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Operator
Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining SOHO's first quarter 2022 earnings conference call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be the question and answer session. Today's conference call is being recorded. If you have any objections, you may disconnect at any time. I would now like to turn the conference over to our host for today's conference call, Juan Poo, Investor Relations Director of Soho. Please go ahead.
Juan Poo
Thanks, operator. Thank you for joining us to discuss Soho's first quarter 2022 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 are Chang-Yu CEO, Du Wen Chen, and CFO, Yao Bing Wang. Before management begins their preparatory remarks, I would like to remind you of the Company 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 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 materially from those contained in any forelooking statements. 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. With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed.
Charles Zhang
Thanks, Huangpu. Thank you, everyone, for joining our call. In the first quarter of 2022, despite the negative impact of COVID-19 and the challenging microeconomic environment, we continue to focus on product requirements and improving optional efficiency. Thanks to the excellent performance of our online game business, we delivered better than expected bottom line performance and achieved profitability for the quarter. For SOHO Media Portal, we carried out product upgrades and improvements in the overall quality of our news and content, all of which continued to draw users to our platforms and keep them engaged. For SOHO Video, continuous execution of our Twin Engine strategy. We proactively extended our live broadcasting to a greater number of scientific fields, We also focused on user acquisition for our key mobile products and explored ways to improve monetization for both Soho Media Portal and Soho Video. For Changyou, our online games performed well during the quarter, with revenue exceeding the high end of our prior guidance. I'll go into details about each of these businesses in a moment, but first let us look at a quick review of our financial performance. For the first quarter of 2022, total revenues were $193 million, down 13% year over year and a flat quarter over quarter. Brand advertising revenues $24 million, down 23% year-over-year, and 29% quarter-over-quarter. Online game revenues, $158 million, down 11% year-over-year, and up 10% quarter-over-quarter. Gap net income attributable to Suhu.com Limited was $3 million, compared with $32 million in the first quarter of 2021, and $4 million in the fourth quarter of 2021. Non-GAAP net income attributable to Sohu.com Limited was $9 million, compared with $37 million in the first quarter of 2021 and $200,000 in the fourth quarter of 2021. Now I'll go through some of our key businesses. First, Media Portal and Sohu Video. For Sohu Media Portal, in order to strengthen our visibility and influence, As a mainstream media platform, we provided real-time breaking news and hot social topics to users, as well as optimizing algorithms and adding features to provide better user experience and increased user engagement and enhanced social distribution. For Soho Video, we continue to execute our 10-engine strategy The product differentiation and competitive advantages of our live broadcasting have enabled us to extend its scope. For example, in late 2021, we launched Charles John's physics class. I opened and started teaching physics online, live broadcasting, since late 2021. Now I have already more than 40 online episodes since the initial launch. Starting this March this year, we also introduced the offline classes as well with also live broadcasting. Young audience were enthusiastic and generated robots online conversations. The recognition given to this IT supported by our advanced live broadcasting technologies attracted broadcasters in a variety of scientific fields ranging from physics, mathematics, chemistry, and aerospace, et cetera, to our platform to engage in scientific live broadcasting. As a result, we have built a solid and credible reputation as a live broadcasting platform in the field of science and basically a knowledge-based platform. We will continue to explore innovative ways to create and distribute high-quality content. We also have some new wins with our new own production house for our episodes and reality shows. For original dramas, following the successful broadcast of Mysterious Love, 她在你光中告白, this quarter we started shooting this sequel, Mysterious Love 2, and also have several original dramas in our pipeline that will be rolled out steadily in 2022, this year. For reality shows, we saw the successful release of the fifth season of On Her Way Home, 送一百位女孩回家第五季. On Her Way Home was designed to be more inclusive and to include training which led to lively conversations with high visibility. We believe the success of the fifth season demonstrated by our ability to create a robust and sustainable IP, which also attracts advertising dollars. On the monetizing side, the first quarter tends to be a soft period for seasonal reasons. Advertising spending was affected also by macro uncertainties and Omicron-driven lockdowns. Despite these headwinds, we took advantage of the dual platform advantages of Soho Media Portal and Soho Video, as well as our advanced live broadcasting technologies, and this gave us the opportunity to explore the promotional needs and advertisers and work closely with them on their marketing plans in order to attract and capture their advertising dollars. Next, turning to game business, Changyou. During the first quarter of 2022, ChangYu's online games revenue exceeded our prior guidance. This was thanks to the sound performance of TLBB PC. In our business line for PC games, looking first at regular TLBB PC, we launched a variety of holiday-related quests and promotional events, and adjusted the relative strength of different clans based on player feedback. With TLBB Vintage, We launched rich content around the time of New Year and Spring Festival. We continue to optimize the game based on player feedback to increase the player's satisfaction. With mobile games, we launched a variety of holiday events and promotional events for Legacy TLBB Mobile, whose revenue remained steady on a sequential basis. Next quarter, we'll roll out new content or TLBB PC, Legacy TLBB Mobile, Little Raccoon, Heroes, and other games. We'll also launch TLBB Vintage on the WayGame platform as we look to bring more back long-time TLBB players by way of new channels. In our game pipeline, several key games are under development. and we are in the process of fine-tuning them. We look forward to bringing them to players soon. Against an ever-changing environment, Changyou will stick to his top-game strategy by promoting innovation, building the capacity of his team, and rolling out more high-quality mobile games in a variety of categories. Now I'll turn to Joanna of CFO, who will walk you through our financial results. Joanna.
Huangpu
Thank you, Charles. I will now walk you through the key financials of our major segments for the first quarter of 2022. All the numbers on a net gap basis. You may find a reconciliation of net gap to gap measures on our IR website. For SOFO Media Portal, quarterly revenues were $14 million, down 22% year-over-year and 27% quarter-over-quarter. The quarterly operating loss was $44 million, compared with an operating loss of $31 million in the same quarter last year. For Sohu Video, quarterly revenues were $15 million, down 25% year-over-year and 36% quarter-over-quarter. The quarterly operating loss was $21 million, compared with an operating loss of $30 million in the same quarter last year. For Changyou, quarterly revenues, including 17173, $160 million, down 11% year-over-year, and up 10% quarter-over-quarter. Changyou posted an operating profit of $83 million, compared with $99 million in the same quarter last year. For the second quarter of 2022, we expect brand advertising revenues to be between $22 million and $25 million. This implies annual decrease of 32% to 40% and a sequential decrease of 7% to a sequential increase of 5%. Online game revenues to be between $150 million and $160 million. This implies annual decrease of 1% to annual increase of 6% and a sequential decrease of 5% to a sequential increase of 1%. Now gap net loss attributable to Soho.com Limited to be between $50 million and $5 million. And gap net loss attributable to Soho.com Limited to be between $80 million and $8 million. This forecast reflects our current and preliminary view, which is subject to substantial uncertainty. This concludes our prepared remarks. Operators, we would now like to open the call to questions.
Operator
Thank you. Ladies and gentlemen, we'll now begin the question and answer session. As a reminder, if you wish to ask a question, please press star and 1 on your telephone keypad. The first question comes from Thomas Chong from Jefferies. Please ask your question.
Thomas Chong
Hi, good evening. Thanks, management, for taking my question. I have a question regarding the Q2 guidance. How should we think about the low end and the high end of the guidance, given that we are seeing a negative Q1Q and a positive Q1Q growth? And on that front, may I ask about the advertising momentum in the month of April and so far we are seeing in the month of May. And my second question is about if there's no pandemic in Shanghai, how does our second quarter would look differently from before? And are we actually seeing more people spending time playing games recently? Thank you.
Charles Zhang
Yeah, in terms of advertising I think in q2 is You know, I think it's quite Impacted, you know by the lockdowns and not only Shanghai. I know but also other cities so with you know your question without without me without the The comment, you know lockdown I think we should be looking at another five million more in terms of even more, right? Five to six million more dollars revenue in advertising. And for online game, are people spending more time playing?
HSCA
We're not seeing any influence caused by the pandemic outbreak of Shanghai and
Charles
We think that Shanghai accounts for a little part of our total players. And also during the pandemic time, people have to shopping online and also they have some time to testing, COVID testing.
Thomas Chong
Got it. Thank you.
Operator
Thank you. The next question comes from Eddie Leung from Bank of America. Please ask your question.
Eddie Leung
Hey, good evening, guys. Just a follow-up question on the advertising pieces. Could you give us an idea on the key advertiser industries in first quarter and which industry you have seen better performance and which ones are weaker? And then secondly, just a question about the share buyback program. Wondering if there is any update on the share buyback program or how the management thinks about launching another buyback program given the discounted value of your share price? Thank you.
Charles Zhang
I think the competition or the distribution of the industries are similar to other quarters, right? with all of them for the top category and internet services and FMCG. But especially I think the auto industry are quite affected by the lockdowns in Q2. And also in Q1, I think real estate quite, real estate, kind of a meltdown or something. Yeah, also affected. Q1 is affected by some of the real estate companies default. Share buyback program. Any updates? Do we have any updates?
Huangpu
In Q1, we have repurchased 4.3 million shares and total cost of products $74 million US dollar.
Charles Zhang
So basically, 75% of the $100 million have been spent in buyback. And so with this quarter up to this point, we do not have any new plan to buyback. But we'll see, because with the, yeah.
Eddie Leung
Thank you.
Operator
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star and 1 on your telephone keypad. The next question comes from Felicia Yap from Citigroup. Please ask your question.
Felicia Yap
Hi. Thank you. Good evening, management. Thanks for taking my question. I have a follow-up on the second quarter advertising outlook. So I think Charles, you just mentioned some of the verticals that have probably been impacted more. So when do you expect some of these ad budgets to recover? Will the second half, can we see or potentially see some year-over-year growth instead of the declining trend? So any colors if you can give in terms of some of the outlooks? And then second question is on the online gaming. So with games approval resumed recently, so any change of the view for the second half gaming outlook for Changyup?
Charles Zhang
Okay, the first question about advertising, as I said, that without the COVID lockdowns, we should have at least, you know, we basically, I think I estimate that we lost about $6 million advertising dollars due to the pandemic or the lockdown in Q2. Yeah, in Q1, right? Q2, Q2, yeah. Q1 is the soft season because of Chinese New Year. So for two reasons, one is that these companies are postponing their marketing plans or their product rollout. Secondly, so they spend less. And secondly, especially with Sohu, our unique marketing plan for For advertisers, it's like some unique event with live broadcasting event. And for that, especially with this COVID, the pandemic, these events need a lot of gathering of people and events cannot do it. Like the Soho News marathon and other. So that's also in particular affected our own monetization ability. So in the second half of the year, I hope that the lockdown will be eased and the economy will begin some momentum. We'll see. We don't know. About the online game.
HSCA
Yes, the license approval resumed issuing from April and we got the first batch of 25 approvals. So we need to observe further later on
Charles
changes, but we believe that the big direction will be okay for gaming companies.
Juan Poo
Thank you.
Felicia Yap
So thank you. Can I follow up a couple questions? One is that can you remind us the games titles that you guys have in the pipeline that are still waiting for the game approval? And then second question on the follow-up is you know, given these SEC, you know, HSCA, you know, the delisting list, any plans that SOHO will be thinking about either the introductory offering in Hong Kong or the secondary listing in Hong Kong? Thank you. 关于游戏的就是我们储备里面有哪些是已经有版号的,然后哪些是还在等候。
HSCA
Now we have got the license approval for Sea of Dawn, and we plan to launch it in July this year. It has started the appointment right now.
Charles
For other games, we haven't got any new license approval so far.
Charles Zhang
Well, the second question about the U.S., I mean, SOHO list on the NASDAQ and the listing issue. I think it's still, it's not that urgent yet. It's still in like two years' timetable, time to think about it. So we don't have a plan yet to reintroduce to the Hong Kong market. Thank you.
Operator
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star and one on your telephone keypad. The next question comes from the line of Olle Jakobsson from Private Investor. Please ask your question.
Olle Jakobsson
Thank you. You say that 75% of the share buyback program was spent at the end of Q1 or that 75% of the program was spent until today.
Charles Zhang
75% of the $100 million have been spent since we announced the buyback. That was like in Q4, right? So in the last few months, we bought back 4 million shares, right? What's your question?
Olle Jakobsson
Yeah, that was correct. Can I follow up with another question? And the combination of a huge amount of cash and a very low market cap looks like an excellent opportunity to create a lot of shareholder value. Can you give an update on how you think about the current cash pile? When can we expect to get more clarity regarding how the cash will be used?
Charles Zhang
Uh, we, uh, we currently we have like 1.5 billion. Yeah. 1.5 billion us dollars, uh, cash. And, um, We, well, at this quarter, at this point, we have decided not to have new buyback program, but that doesn't say that we will not have in the future. We probably will have some buyback program in the future. And also, we, you know, we feel, see some promising product innovations that we expect to test our products, make sure that it has some potential to explode or to really gain user attraction, and then we'll spend some money on user acquisition to bring more users to our platform. Actually, in Q1, because we're still fine-tuning some of the products and tested the variability of the products, we spent less than we planned or expected. So that's why we exceeded our guidance, because we were guiding a loss, right? But because our gaming are performing better and also we spend less on the channel I use our condition so that was turned is a profitable quarter overall But in the future we will spend, you know because Chinese internet market it's very competitive and you have to First of all, you have to have the right, you know products and then the right strategy either you you know algorithm recommendation based or a sort of natural based we are we probably our products more social network natural based and we hope that it will explode or and but with the products and and then you need to spend some money if you don't spend the money you don't bring the users to your platform then you don't know whether the product is the right one or not so With that kind of cash, we will spend wisely. And we're not going to just . That's all I can think of. Either buy back and also spend the money on our product innovation and get users. For this media and social network platform, you have to have size. You don't have a critical mass of size users. it's very hard to achieve a profitability. But then some products, sometimes some products explode. You just think, oh, you have the right business model. You have the right design or the right idea. But actually, the product has been, they have been refining that product for years and suddenly one day it exploded and people think that it's just overnight success. It's actually not. That's why we need to improve the products and really improve user experience gradually and slowly and really very carefully. And we are doing that.
Olle Jakobsson
Thank you for the answers, Charles. Does this mean that, for example, if you do not think that you can spend all the money on marketing over time, that more buybacks are more likely than, for example, a special dividend due to the current situation with a very low market cap.
Charles Zhang
Yeah, it's all possible. And also, we also need to look at how the COVID pandemic and the lockdown and the overall economy and all the world, you know, So that's a lot of factors we are looking at. So we will not exclude the possibility of more buyback and dividends. So it's possible. But we are still in the game. We are on a media platform. We are still the players on the internet field. And then we see some good opportunities, especially in the social networking field. People in China, companies have not We have WeChat, but still, it's an open field. A lot of user needs are not satisfied. So we're still the players. And then to fight the internet wars, you need a war chest of cash. And you need to fight. Unless we just give up and don't do it. We'll just distribute the money and create a shareholder value. But we believe that we have a chance to win. in the end.
Olle Jakobsson
Thank you, Charles. Can I ask one more question? There is an upcoming game called Sea of Dawn. Is that game still planned for a 2022 release? So it will be released in the second half still of the year?
Charles
Yeah.
Charles Zhang
Yes, July.
Charles
Yes, we will launch Sea of Dawn in July this year.
Olle Jakobsson
Thank you. That's all for me.
Charles Zhang
So basically, the company has actually, the company has, I think, is in a better position than before. We are, first of all, we have a game business that's making money. And after the Sogo deal, we have a pile of cash. And also, our media platform and video platform's growth strategy is organic. So this organic growth sometimes consumes less cash. It really relies on the right product and the product design. So that's why I think we're in a pretty good position to really fight the battle. Even in our video business, instead of spending huge amount of money buying very expensive content, we have our team strategy. We spend less amount of money than some of our peers and to create these dramas and And then we have, once users come to our platform with the video, they found the video networking, social networking, and the short video clips, they will stay. So the user acquisition and also the user stickiness is just higher. It's a less cost-effective, more cost-effective growth of users than just a you know, long video, long form, you know, dramas and those content, basically the Netflix model. All right, other questions?
Operator
There are no further questions. That does conclude our conference for today. Thank you for participating. All disconnect. Have a nice day.
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