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spk08: Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining ZOHU's fourth 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. And I'd like to turn the conference over to your host for today's conference call, Huang Pu, Investor Relations Director of Sohu. Please go ahead.
spk06: Thanks, Supervisor. Thank you for joining us today to discuss first quarter 2021 results. On the call are Chairman and Chief Executive Officer, Dr. Charles Zhang, CFO, Joanna Liu, and Vice President of Finance, James Dunn. Also with us today are Chang You, CEO, Duan Wenquan, and CFO, Yao Bingwang. Before management begins their prepared remarks, I would like to remind you of the common statement in connection with today's conference call. Except for the historical information contained herein, the matters discussed on this conference call may contain full-looking statements. These statements are based on current plans, estimates, and projections. And therefore, you should not place undue reliance on them. Full-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ maturely from those contained in any forelooking statement. For more information about potential risks and uncertainties, please refer to the company's findings with the Security and Exchange Commission, including the most recent annual report on Form 20-F. Please also be reminded that following the completion of the transaction with Tencent related to Sogo, Sogo no longer has any ownership interest in Sogo. As indicated otherwise, the results that we are talking about exclude results from SOGO operations. For historical statements, the results of operations for SOGO and the gain from its disposal have been classified as discontinued operations. With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed.
spk02: Thanks, and thank you everyone for joining our call. During the fourth quarter of 2021 and the whole year, we faced ongoing significant challenges from the macroeconomic environment and uncertainties of the COVID-19 pandemic. Despite these headwinds, we were proactive in refining our technology, developing product innovations, improving operating efficiency, and exploring differentiated monetization opportunities. In the fourth quarter, we were ahead of our guidance in brand advertising revenue and achieved profitability for the full year and every quarter in 2021. For Suhu Media and Suhu Video, we provided better user experience through improvements in products and social interaction features. we applied advanced live broadcasting technologies to large and unique content marketing events. Based on the competitive advantages of the SOHO product matrix, these live broadcasting events helped us to generate a high volume of premium content and wide social distribution. We were able to further consolidate our influence as a mainstream media platform and better capture advertisers' attention and budgets. For Changyou, its online game business delivered inline quarterly results, while its overall revenue of 2021 continued to grow year-over-year. Let me go through details about each of these businesses in a moment, but first, a quick overview of our financial performance. For the fourth quarter of 2021, total revenues, $193 million, down 24% year-over-year and 11% quarter-over-quarter. Brand advertising revenue, $34 million, down 20% year-over-year, and a flat quarter-over-quarter. Game revenue, $144 million, down 27% year-over-year, and 14% quarter-over-quarter. Gap net income attributable to Soho.com Limited, $4 million, compared with the net income of $47 million in the first quarter of 2020, and net income of $12 million in the third quarter of 2021. Non-gas income attributable to Soho.com Limited was $200,000 compared with the net income of $53 million in the fourth quarter of 2020 and net income of $17 million in the third quarter of 2021. For the whole year of 2021, total revenues $836 million, up 11% compared with 2020. Brand advertising revenue, $135 million, down 8% compared with 2020. Online game revenues, $638 million, up 19% compared with 2020. Gap net income attributable to Soul.com Limited was $69 million compared with a net income of $33 million in 2020, excluding the impact of an additional $1. accrual of withholding income tax recognized by Changyu in the second quarter of 2020. Non-GAAP net income attributable to Solve.com Limited was $79 million, compared with a net income of $51 million in 2020, excluding the impact of the additional accrual of withholding income tax described above. Now I will go through some of our key businesses. first media portal and video. At Soho Media Portal during 2021, when we continued to refine our products, we developed and upgraded the audio function of our news app. We continuously enhanced the user experience by extending the app application scenarios and enriching our content presentation format. And also refined the apps' social network distribution features by providing greater motivation for user interactions with other users. We are able to further strengthen our differentiated advantages as a mainstream media platform. For Soho Video, we have a twin-engine strategy that we are executing with a focus on both high-quality original dramas and reality shows and steady development of social distribution of short-form video content. Leveraging our advanced live broadcasting technology, we were able to further accelerate the layout of value live broadcasting and extend it to scientific knowledge courses. We have attracted scholars and scientists in a number of fields to share their knowledge and interact with our users on the platform, which has strengthened our reputation in the field of scientifically and knowledge-based learning, focused learning. On the monetization side, we comprehensively integrated our live broadcasting technology with a number of innovative content marketing campaigns. Despite the weak macroeconomic environment, we have developed attractive marketing strategies to gain attention from advertisers and secure their advertising budgets. In December, we successfully hosted several flagship events such as 2021 Soho Fashion Awards and the Soho Finance Annual Conference. These events have generated an array of premium content and created social distribution across both media and video platforms. Through the application of our library testing technology and the synergies with the Sohu product, we attracted not only audiences, but also advertisers by providing these unique marketing opportunities to them. And we're better able to meet advertisers' demand and capture their advertising dollars. Now for Changyou, during the fourth quarter of 2021, Changyou's online games revenue declined on a sequential basis in line with our prior guidance due to the natural decline of TLBB Vintage and the licensed game Little Red Corn Heroes. In our PC games business lines, we improved player experience by reducing the number of repetitive daily quests for regular TLBB PC. We also introduced a skill enhancement system and corresponding quest line for TLBB Vintage to keep the game fresh. For mobile games, we launched an expansion pack of Legacy TLBB Mobile, featuring the addition of a new clan and various events for the National Day and New Year holidays. Next quarter, we'll roll out new expansion packs and make adjustments to game content for TLBB PC, Legacy TLBB Mobile, little raccoon heroes and other games to sustain their vitality in terms of the game pipeline several key games are under development and we are now in the process of fine-tuning them we look forward to bringing them to players soon in the year ahead the channel will execute its top game strategy and by promoting innovation giving the capacity of its team and rolling out more high-quality mobile games, including MMORPGs and other diversified products. Before I pass the call to Joanna to go through the financial results in detail, we'd like to give you an update on the share repurchase program of up to $100 million announced on November 13, 2021. As of February 18, 2020, 2022, Soho had repurchased $3,079,064 ADS shares under the Shared Purchase Program for an aggregate cost of approximately $53 million. So basically half, yeah, $100 million. With that, I will now turn the call to Joanna.
spk05: Thank you, Charles. I will walk you through the key financials of our major segments for the fourth quarter and the full year of 2021. All of the numbers that I will mention are all on a non-GAAP basis. You may find the reconciliation of non-GAAP to GAAP measures on our IR website. Central Media Portal. Quarterly revenues were $19 million, down 20% year-over-year, and up 16% quarter-over-quarter. The quarterly operating loss was $38 million, compared with an operating loss of $28 million in the same quarter last year. For the full year 2021, total median total revenues were $76 million, down 13% compared with 2020. The full year operating loss, $134 million, compared with an operating loss of $92 million. In 2020, for SOHO Video, quarterly revenues were $23 million, down 1% year-over-year, and flat quarter-over-quarter. The quarterly operating loss was $11 million, flat with the same quarter of last year. For the full year 2021, SOHO Video revenues were $87 million, down 4% compared with 2020, The full-year operating loss was $47 million, compared with an operating loss of $43 million in 2020. For Changyou, quarterly revenues, including 17173, $146 million, down 27% year-over-year and 14% quarter-over-quarter. Changyou quoted an operating profit of $55 million, compared with $112 million in the same quarter last year. For the full year 2021, total revenues were $649 million, up 18% compared with 2020. Chaoyue posted an operating profit of $310 million, compared with an operating profit of $238 million in 2020. For the first quarter of 2022, We expect brand advertising revenues to be between $23 million and $26 million. This implies annual decrease of 15% to 25% and a sequential decrease of 23% to 32%. Online game revenues to be between $130 million and $140 million. This implies annual decrease of 21% to 26% and a sequential decrease of 3% to 10%. Now gap net loss attributable to Soho.com Limited to be between $10 million and $20 million. And gap net loss attributable to Soho.com Limited to be between $13 million and $23 million. This forecast reflects our current and preliminary view, which is subject to substantial uncertainty. This concludes our current remarks. We would now like to open the call to questions.
spk08: Thank you. 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 and wait for your name to be announced. If you wish to withdraw your request, please press the pound or hash key. Our first question comes from the line of Tom Strong from Jefferies. Please ask your question.
spk00: Hi, good evening. Thanks, management, for taking my questions. Hi, Charles. I just want to get some color with regard to our user growth strategies. I remember in last quarter, We talked about a number of strategies and the significance to drive the user growth for the media business. I just want to get some color about the way or the strategies that we are going to do it and how much are we going to spend in 2022. My follow-up question would be regarding the advertising outlook in 2022. We have the Q1 advertising guidance. Just want to get a sense about under what situation will we hit the high end of the guidance and the low end of the guidance? Thank you.
spk02: Okay, so the user-based growth strategy, basically for the Soho Media, Soho News app, and also Soho Video. For Soho News app, We'll continue with our traditional basically the providing provision of high quality news and content with editorial excellency and also the recommendation algorithm. But then we'll also develop this social network channel basically so that we hope that so now and also with the audio feature with all these basically the editorial content and the recommendation channel of the and also the social network distribution social network distribution channel and also the audio all these features we've been developed over the last two years and they've been maturing And now we'll probably spend more money on marketing and on channels, on the distribution channels, on user acquisitions, so that we'll have more users to come to our site and to our app and to test, basically, to test if our products over the last two years, two or three years, been well developed or in the right direction. So that we hope that we'll have some, you know, with more users to have some viral or chain reaction events or explosion or some kind of, those kind of things. So that's our strategy. Basically, we've been refining the products for quite a few years. And now we put it to a test of a higher number of volumes of users by spending more money to acquire users to prove and then to have, basically to generate, to have some kind of viral explosive effect or chain reaction effect as our strategy. For video, it's similar. For the news, it's really news. It's content and news. For the video, it's video content. And we'll continue with our... We'll probably have more drama. And then we'll also have the live broadcasting and knowledge-based live casting and the knowledge-based short-form video clip. So, twin-engine strategy. And also, we'll spend more on user acquisitions to prove also the product direction in the last two or three years. So yeah, we'll spend some money on user acquisition. You may ask, we have so much cash, so what are we going to do with it? Besides share repurchase, we'll spend on product and especially on user acquisition to prove, to test our product. So on the advertising forecast, is that high end or low end?
spk00: Yes, about the overall advertising trend and how we would hit the high end and the low end of the guidance. Thank you, Charles.
spk02: The overall, as we said, the microeconomic situation is not that good. In particular, the real estate industry, a problem with the real estate industry and also the auto industry is due to the lack of chips so that automobile companies have a limited budget for marketing because they actually don't have products to go out. So that's the challenges we face and we are going to face. So that's why during Q3 and Q4, we had innovative, unique events. Both in our activities and events have a dual feature. It's content and at the same time, it's marketing opportunities. So that's why we have this, in Q3 we have the mountain, snow mountain, you know, mountaineering, snow mountain climbing and live broadcasting events. In Q4 we have the finance conference and also fashion awards and all those kind of things. We provide a unique, besides the regular advertising, we have this unique, you know, other companies don't have that kind of thing. You know, we have these kind unique marketing opportunities for Advertise. That's why we were able to achieve. So even amid this sloppiness of the market and decreasing advertising dollars, we were able to exceed the guidance because we were able to. So in Q1, we'll continue to have this. But in Q1, we'll start our user acquisition process so that we have all that in... in this coming year, in the next, you know, in this year, we'll have, we'll see some reasonable or, you know, quite some kind of growth or a user base, which will also help with advertising. And, or hit the high end or low end, I'm not sure. Today is already mid of the quarter, right? And also the seasonality is similar to last year. But as I said, the floppy real estate industry and also the lack of chips for auto has an effect on Q1. So that's why we are forecasting a decrease of 15% compared with last year's Q1.
spk00: Got it. Thank you, Charles. OK.
spk08: Thank you. Our next question comes from the line of Eddie Leung from Bank of America, Maryland. Please ask a question.
spk04: Good evening, guys. Thank you for taking my questions. Just a follow-up to Thomas' question on the advertising environment. Charles, you mentioned that some of the weak advertiser industries Could you also talk a little bit about which industry you see relatively stronger for you guys? And also, you mentioned the real estate and auto weakness. When your sales team talks to them for the full year 2022 budget, do you get a sense that they see kind of a bottom-out in sometime this year, which means they plan to increase the budget after that.
spk02: Thank you. I think for the auto industry, I think the chip shortage will bottom out, I think, right? So that's good news. Actually, even in Q4, that problem, because of our unique marketing opportunities that because overall, the advertisers have now have limited budgets. So the more the like, you know, the favor, or like the more like, like those kind of unique marketing activities, instead of just spending money on a regular advertising, you know, format. like banners or, you know, those kind of things. So that's why even in Q4, amid this chip shortage, our auto industry, auto revenue, auto advertising share of auto companies actually higher than before, right? So we hope, I think this year for the auto industry should be a better year than last year. But real estate, I'm not sure. Real estate is the problem.
spk04: Understood. Thank you.
spk08: Thank you. Our next question comes from Alicia from Citigroup.
spk07: Please ask your question. Hi. Good evening, management. Thanks for taking my questions. I have a few questions. The first one, is the follow-up on the advertising guidance. So just wondering this macro weakness that you are seeing, is that more or less in line with your earlier expectation, or the macro or this ad sentiment actually gets weaker? into 1Q from the 4Q level that you see. And any preliminary view on the overall ad budget sentiment, when can that we see a recovery? You know, which quarter we can see the recovery of the ad sentiment? That's my first question.
spk02: Okay, so basically, we've already seen the weakness, right? So I think there's not much change in Q4 in terms of the preliminary expectation in Q4 and now. Q4 is already weaker than the last year's Q4, right? So Q1 is similar. And this year, the only difference is that the Chinese New Year happened weeks earlier, right?
spk07: Any view, will that start to be some rebound of the sentiment in 2Q or will that be in 3Q?
spk02: As I said, I think the auto industry should the chip problem will the chips problem will not will probably will will not be Later part of this year from the my Condition with some of the auto industry advertisers But so I think I think this You know Are we advertising? total amount of advertising is not that big. So, Sohu's case, I don't think Sohu's case will represent a general industry's case. So, Sohu's performance will more depend on whether we are able to continue to have very successful marketing activities and also whether we are able to get, you know, really user uptake, right, user-based uptake. That's the thing that, so since our market share is so, I mean, the share of advertising, the dollar is so small, I don't think our advertising dollar trend represents the industry trend. It really reflects our own performance. So, you know.
spk07: I see. Okay, gotcha. And then second question is on the spending. I think last quarter you mentioned, you know, given the cash you have, and then now this is the chance that you can kind of spend on the user growth. And I saw in 4Q on your sales and marketing, it came in, you know, much higher than the previous quarter, which is at around 55, you know, billion. I'm sorry, 55 million. Should we actually... use this as more going forward, this will be the quarterly spend that you will be spending into each of these quarter in 2022, or will that be even higher than this number? And then I think that's kind of also relate to my questions on your loss guidance, right? It does look like from the sequential basis, I know revenues are declining. It's turned into a loss quarter versus last year. I think every quarter you have a profit quarter. So can you kind of help us bring the relationship with these sales and marketing standards versus your sequential weakness on the revenue guidance that results in the net loss guidance.
spk02: So you mentioned the $55 million. Does that include Changyou or just only Sohu? It includes Changyou. So if you include Changyou, then it's hard to see. It's hard to see because Changyou's revenue base is so big that Sohu's revenue is just buried in the numbers. you have to look at separately the two, right? So I think when we turn from last quarter's profitability or into like a breaking point or a quarter, that's largely due to Changyou's, Changyou, the vintage, right? The benefit of vintage already died out. and vintage TLBB Vintage, and also Red Cone, right? So you have to look at it separately. If you look at the Dohu alone, the media and the video, actually in Q4, our marketing budget does not increase that much, right? Because you're talking about $50 million, $55 million, that's because of Changyong's spending on Red Cone, right? Little red cone, right? We'll have the spending. So if you look at Sohu's media and Sohu news app and Sohu video, we just slightly increased the marketing in Q4, and we'll definitely spend more. Because we're not going to spend wisely and spend very carefully. And we'll really look hard at ROI, not because we have a lot of cash. We're just going to spend it really carefully. We're going to spend money. And actually, in Q4, we did some pilot spending to see how the user acquisition goes. And then we'll continue that. And we'll definitely spend more than Q4 this year. I will make sure that you and then I see.
spk07: Okay, gotcha. That's very helpful. Thanks. Thanks for clarifying on that. The business difference on the time you and the media and video. And then lastly, I think on the on the share repurchase, I think you guys been, you know, kind of like leveraging the opportunity very well is already bought that half of your So in the event, let's say, if you use up the remaining of the buyback program later in the next few months or in the one or two quarters, would the board consider to authorize a new share buyback program if you use up later?
spk02: Probably not, or we don't know. So let's finish the other half, and then we'll see.
spk07: OK. All right, cool. Thank you. That's all my questions.
spk08: Yeah. All right. Thank you. Our next question comes from Jasper Drescher from JBD Holding. Please ask a question.
spk01: Yeah, thanks. Thanks, management, for a good presentation, and thanks for taking my question. I've got two questions. One is in regard to Cheng Yu. where Charles last year said that if the conditions were great, you would consider a Shanghai listing. Could you elaborate on how you see the conditions? Secondly... Okay, sorry. My second question is in regards to Soho. And as I understand it, they are leasing 18,000 square meters from Soho.com. Have you considered selling that property now when Soko is not a part of the group anymore? Thanks.
spk02: Well, I think in terms of Hong Kong listing, we don't have a particular time schedule yet. We'll see the opportunity as opportunity goes. In terms of the leasing, I think we'll continue happily to be the landlord, right? To collect rent, right? So we're not going to sell, yeah, no. Why should we sell a building? We don't need cash, right? We already have a lot of cash. Why do we sell buildings?
spk01: You can give it to the shareholders. But I was just curious.
spk02: So, okay. All right, thank you.
spk08: There are no further questions. So with that, we conclude our conference for today. Thank you for participating. You may now disconnect.
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