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spk06: Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining SOHO's second quarter 2021 earnings conference call. At this time, all participants are in 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 would now like to hand the conference over to your host for today's conference call, Quang Tu. Investor Relations Director of Soho. Please go ahead.
spk02: Thanks, operator. Thank you for joining us today to discuss Soho's second quarter 2020 results. On the call are Chairman and Chief Executive Officer, Dr. Charles Zhang, CFO, Joanna Li, and Vice President of Finance, James Dunn. Also with us today are Chang-Yu CEO, Derwen Chen, and CFO, Yao-Bing Wang. Before management begins their prepared remarks, I would like to remind you of the Commercive Harbor Statement. in connection with today's conference call. Except for the historical information contained herein, the matters discussed on this call may contain forelooking statements. These statements are based on current plans, estimates, and projections, and therefore, you should not place undue reliance on them. Forelooking statements involve inherent risks and uncertainties. We caution you that a number of important factors may cause actual results to differ materially from those contained in any forelooking statement. For more information about the potential risks and uncertainties, please refer to the company's findings with the Securities and Exchange Commission, including the most recent annual report on Form 20F. Please also be reminded that SOGO's results of operations have been excluded from our results from continuing operations. Retrospective adjustments to the historical statements have been made in order to provide a consistent basis of comparison. unless indicated otherwise. The results that we talk about are related to continued operations only. With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed.
spk03: Thank you, everyone, for joining our call. For the second quarter of 2021, despite the negative impact of COVID-19, we kept exploring new monetization opportunities while deeply controlling the budget. Thanks to the outperformance of our online game business, our profitability exceeded the prior guidance. For Sohu Media, we focused on innovating our products and technology and effectively promoting the generation and distribution of high-quality content. of our Sohu video, we continue to execute our TuneEngine strategy of developing high-quality long-form and short-form content, while at the same time refining our advanced live broadcasting technology and moving them out to various applications. We're also able to diversify our revenue sources and better capture advertising budgets by integrating our live broadcasting technologies into our unique events. For Changyong, online games performed well during the quarter, and its revenue exceeded the high end of our prior guidance. Let me now go into more details about each business in a moment, but now let me first look at the quick overview of financial performance. For the second quarter of this year, total revenues $204 million, up 28% year over year, and down 8% quarter over quarter. Brand advertising revenues, $37 million, down 3% year over year, and up 20% quarter over quarter. Online game revenues, $151 million, up 43% year over year, and down 14% quarter over Gap net income from continuing operations attributable to SOHO.com Limited was $22 million, compared with the net income of $11 million in the same quarter last year, and the income of $32 million in the first quarter of this year, 21. Non-gap net income from continuing operations attributable to SOHO.com Limited was $25 million, compared with net income of $12 million in the second quarter last year and a $37 million in the first quarter of this year. Lastly, please be noted that for the gap and non-gap net income for the second quarter of last year mentioned above, additional withholding income tax accrual of $88 million of Chang You has been excluded. Now let me go through some of our key presenters. First, Media Portal and Sohu Video. For Sohu Media Portal, we continue to innovate our products and technologies. We stimulated the organic generation of convenient content and further enhanced our social network distribution features. We kept extending the presentation form of our content and introduced audio feature in this quarter. On the Soho Tech 5G and AI conference we launched, we hosted in May, we rolled out an exclusive new feature called Soho AI Anchor. By integrating Sogo's advanced technology, AI technology, we can synthesize the image and the voice of a well-known celebrity. using artificial intelligence, AI. We've embedded the AI anchor in a certain channel with a 24-hour channel with the social news app where viewers can catch up with real-time news and hot events. And also added an audio function into the news feed and into each article, enabling users to listen to articles and updates of their choice at any time. And these initiatives have comprehensively improve the audio-video experience of the SOFU News app and allow users to more easily consume our news and premium content with a limited time. For SOFU Video, we continue to develop compelling long-form and short-form content with the Twin Engine strategy. For original content, we launched the Mysterious Love, an original drama combining idle romance and crime scenes, and became a big hit during the quarter, attracting a lot of public attention and further boosting our subscriber base and revenues. For the short-form content and live broadcasting, we kept optimizing our advanced live broadcasting technologies and these operations, and we consolidated our strengths in value by broadcasting and committed to us reporting The reporting of major breaking news events and emergencies witnessed live streaming in real time, which further reinforced our brand's advantage and influence as a mainstream media platform. Moreover, we also combined the advantages of both our Sohu media and Sohu video platforms kept exploring new monetization opportunities by integrating advanced live broadcasting technologies into our unique and creative content marketing campaigns. For example, in July, we successfully hosted the Sohu News Snow Mountain Expedition. which immersed the users in a unique and visually spectacular mountaineering experience over a five-day period of non-stop live broadcasting. The participants, including pop stars and celebrities, shared their feelings, interacting with the audience throughout the live streaming on their platforms during the climbing. The live streaming content allowed us to create a huge amount of great derivative content, all of which turned the expedition into an eye-catching event, a real-time event for audiences and advertisers. By creating and providing these unique marketing opportunities, we were able to better meet advertisers' demands and capture their budgets. So next, turning to Changyou. For the second quarter of 2021, Changyou launched new expansion packs of both TLBB PC and Alexa TLBB Mobile. These updates proved to be well received by players and helped the overall performance of our online games to remain stable, which is better than we expected. As a result, revenue from our online game business exceeded the high end of our prior guidance. For PC games, we launched a series of in-game events for regular TLBB PC to celebrate its anniversary. We also launched a new dungeon for TLBB Vintage and improved the game based on player feedback. For mobile games, we launched an expansion pack for the anniversary of Legacy TLBB Mobile with some holiday events and upgraded its graphics. Thanks to these efforts, both user engagement and payments remained stable and revenue was broadly flat on a sequential basis Next quarter, we'll continue to roll out new content for TLBB PC and Alexa TLBB Mobile to sustain the vitality of these games. For new games, Changyong launched a licensed card game called Little Raccoon Heroes on August 4th, two days ago. It performed well so far. In terms of pipelines, several key games are being developed and fine-tuned, and we'll introduce them to players later. Looking ahead, we'll continue to execute our top game strategy, promote innovation, and roll out more high-quality mobile games, including MMORPGs and games in other genres. Now let me turn the call to Joanna, our CFO, who will walk you through our financial results.
spk01: Thank you, Charles. I will now walk you through the key financials our major segments for the second quarter of 2021. All of the numbers that I will mention are all on the Nangap basis. You can find the reconciliation from Nangap to GAAP measures on our IR website. For Sohu Media Portal, quarterly revenues were $22 million, down 3% year-over-year and up 21% quarter-over-quarter. The quarterly operating loss was $28 million. compared with an operating loss of $18 million in the same quarter last year. For Soho Video, quarterly revenues were $23 million, up 1% year-over-year and 16% quarter-over-quarter. The quarterly operating loss was $13 million, compared with an operating loss of $10 million in the same quarter last year. For Changyou, quarterly revenues including 17173, were $154 million, up 41% year-over-year, and down 14% quarter-over-quarter. Changyou posted an operating profit of $75 million, compared with $37 million in the same quarter last year. For third quarter of 2021, we expect brand advertising revenues to be between $35 million and $39 million. Online game revenues to be between $145 million and $155 million. Non-GAAP net income from continuing operations attributable to SOHO.com Limited to be between $0 and $10 million. And GAAP net income and loss from continuing operations attributable to Sogo.com Limited, to be between a net loss of $4 million and a net income of $6 million. This forecast reflects our current and preliminary view, which is subject to substantial uncertainty. Lastly, please be reminded in our next Q&A section, we won't ask questions regarding any Sogo business updates. or the agreements with Tencent for service privatization. This concludes our preparatory remarks. Operator, we would now like to open the call to questions.
spk06: Certainly. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. We have the first question coming from the line of Eddie Leung from Bank of America. Merrill Lynch, please go ahead.
spk09: Good evening. Thank you for taking my questions. I would like to get a sense on the recent regulation changes, the impact on your advertising business, because we know that there has been tightening on the education as well as the property sectors. So wondering how important these two sectors to your advertising business and what could be the impact to the business. I know that you guys are already providing a first quarter guidance. So just wondering if we do not have the tightening on these sectors How will the third quarter look like? And then similarly, also a follow-up question about regulation of games. Wondering what would be the percentage of revenue from the young people in the second quarter for Chang You? Thank you.
spk03: So, Eddie, you mentioned two sectors, right? Education and what? What's the second sector you said?
spk09: Property. Okay, okay.
spk03: Well, in our portfolio of advertisers, we don't have a lot of education advertising. So, our advertising revenue is not impacted by recent regulation development. On education, probably a little bit impact. But since our revenue base is still relatively small, so it's not a major factor. On Changyou, basically the question is about users, whether young people or the recent regulation on young people.
spk08: Our major products are designed for mostly adults, so contributions from teenagers are very few.
spk04: Thank you.
spk03: Shall we move to the next question?
spk06: The next question comes from the line of Alicia Yap from Citigroup. Please go ahead.
spk07: Hi. Thank you. Hello. Good evening, Charles and management. Thanks for taking my questions. I have two questions. First one is can you elaborate on what is the effective tax rate for Changyu entity that is currently paying? And does Changyu actually entitle to the key software enterprise tax rate? Would that be any changes to effective tax rate in the coming quarters? Second question is, just want to get your opinion, Charles, given your experience and years of operating internet companies in China, What is your view of this latest tightening regulatory measure? What are some of the outcomes you foresee could evolve for the industry? And how is SOHO positioned in the current environment? Any potential impact to our current business model? Thank you. 关于那个畅油的这个所得税的问题是这样,就是说,
spk05: In the past,
spk04: Several of our subsidiaries will apply and enjoy some preferential tax rate if they receive the key national software enterprise status. But our applications this year were not approved. But for high and new technology enterprise status are still okay. In the future we expect there will be four to five percent impact on this issue.
spk03: Yeah, regarding regulation, internet regulation, I think what happened recently is more company specific. I don't see any general policy side tightening or any change. So I see definitely more regulation on user privacy and other things. But I think it should be done, because it's important. And I think the internet industry will continue to develop robustly, and still a lot of things need to be done. A lot of new products need to be developed and roll out.
spk07: I see. Thank you, Charles. Thank you, Dylan. Can I just quickly ask one follow-up? I think according to some of the media's interview, you did mention that is an intention for future potentially that Changyu could be listed in Hong Kong. Just wondering any timeframe for this plan? Thank you.
spk03: Yeah, during my interview, I did mention that There's a possibility next year, yes.
spk07: Okay, great. Thank you, Charles.
spk06: We have the next question coming from the line of Thomas Chong from Jefferies. Please go ahead.
spk00: Hi, good evening, management. Thanks for taking my questions. I also have a question regarding the advertising space. Can management comment about our thoughts on the auto advertising outlook? Given that I think auto represents about one-third of our ad revenue, just want to see how it is trending in Q3 because we are seeing the production capacity of a lot of OEMs are suffering these days. And then a second question is regarding our targeting technology. I think Charles, you also talked about our content strategies, the short form and the long form strategies that we do the targeting. But given that the regulations are also talking about maybe there will be more stringent regulations on targeting, Should we expect our content distribution to be affected if these rules are implemented? I also have a first question relating to the gaming sector in general. How should we think about the gaming regulations? Should we expect that the gaming space is expected to be relatively stable or relatively steady if we think about the regulatory impact other than the minor protection. Thank you.
spk03: Yeah, the first two questions, let me answer. The auto industry, I think there is some problems like the shortage of chips, right? So I think in Q3, the auto industry Not too good, not too bad. It seems flat, right? Flattish. Yeah. In terms of content distribution, we rely more on the editorial distribution, also social media distribution. So targeting is not a large part of our products. So it's no problem, I think. Yeah. And our video, long-form and short-form, and also our video side is also exploring social media. In terms of game sector, I think my answer will be similar, because I think it's more company-specific. Overall, I don't see any regulation change. Right?
spk08: Yeah.
spk00: Got it. Thank you, Charles.
spk06: Once again, ladies and gentlemen, as a reminder, it is star followed by 1 on your telephone keypad if you wish to ask a question. Once again, it is star 1 on your telephone keypad to ask a question. Ladies and gentlemen, that does conclude our conference call for today. Thank you all for your participation. You may disconnect now.
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