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Operator
Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining Soho's third quarter 2021 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. 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, Kuang Tu. Investor Relations Director of Soho. Please go ahead.
Kuang Tu
Thanks, Supervisor. Thank you for joining us today to discuss Soho's sub-quarter 2021 results. On the call are Chairman and Chief Executive Officer, Dr. Charles Zhang, CFO, Joanne Lu, and Vice President of Finance, James Dunn. Also with us today are Chang'e CEO, De Wen Chen, and CFO, Yongbin Wang. Before management begins their prepared remarks, I would like to remind you of the company's state of the art 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 hearing risks and uncertainties. We caution you that a number of important factors could 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 conference findings with the Securities and Exchange Commission, including the most recent annual report on Form 20-S. Please also be reminded that SOGO's results of operations and the disposal gain recognized in this quarter have been classified as discontinued operations. The results that we talk about are related to continuing operations only. With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed.
Supervisor
Thanks, Huangpu. And thank you to everyone for joining our call. For the third quarter of 2021, facing spot outbreaks of the COVID-19 pandemic and uncertainties in the macroeconomic environment, we continued to focus on reintroducing refining our technology and developing products. Overall, we delivered better than expected top line and bottom line performance, thanks to the solid performance of our online game business. For social media, we kept improving our products while constantly expanding premium content and stimulating social media distributions. which further consolidated our influence as a mainstream media platform. For Soho Video, we continued to focus on our tuned engine strategy. We applied our advanced live broadcasting technologies into various events and scenarios as an effective tool for generating even more video content. For Game Changyou, Online games performed well during the quarter, with revenue exceeding the high end of our prior time. Now, let me go into details about each of these businesses in a moment. I'll go into each of the businesses in detail in a moment, but first, a quick overview of our financial performance. Third quarter of 2021, total revenues, $216 million up 37% year-over-year and 6% up quarter-over-quarter. Brand advertising revenues were $34 million, down 18% year-over-year and 8% quarter-over-quarter. Online game revenues, $167 million up 65% year-over-year and 10% quarter-over-quarter. Gap net income from continuing operations attributable to SOHO.com Limited, was $12 million, compared with a net loss of $15 million in the third quarter of 2020, and net income of $22 million in the second quarter of 2021. Non-GAAP net income from continuing operations attributable to Soho.com Limited, $17 million, compared with a net loss of $7 million in the third quarter of last year, and net income of $25 million in the second quarter of this year. Now I'll go through some of the key businesses. First, Media Portal and SoFu Video. For SoFu Media Portal, we constantly work on upgrading our products and refining our technology. During the quarter, we further enhanced the audio function of our news app and significantly improved the overall audio-video user experience. And this audio function has largely improved the content distribution efficiency and further demonstrated its differentiation advantage. With this video, we were able to execute the two-engine strategy. We kept working on developing long-form original drama and series and reality shows to enrich our content library and also the short video content. Our advanced live broadcasting technology has been comprehensively integrated into our product mix and widely adopted in various scenarios, including content marketing campaigns as well as important social news and major events. The technology also plays an important role in our daily live reality show and supports the creation of our premium content. Next, turning to Changyou. For the third quarter of 2021, Changyou performed well and its revenue exceeded the high end of our prior guidance. The licensed card game Little Raccoon Heroes was doing good after its launch in August, while games such as TLBB PC and Legacy TLBB Mobile managed to hold on to users and perform better than expected as they continued to age. For PC games, we launched new expansion packs and holiday events for Qixi and other festivals for both regular TLBB PC and TLBB Vintage. We also further optimized TLBB Vintage based on player feedback. For Lexi TLBB Mobile, we launched an expansion pack featuring a new dungeon and storyline, which is well received by players. Next quarter, we'll roll out new content for TLBB PC, Legacy TLBB Mobile, Little Raccoon Heroes, and other games to sustain their vitality. In terms of new game pipeline, we're developing and fine-tuning several key games, which we'll introduce to players later. We'll continue to execute our top game strategy, promote innovation, and roll out more high-quality mobile games, including MMORPGs and other diversified products. Before I pass the call to Joanna to go through our financial results in detail, we're pleased to announce that on November 13th this year, our board of directors authorized a share repurchase program of up to $100 million over a year period. The repurchase program underscores our continued confidence in our long-term growth prospects, as well as ongoing commitment to increase shareholder value. With that, I will now turn to Joanna to give our financials.
Huangpu
Thank you, Charles. I will walk you through the key financials of our major segments for third quarter of 2021. the numbers that I will mention are all on a non-GAAP basis. You may find a reconciliation of non-GAAP to GAAP measures on our IR website. For Soho Media Portal, quarterly revenues were $17 million, down 32% year-over-year and 23% quarter-over-quarter. The quarterly operating loss was $37 million, compared with an operating loss of $23 million in the same quarter last year. For Soho Video, quarterly revenues were $23 million, flat year-over-year and up 1% quarter-of-quarter. The quarterly operating loss was $10 million, compared with an operating loss of $12 million in the same quarter last year. For Changyou, quarterly revenues, including 17173, $117 million. up 63% year-over-year and 10% quarter-over-quarter. Changyu posted an operating profit of $79 million, compared with $33 million in the same quarter last year. For the fourth quarter of 2021, we expect brand advertising revenues to be between $28 million and $31 million, This implies annual decrease of 26% to 33% and a sequential decrease of 8% to 17%. Online game revenues to be between $140 million and $150 million. This implies annual decrease of 23% to 29% and a sequential decrease of 10% to 16%. Land gap net loss. attributable to SOHO.com Limited, to be between $0 and $10 million. And gap net loss, attributable to SOHO.com Limited, to be between $3 million and $15 million. This forecast reflects our current and preliminary review, which is subject to substantial uncertainty. This concludes our prepared remarks. Operator, we would now like to open the call to questions.
Operator
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. If you wish to cancel your request, you can press the pound or hash key. Please note there might be a slight pause as the questions are being collated. We have a question coming from the line of Alicia Yap from Citigroup. Please go ahead.
Alicia Yap
Hi, thank you. Good evening, Charles and management. Thanks for taking my questions. I have a few questions regarding the advertising. So first of all, can you elaborate a little bit more the weakness of these online ad revenue that we saw in 3Q? How much of that was due to the soft macro that leads to the ad budget cut? And just wondering, is there any impact from the recent regulations on the celebrity or even the crackdown of the fan base economy that could impact your video ad revenue? And then as related to that, for the third quarter, can you remind us which vertical, industry vertical they actually have suffered in terms of their ad budget is coming in lower than expected and which vertical actually outperforms your expectations. And then as we got to the fourth quarter online ad revenue guidance, is that reflecting the continued macro weakness Or is there any specific industry vertical that will actually suffer more from the weakness? Thank you.
Supervisor
For both the third quarter and fourth quarter, it's more of the vertical industry, like real estate. We had some exposure to the real estate industry that some of the companies, yeah. Then there's, secondly, yes, there's also some factor of macroeconomic situation. Yeah, but in terms of regulatory and fan-based, those kind of things, there's very little impact on that.
Alicia Yap
Okay. So the same thing for fourth quarter because of the real estate. So that's why the guidance came in soft.
Supervisor
Yes, but the fourth quarter, I think the impact will be less, right? And we're basically reorganized our sales team effort to expand our ad base and to have a new kind of customers to fill in. Can you remind us a little bit
Alicia Yap
your maybe first top three or whatever top five category before, which is like let's say a year ago, what is the top three ad category. And then for this year, tweak you given some impact.
Supervisor
Definitely, the auto is number one. And then FMCG, number two. And real estate, number three, right? So the impact really on the real estate. Also, there's some, you know, the pandemic. Because our brand advertising depends a lot on the content marketing and the event-driven marketing. Because of pandemic, some of those major key events, we couldn't do it and we cannot do it. That has some impact. So, yeah. So that top three, yeah. And also, there's also some kind of impact because of the shortage of chips. So some of those... Other companies, their marketing plan changed due to lack of chips and lower production rollout or marketing activities.
Alicia Yap
I see. Okay, that's very helpful. Thanks, Charles. And then if I have a last one, if I may, the gaming guidance that you have for fourth quarter on the sequential decline, Is that because the performance of these little raccoon heroes, you are expecting them to drop off the performance in fourth quarter, and then any expansion plan for TLBB in the fourth quarter? Thank you.
Supervisor
Yeah, Tendouin can answer that.
spk09
What kind of information will be released in the next game compared to the previous one? The next game will be released in the next season mainly because of the drop in the income.
spk08
The next game will be released in the next season mainly because of the drop in the income.
spk09
Yes, the next quarter revenue was mainly due to Little Red Coin Hero's decline. And for other PLBB things, we will update for expansion packs regularly.
Alicia Yap
Okay. All right. Thank you so much.
Operator
We have the next question. This is coming from Thomas Chong from Jefferies. Please go ahead.
Thomas Chong
Hi, good evening. Thanks, management, for taking my questions. I have a question regarding to the online games regulatory environment. Can management comment about how the sector is trending and any color with regard to gaming approvals? And then my second question is about metaphors. How should we think about this new industry trend and our thoughts about our long-term spending or investment into this area? Thank you.
Supervisor
Okay.
spk08
We don't have further comments on the approval issues, but for Sea of Dawn, one of our key titles, we have got the license approval last year.
spk09
and for new TLBB because recently we won't launch it, so it's not a big concern for Changyou.
spk08
For Metaverse, we actually have
spk09
build up a small team to do more research and try some new things based on the new opportunities brought by the metaverse concept. Thank you.
Thomas Chong
Thank you.
Operator
Once again, ladies and gentlemen, it is star followed by one. On your telephone keypad, if you wish to ask a question. The next one comes from the line of Eddie Liang from Bank of America. Please go ahead.
Eddie Liang
Good evening, Charles and everyone. Just a quick follow-up on the advertising weakness. So we understand that there is a demand issue because some of the advertisers. Could you also talk a little bit about potential impact you have seen from the data front including Edpo's new privacy policy as well as the new data protection law in China? Thank you.
Supervisor
That is a small impact or no impact. There is some more stricter requirement for the kind of advertising you can you have the format that so that you know like the like the app from your loading page the area that required you know lower and not you know trick people into you know click it so those kind of things but that's not a major impact on advertising and so So who has been very careful and very, you know, compliant with, you know, has been very, we're not very aggressive, you know, in terms of collecting users' data and take advantage of users' data to do, you know, marketing and targeting. So that's why this kind of policy have least effect or impact on SOHU.
Eddie Liang
Thank you, Charles.
Operator
Thank you. We have the next question. This is coming from the line of Alex Goh from Morgan Stanley. Please go ahead.
Alex Goh
Sure. Thank you, management, for taking my question. So one follow-up on the, like we have seen, Sohu Media portal quarterly loss widening. Whereas for the Sohu video query loss, we're still having a pretty good constant discipline. So just want to get a sense of how about the investment plan onwards for the Sohu media portal and video business. Thank you.
Supervisor
So the loss for Sohu video is increased because of the advertising side. as more exposure to real estate industry. While the super video advertising are mostly about FMCG advertisers. And also super videos, you know, of the revenue coming from the subscription of dramas, right? The paid subscriptions. That's why it's about... And also we do, especially... We are increasing kind of a little bit in the third quarter. In the future, we will invest more into user acquisition. So spending on social media first. So that explains why the media loss is larger.
Operator
Got it. Thanks a lot. Thank you. We have the next question. This is coming from the line of Alicia Yap from Citigroup. Please go ahead.
Alicia Yap
Hi. Thanks for taking my follow-up questions. I just have one question on the use of cash. So in addition to the buyback that you announced, would you also consider a one-time special dividend given the amount of the cash that now you have? Thank you.
Supervisor
Use of cash, first of all, I think the aside, you know, besides the buyback, we'll, you know, we'll spend, we'll basically use it for user acquisition because over the last few years, especially the last two or three years, we've been innovating on our products, like our better content and the better product features with our, you know, media portal and news app and also the super video innovations but we in order to basically to prove it you know prove the viable those innovations or those the product features in the right direction and prove the traction of it you have to have more users to prove it so that's why we've been understanding in the last few years tried you know to use profitability so not on user acquisition so with this the newly Again, the capital will spend more money to, you know, to get more users to, you know, to testify our, you know, basically our last two years product innovation, whether it's, you know, viable or not. So you may ask that when is the break-even point, right? So before we break even, I think we need to have some kind of the user explosion or user base build up, major user base build up for platform like media and video to reach break even. So before that point, we need to spend some money on user acquisition. And also we're going to spend some money on artificial intelligence, R&D, Like the news apps feature, the audio features is a direct application of the AI technology. So we need to invest more in the R&D so that our product innovation will have a strong technology base support.
Alicia Yap
Just follow up on your user acquisition, would that mean you're going to push more into lower tier city or any kind of demographic that you are focusing on?
Supervisor
Yes, I think the demographic is, I think especially our app will target more younger generation, younger age demographic. Because Soho News users have in the past been more kind of a, more, you know, middle aged and with high income and those kind of things, you know. Be careful of the major breaking news of international news and those kind of, but we want to develop, acquire more younger users. And yeah, into, into some third or fourth tier cities.
Alicia Yap
Okay, very helpful. Thanks, Charles.
Supervisor
Okay.
Operator
Once again, ladies and gentlemen, it is Charles followed by one on your telephone keypad if you wish to ask a question. We have a question coming from the line of Vlad DM from Lisa Capital. Please go ahead.
Charles
Hi, this is Conan from Palace Capital. Thank you for taking my question. And congratulations again on closing SoGoSell and unlocking value. We understand the company has announced the buyback and also Charles just explained on the potential use of cash or use acquisition and AI R&D. First question would be, after the closing of the Soho sale, Soho has a very significant firepower. Will any other potential future investment area that Soho have in mind, will you consider M&A or other investment strategy? It would be great to hear a bit more to elaborate that.
Supervisor
So far we don't. We don't have a plan for merger acquisition. Mostly we'll really fight our battle in the battlefield that we have been doing where we understand the spend and now we're going to spend some money. Then as time goes we'll probably look at some some, you know, we will probably look at some smaller investing, the early stage companies to, and technologies for the purpose of strategic investment and to defend our, you know, basically to, you know, for technology, for them, yeah. No major MIA thinking yet, or, yeah.
Charles
Understood. In terms of technology investment or small-sized company as venture capital investment, any specific technology or sector who would be particularly interested in?
Supervisor
Yeah, as I said, probably artificial intelligence is the area that we're... You know, we had a SOGO before, and there's some really nice technologies. Now we sold SOGO. So we don't have a, you know, we need to build our own tech center to really, you know, build the tech firepower to drive our product innovation. So I think in the artificial intelligence, AI area. like the audio feature and also, you know, the digital image, those really using a lot of, you know, AI deep learning technology to build those. So I think this for media portal, for media and for news and for media and for communication company, our innovation are mostly in terms of, you know, the human-to-machine interface and this kind of AI application in this area.
Charles
Thank you very much. My last question would relate more to Changyong business. We know that Changyong has great IP, attracting loyal gamer base, and also has a very good cash generating ability. well just wondering if you have any capital market strategy for changyo in the future considering that we have multiple listing market exchange in china mainland also in hong kong very attractive for this type of business just wondering if there's something that in line with your corporate strategy in the future
Supervisor
Yes, if it is an attractive option, we will seek that path. Depends on regulatory requirement. Let's say for domestic listing, it's kind of regulatory. Right now, it's still not possible. But in other markets, if it is attractive, we will consider that.
Charles
Thank you very much, Charles.
Supervisor
You're welcome.
Operator
Thank you. We have no further questions at this moment. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect now.
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