarter of this year. Now I’ll go through our key businesses in more detail. First, Media Portal and Sohu Video. At Sohu Media Portal, we continue to focus on refining our product and optimizing the algorithm. We further enhanced the user experience by integrating cutting-edge technology into our products and expanding premium content and various forms of presentation. Thanks to our continuous dedication and integration of rich media resources, we strengthened our advantage and influence as a mainstream media platform. At Sohu Video, we continue to execute our Twin Engine strategy.

For long-form video content, we released the crime scene idle romance, Love of Replica starring, [ph] CaoYouning. During the quarter, widespread popularity and further expanded our audience base. At the same time, we launched several realities shows like, this is Me Germany [ph], which is the sixth season of our on The Way Home and High Summer Friends, [Indiscernible]. These shows have created a lot of engaging discussions online and attracted millions of viewers across various social media platforms. In terms of short-form content and live streaming, we kept concentrating on knowledge and science-related live broadcasters. Driven by our distinct IP of physics class, Charles physics class, which is becoming very popular. And we further promoted high-quality content generation and its social distribution, attracting more users to produce video content and interact with each other on our platform.

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On the modern transition side, we closely monitor market trends and explore potential opportunities, leveraging our advanced live broadcasting technology and the dual due platform of Sohu Media and Sohu Video. We provided advertisers with unique and diversified online and offline marketing strategies that cater to their needs and boosted advertising dollars. In the second quarter of this year, we hosted the traditional content marketing event, the 15th Sohu News Marathon, Zheng Shuang, demonstrating the reinvigoration and popularity of traditional Chinese culture as well as Sohu’s positive upward social values. We also proactively developed new monetization opportunities by integrating innovative ideas into diversified events and expanded application scenarios using our advanced live broadcasting technology.

We integrated the Charles Physics Class into Sohu Tech Conference and further expanding this IP into a new series of other activities called Talk Under the Stairs Guy, [ph] [Indiscernible]. These events have generated an abundance of premium content and obtained recognition from advertisers. Next, turning to the online game business. During the second quarter of 2023, online game revenues were in line with our prior guidance. Within our PC game business, we optimized the character development system of regular TLBB PC to make players’ investments more worthwhile and also improved the social relation system for TLBB Vantage. In our mobile game business, we launched an expansion pack for the anniversary of Legacy TLBB Mobile with the addition of the limited-time player-versus-player event to satisfy demand for traditional — for additional in-game combat.

Next quarter, we will launch new TLBB Mobile, our next-generation TLBB product, along with the expansion packs and content updates for other — along with expansion packs and content updates for other games to maintain player engagement. Nowadays, as technology in the game industry advances rapidly and market demand becomes deeper and more diversified, we intend to step to our top game strategy, allocating more resources for research and development to generate ideas, professional talent development as well as content and technology innovation in order to roll out our more high-quality mobile games. In terms of games pipeline, we will maintain our core competitiveness in the MMORPGs while also producing various game — other game types, including card-based RPGs, sports and casual games.

Now let’s turn over the call to our CFO, Joanna, who will walk you through our financials. Joanna?

Joanna Lv: Thank you, Charles. I will now walk you through the key financials for our major segments for the second quarter of 2023. All the numbers are on a non-GAAP basis. You may find a reconciliation of non-GAAP to GAAP measures on our IR website. For Sohu Media Portal, quarterly revenues were $17 million compared with revenue of $20 million in the same quarter last year. The quarterly operating loss was $35 million compared with an operating loss of $44 million in the same quarter last year. For Sohu Video, quarterly revenues were $50 million, compared with revenues of $60 million in the same quarter last year. Quarterly operating loss was $32 million compared with an operating loss of $25 million in the same quarter last year.

For Changyou — for Changyou’s online game business and 17173, quarterly revenues $190 million compared with revenue of $159 million in the same quarter last year. Quarterly operating profit was $49 million. compared with an operating profit of $85 million in the same quarter last year. For third quarter of 2023, we expect from advertising revenues to be between $21 million and $24 million. This impacts annual decrease of 7% to 18% and a sequential decrease of [ph] near 0% to 12%; online game business, only game revenues to be between $108 million and $180 million, this implies annual decrease of 21% to 27% and a sequential decrease of near 0% to 9%; non-GAAP net loss attributable to Sohu.com Limited to be between $20 million and $30 million; and GAAP net loss attributable to Sohu.com Limited to be between $23 million and $33 million.

Our guidance reflects our current and preliminary view, which is subject to substantial uncertainty. Also, please be noticed that the above guidance excludes projections for the new TLBB Mobile game, which is scheduled to launch in the third quarter of 2023. Given that the game is not yet launched, revenue projections for the game remain uncertain. Therefore, the company believes that it is appropriate to take a conservative approach with the third quarter guidance. This concludes our prepared remarks. Operator, we would now like to open the call for questions.

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Q&A Session

Operator: [Operator Instructions]. Our first question comes from the line of Thomas Chong from Jefferies. Please ask your question, Thomas.

Thomas Chong : Hi, good evening. Thanks, management for taking my questions. I have a question on the advertising first. When I look into the Q3 guidance, it seems that the low end of the guidance and the high end seems the range is quite high. If I try to exclude the foreign exchange impact by looking into local currency, it seems that there’s a chance that we would have a positive sequential growth. So just wanted to ask management about how the advertising sentiment so far, we are seeing in the month of July versus June and how we should think about the advertising trend across different categories like auto, FMCG, and Internet services. Thank you.

Charles Zhang : So, you said a sequential growth? Is that sequential growth for Q3?

Joanna Lv: Q3, the guidance, the coming range.

Charles Zhang : So, in terms of RMB, right? Some kind of growth.

Joanna Lv: Yes.

Charles Zhang : So overall, for the second quarter, the advertising revenue is not — so the whole overall market is not bouncing back as expected. So that’s why compared with last year, the Q2 revenue dropped, right, 4%. But we are still holding steady because, in terms of RMB, it’s still a 2% growth for Q2. Normally, we have a better Q3 normally, right, in a normal economic situation. But because of the sluggish economy, as I said, the bounce back is not expected. We are forecasting a downward revenue for Q3. And yes, because we’re holding up the revenue because of our innovative marketing solutions to our advertisers, as I just said in the script, our live broadcasting, and innovative events. But overall, in terms of the categories, and so the real estate is basically — it’s — no, it doesn’t exist anymore.

And so, our top advertisers: auto, 26%; Internet service, 18%; FMCG, 16%. With auto, it’s not — seems not doing well because the automakers are now more hesitant in spending much with big marketing campaigns, not as they did because of the overall economy. And Internet service as well, it’s the same thing, same because our people are spending less, even buying less and online. So FMCG seems a little bit — it’s okay, but it’s still with a smaller percentage of our overall revenue. So that’s the kind of — that’s the overall picture. Did I answer your question, Thomas?

Thomas Chong : Yes, thank you, Charles, for the details. May I have a quick follow-up about AIGC and industry LLM? I just want to seek management’s thoughts about how AIGC can benefit Sohu in the future. And what are our strategies and the spending in this area? Thank you.

Charles Zhang : We believe that AIGC is a major technological advancement. It’s — and it’s very important. It revolutionized the way — formally, it’s a search engine. Now it’s a totally different way of delivering information or — so it’s a very important opportunity, especially for media and information providers like Sohu. So, we are not investing in the large model, big data model, large model. We will probably outsource the large amount of — to use some services — service providers, third-party providers to us. But — and then we are redeveloped those applications in our consumer and services like Sohu News and Sohu — and social network. Like for example, we are now — before each article, we have a machine-generated…

Joanna Lv: Abstract.

Charles Zhang : What? Abstract, Yes, exactly. Abstract. And also, some of our products actually using AIGC. So, we are going to be a heavy user of AIGC, and we’re closely monitoring its development and also to turn those developments into the real attractive new applications and turn it into a user — consumer side products, yes.