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spk06: Ladies and gentlemen, thank you for standing by for joining SOHU's second quarter 2022 earnings conference call. Good evening. At this time, all participants are in a listen-only mode. After management 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, Huang Pu, Investor Relations Director of Sohu. Please go ahead.
spk02: Thanks, operator. Thank you for joining us to discuss Sohu's second quarter 2022 results. On the call are Chairman and Chief Executive Officer, Dr. Charles Zhang, CFO Joanna Liu, and Vice President of Finance, James Stone. Also with us are China's CEO, Du Wenquan, and CFO, Bing Wang. Before management begins their prepared remarks, I would like to remind you of the company's 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 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 could cause actual results to differ materially from those contained in any four leaking 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 20S. With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed.
spk08: Thank you, everyone, for doing your call. In the second quarter of 2022, COVID-19 and related prevention measures disrupted normal economic activity nationwide. But we met the challenge proactively by refining our products and technology and exploring a range of monetization opportunities. Our brand advertising revenue met the high end of our previous guidance during the quarter. Thanks to the solid performance of our online game business, the group's profitability exceeded guidance. For Soho Media Portal and Soho Video, we continue to generate and distribute reliable news and premium content, reinforcing our competitiveness and credibility as a mainstream media platform. Leveraging the differentiated advantages of the SOHU product matrix, we extended our live broadcasting to a greater number of scientific fields and to various online and offline events. For online games, our performance was stable during the quarter, with revenues in line with our guidance. I'll go into details about each of these businesses in a moment, but first, Let me have a quick look overview of the financial performance. For the second quarter of 2022, total revenues, $195 million, down 5% year over year and up 1% quarter over quarter. Brand advertising revenues, $25 million, down 32% year over year and up 5% quarter over quarter. Online game revenues, 157 million, up 4% year-over-year and a flat quarter-over-quarter. Gap net income attributable to silver.com limited was $9 million compared with $22 million in the second quarter of 2021 and $3 million in the first quarter of 2022. Non-GAAP net income attributable to Soho.com Limited was $12 million, compared with $25 million in the second quarter of 2021 and $9 million in the first quarter of this year. Now, I'll go through some of our key businesses. First, Media Portal and Soho Video. So, Soho Media Portal is improving our product upgrading technology, and refining our algorithms and their accuracies. To enhance user experience, we stimulated content generation and user interaction to improve the features that drive content distribution. During the quarter, our advanced live broadcasting technology, strong operating track record, and extensive media resources reinforced our credentials as a mainstream media platform that helped us better capture advertising buyers. For Zoom Video, we developed compelling long and short-form content with our chain engine strategy and explored monetization opportunities by integrating the live broadcasting into unique and creative events. Through our continuous efforts, we have built a strong and credible reputation as a science and knowledge-based live broadcasting platform and attracted hundreds of leading professional broadcasters in various fields to our platform. In the long-form format content, we kept producing original dramas and reality shows to enrich our content library. In the second quarter, we completed shooting and entered the post-production stage of several original dramas, such as the sequel of Mysterious Love , a big hit combining idol romance and crime scenes. Next, turning to online game business. During the second quarter of 2022, online gaming revenues were in line with our guidance. With lower-than-expected operating expenses, the group's net income for the second quarter exceeded the high end of our guidance. In our business line for PC games, we introduced a new PvP event for regular TLBB PC and upgraded the artistic design of game characters. With TLBB Vintage, we introduced a new dungeon and upgraded character development system for its new expansion pack. In addition, in April we launched TLBB Vintage on the Wii game platform, which brought some long-time TLBB players back to the game. With mobile games, we launched an expansion pack for the anniversary of legacy TLBB Mobile with the addition of skills development system and its revenue remained stable on a sequential basis. The next quarter, we'll roll out new content for TLBB PC, legacy TLBB Mobile, and other games to keep the players engaged. Against an ever-changing environment, We will stick to our top game strategy by promoting innovation, building the capacity of our team, and rolling out more high-quality mobile games. In terms of game pipeline, while maintaining the core competitiveness of MMORPG games, we will also invest in games of multiple genres, including the card RPGs and casual games. We'll now turn the call over to Joanna, our CFO, who will walk you through our financial results. Joanna.
spk01: Thank you, Charles. I will walk you through the key financials of our major segments for the second quarter of 2022. All the numbers on a non-GAAP basis. You may find the reconciliation of non-GAAP to GAAP measures on our IR website. For Soho Media Portal, quarterly revenues were $16 million. down 27% year-over-year, and up 13% quarter-over-quarter. The quarterly operating loss was $43 million, compared with an operating loss of $28 million in the same quarter last year. From Google video, quarterly revenues were $16 million, down 31% year-over-year, and up 7% quarter-over-quarter. The quarterly operating loss was $25 million, compared with an operating loss of $30 million in the same quarter last year. For Chang You's online game business and 17173, quarterly revenues, $159 million, up 3% year-over-year and flat quarter-over-quarter. The quarterly operating profit was $85 million, compared with an operating profit of $75 million in the same quarter last year. For third quarter of 2022, we expect brand advertising revenues to be between $25 million and $28 million. This implies annual decrease of 17% to 26% and a sequential increase of nil to 12%. Online gaming revenues to be between $138 million and $148 million. This implies annual decrease of 11% to 17% and a sequential decrease of 6% to 12%. Non-GAAP net loss attributable to Soho.com Limited to be between $35 million and $25 million. and gap net loss attributable to Soho.com Limited to be between $38 million and $28 million. This forecast reflects our current and preliminary view, which is subject to substantial uncertainty. This concludes our prepared remarks. Operator, we would now like to open the call to questions.
spk06: Thank you. At this time, if you would like to ask questions, please press star 11 on your telephone and wait for a name to be announced. Once again, to ask questions, please press star 11 on your telephone and wait for a name to be announced. Thank you. The first question comes from the line of Thomas Chong of Jefferies. Please go ahead.
spk00: Hi, good evening. Thanks, management, for taking my questions. I have two questions. The first one is on advertising. Given that we reached the high end of our guidance in Q2, and when I look into Q3 guidance, it represents around 0% to 12% quarter-on-quarter growth. I just want to get a sense about under what scenario should we hit the low end and the high end of the guidance? And can you comment about the trend that we are seeing so far in the month of July, if any, as well as the trend for different verticals? And my second question is about the gaming business. Given that we are going to launch expansion packs in the third quarter, but we are seeing some sequential software. I'm just going to get some color about if there are any macro uncertainties that may affect the gamer spending in the second half. Thank you.
spk08: All right, Thomas. This is Charles. On advertising, It really depends on whether the, you know, the COVID-19 situation, whether it will, you know, allow us to be able to do offline marketing events and some, I would say content events that draw advertisers. So it will depend, yeah, but basically about whether the pandemic situation, whether the lockdown or not. So we see some uptake, some advertisers coming back to try to start marketing their products entering, I think, June, July. And we'll see.
spk04: Hi, Thomas. Can I confirm that regarding the online game business? Did you question was the third quarter performance looked weaker than the second quarter?
spk00: Yes. We saw some sequential behind the guidance. Just want to get some color on that one.
spk04: Yes. Yes. OK. The problem is that in terms of game business, in the third quarter, the guidance seems to be weaker. I would like to ask, in terms of gaming in the second half of the year, how is the player's payment and income? In the second half of the year? Yes, because the guidance in the third quarter seems to be lower.
spk05: Yes, in the second half of the year, we mainly need to look at the data from our old games. The third quarter is weaker because in the second quarter, In the second half, the main focus will be on the expansion pack.
spk04: Do they impact our revenue? And for the weaker guidance for the third quarter, because our vintage, TLV vintage, launched to a weekend platform in the second quarter, and the game revenue jumped up to an obvious, there was an obvious jump for the game revenue, and it didn't last into the third quarter. So it will have a natural decline in the third quarter. Thank you. Thank you.
spk06: All right. Thank you for the questions. As a reminder, if you would like to ask questions, please press star 11 and wait for a name to be announced. Our next question comes from the line of Alicia Yap from Citi. Please go ahead.
spk03: Hi, thank you. Good evening, Charles and management. Thanks for taking my question. First, I actually wanted to ask about the 3Q guidance on the net loss. And just if management can share how you actually get into such a big loss. Is it really because of the gaming revenues is weaker? Any other reasons or which expense line that we should expect will become bigger in the third quarter? That's my first question. I'll follow up on another question.
spk08: Yeah. So I think the marketing expense mostly for third quarter is the new game, right? the marketing expense for the third quarter because actually the marketing event was postponed right from Q2 to Q3 so that's contributed to the most part of the of the marketing expenses for third quarter and also on the portal side that's a small part but we do expect or we're planning to do something to increase our marketing activities, to promote our live streaming and also a video app. And yeah, we'll spend money. As we said before, but we didn't spend as much in Q2. So that both contribute to the larger Net loss in Q3, but mostly the game marketing expense.
spk03: I see. Any chance you can give us a roughly amount that you have budgeted for this game marketing spend?
spk08: I think we do, but we don't .
spk05: Yeah, as we go along, we'll see whether, you know, basically... I see, I see.
spk03: Okay. Thank you. And then my follow-up question is on... I'm sorry, Alicia.
spk06: This is Joe Briggs. I'm afraid that the management has disconnected. Temporarily just be stay on the line. We'll just reconnect them for them to return the call before we take your next question.
spk03: Okay, thanks.
spk07: Do we have the management back, please? I think you may have accidentally muted.
spk09: Thank you.
spk06: Do we have the management back to the call, please?
spk08: Yes, we are back. Are you guys still there?
spk06: Yes, thank you very much. Alicia, please go ahead with your next question. Thank you.
spk08: Alicia, did you hear what I said, the last part?
spk03: I only heard about until the games will, I mean, the budget will depending on the games performance and you will adjust accordingly.
spk08: Yeah, yeah, that's, that's about it. So basically, we'll spend like, you know, 15, you know, 10 1520 million, that kind of thing for the new game.
spk03: Okay. Okay. So my, my follow up question is on the overall underlying economies and also the advertising I know you just now you mentioned there's been some returns of the advertiser in June and July. Is that in line with what you expected or the return is actually better or worse than what you expected so far? Thank you.
spk08: Well, I think it's, so, you know, the Shanghai and the Eastern market are very important market for us. So the lockdown Shanghai in Q2 have an impact. And after Shanghai was, you know, this, you know, basically lifted, lockdown lifted, the companies, especially auto companies are starting to, you know, start to, spending money and having activities and marketing events. So we see it coming back of auto industry and some internet services. So it's expected. It's basically because of the lifting of the lockdown.
spk03: I see. And regarding the remaining of the year, is that really depends on the overall COVID situation?
spk08: Yes. So we see that for the current situation that it depends. But for now, it seems that offline activities are being held. with some, you know, with some distancing and with mask wearing and those kinds of things. So, so companies are do having, you know, are having marketing events. And we also have some activities planned or our conferences and the content conferences. And so we see advertising improvement in Q3.
spk03: Okay. All right. Thank you so much. I get back to the queue. Thank you. All right.
spk06: As a reminder, if you'd like to ask questions, you can press star 11. Alicia, do you have any follow-up questions?
spk03: I will go back to the Q&A that Adam asked us. Thank you.
spk06: At this time, we don't have any more questions. You may go ahead. I will take your questions as last question.
spk03: Oh, okay. All right. Thank you. So I guess maybe any update in terms of the latest, you know, share buyback that management can comment on. And also overall, you know, the cost, you know, optimization effort, because I think a lot of other internet peers has done many, you know, different sort of cost optimization effort. So wondering, you know, will SOHO need to do any for the remaining of the year? And also the share buyback update. Thank you.
spk08: So the share buyback, we're almost finished, right? We've done over 100 million, right?
spk01: We finished 19 million.
spk08: We finished 19 million US dollars share buyback already.
spk03: Okay.
spk08: And for cost cutting, actually over the last few years we've been constantly doing that. So basically we only focused on media portal and video business and cut a lot of other business over the last few years. So we don't have a lot of much optimization to do. unlike some of our peers who have been doing a lot of business and then make economies in the downturn, and they're doing a lot of cost-cutting. But we don't need to do that.
spk03: Actually, can I sleep in the last one? Given the current capital market and given we still have a pretty decent size of cash, are there any emerging opportunity in terms of some of the attractive potential target given the valuation has come down quite a lot in both the public and the private space? So I'm not sure if there's anything that trigger would you use some of your cash balance that you can actually beef up some of the businesses going forward. Thank you.
spk08: Yeah, we are, you know, myself and I'm a believer of organic growth. For internet companies, you buy some products or buy some companies that integration and also the a new, gaining new competitive advantage is very hard, so we do have a good, quite sizable capital. So we will more focus on basically beefing up our current products. and spending more on channels, on marketing of our products, on our video and the news app. And it's a social network and live streaming. So we do not have any acquisition or the non-organic. We don't see any of those kind of opportunities.
spk03: OK, great. Thank you, Chao.
spk06: Thank you for the questions. That does conclude today's conference call. Ladies and gentlemen, thank you for participating. You may now disconnect. That concludes the conference for today.
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