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spk08: Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining SOHU's second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be question and answer session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I'd now like to turn the conference over to your host for today's call, Wang Pu, Investor Relations Director of Sohu. Please go ahead.
spk07: Thank you, operator. Thank you for joining us to discuss Sohu's second quarter 2023 results. On the call are Chairman and Chief Executive Officer, Dr. Charles Zhang, CFO, John Lewis, and Vice President, James Stone. Also with us are China's CEO, Dylan Chen, and CFO, Wing Wang. Before management begins their prepared remarks, I would like to remind you of the comprehensive upper 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 be prematurely from those containing any forelooking statements. For more information about the potential risks and uncertainties, please refer to the accomplished findings with the Security and Exchange Commission, including the most recent annual report on Form 28. With that, I will now turn the call over to Dr. Zhao Xia. Zhao, please proceed.
spk02: Thanks, Huangpu, and thank you, everyone, for being on the call. In the second quarter of 2023, we delivered stable performance with both revenues and the bottom line meeting our expectations. At Soho Media, we enhanced the user experience through continuous refinements to our products and technology and by offering users a steady stream of reliable content in real time. At Soho Video, With consistent execution of our Twin Engine strategy, we expanded our portfolio of long and short-form video content and proactively improved their social distribution. Leveraging our advanced live broadcasting technology and Sohu product matrix, we hosted traditional flagship events and innovative content marketing campaigns. which generated abundant premium content and attracted more users. And this also put us in a position to explore more monetization opportunities and again, advertising dollars. Online games remain steady, generating revenues in line with our prior guidance. Now let me first give a quick overview of the financial performance. For the second quarter of 2023, total revenues, $152 million, down 22% year-over-year and 6% quarter-over-quarter. Brand advertising revenues, $24 million, down 4% year-over-year and up 6% quarter-over-quarter. Online game revenues, $118 million, down 25% year-over-year and 9% quarter-over-quarter. Gap net loss attributable to Soho.com Limited was $21 million compared with a net income of $9 million in the second quarter of last year and net loss of $18 million in the first quarter of 2023. Non-gap net loss attributable to Soho.com Limited was $18 million compared with a net income of $12 million in the second quarter of last year and the net loss of $30 million in the first quarter of this year. Now I'll go through our key businesses in more detail. First, Media Portal and Soho Video. At Soho Media Portal, we continue to focus on refining our product and optimizing the algorithms. We further enhance the user experience by integrating cutting-edge technology into our products and expanding premium content and the various forms of presentation. Thanks to our continuous dedication and integration of rich media resources, we've strengthened our advantage and influence as a mainstream media platform. At Soho Video, we continue to execute our Twin Engine strategy For the long-form video content, we released the crime-themed idol romance Love of Replica during the quarter to widespread popularity and further expanded our audience base. At the same time, we launched several reality shows like This Is Me , which is the sixth season of On Her Way Home, and High Summer Friends, 属于我们的夏天二, 穿西徒步。 These shows have created a lot of engaging discussions online and attracted millions of viewers across various social media platforms. In terms of short-form content and live streaming, we kept concentrating on knowledge and science-related live broadcasters. driven by our distinctive IP of myself, Charles' physics class, which is becoming very popular. And we further promoted high quality content generation and its social distribution, attracting more users to produce video content and interact with each other on our platform. On the monetization side, we closely monitored market trends, and explored potential opportunities, leveraging our advanced live broadcasting technology and the dual platform of Soho Media and Soho Video. We provided advertisers with unique and diversified online and offline marketing strategies that cater to their needs and boosted our advertising dollars. In the second quarter of this year, we hosted the traditional content marketing event, the 15th Sohu News Marathon in Xi'an, demonstrating the reinvigoration and popularity of traditional Chinese culture, as well as Sohu's positive and upward social values. We also proactively developed new monetization opportunities by integrating innovative ideas into diversified events and expanded application scenarios using our advanced live broadcasting technology. We integrated the Charles Physics class into Soho Tech Conference and further extended this IP into a new series of activities called Talk Under the Stair Sky. These events have generated an abundance of premium content and obtained recognition from advertisers. Next, turning to the online game business. During the second quarter of 2023, Online game revenues were in line with our prior guidance. When in our PC game business, we optimized the character development system of regular TLBB PC to make players' investments more worthwhile and also improved the social relations system for TLBB Vantage. In our mobile game business, we launched an expansion pack for the anniversary of Legacy TLBB Mobile with the addition of the limited time player versus player event to satisfy demand for additional in-game combat. Next quarter, we will launch new TLBB Mobile, our next generation TLBB product, along with the expansion packs and content updates, along with expansion packs and content updates for other games to maintain player engagement. Nowadays, as technology in the game industry advances rapidly and market demand becomes deeper and more diversified, we intend to stick to our top games strategy, allocating more resources for research and development to generate ideas, professional talent development, as well as content and technology innovation in order to roll out our more high-quality mobile games. In terms of games pipeline, we will maintain our core competitiveness in the MMORPGs while also producing various other game types, including card-based RPGs, sports, and casual games. Now I'll turn over the call to our CFO, Joanna, who will work you through our financials.
spk06: Thank you, Charles. I will now walk you through the key financials of our major segments for the second quarter of 2023. 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 $17 million compared with revenues $20 million in the quarter last year. The quarterly operating loss was $35 million compared with an operating loss of $44 million in the same quarter last year. For Soho Video, quarterly revenues were $50 million, compared with revenues of $60 million in the same quarter last year. Quarterly operating loss was $32 million, compared with an operating loss of $25 million in the same quarter last year. For Changyou, For Chanyu's online game business and 17173, quarterly revenues $190 million, compared with revenues $159 million in the same quarter last year. Quarterly operating profit was $49 million, compared with an operating profit of $85 million in the same quarter last year. For third quarter of 2023, we expect Brand advertising revenues to be between $21 million and $24 million. This implies annual decrease of 7% to 18% and a sequential decrease of nil to 12%. Online game business. Online game revenues to be between $108 million and $180 million. This implies annual decrease of 21% to 27% and a sequential decrease of nil to 9%. Non-GAAP net loss attributable to SOHO.com Limited to be between $20 million and $30 million. And the GAAP net loss attributable to SOHO.com Limited to be between $23 million and $33 million. Our guidance reflects our current and the preliminary view which is subject to substantial uncertain. Also, please be noted that the above guidance excludes projections for the new TLBB mobile game, which is scheduled to launch in the third quarter of 2023. Given that the game is not yet launched, revenue projections for the game remain uncertain. Therefore, the company believes that it is appropriate to take a conservative approach with the third quarter guidance. This concludes our prepared remarks. Operator, we would now like to open the call for questions.
spk08: Thank you. To ask a question, please press star one one on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question please press dial 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Thomas Chong from Jefferies. Please ask your question, Thomas.
spk01: Hi, good evening. Thanks, management, for taking my questions. I have a question on the advertising strategy First, when I look into the Q3 guidance, it seems that the low end of the guidance and the high end seems the range is quite high. If I try to exclude the foreign exchange impact, looking into a local currency, it seems that there's a chance that we would have positive sequential growth. So I just want to ask management about how's the advertising sentiment so far we are seeing in the month of July versus June and how we should think about the advertising trend across different categories like auto, FMCG and internet services. Thank you.
spk02: So you said sequential growth, but is that sequential growth? For Q3?
spk06: So in terms of R&D, right?
spk02: But so overall, for the second quarter, the advertising revenue is not... So the overall market is not bouncing back as expected. So that's why... compared with last year, the Q2 revenue dropped, right? But we are still holding steady because in terms of RMB, it's still a 2% growth for Q2. Normally, we have a better Q3, normally, right? In a normal economy situation. But because of the sluggish economy, as I said, the bounce back is not as expected. We are forecasting a downward revenue for Q3. Because we are holding up the revenue because of our innovative marketing solutions to our advertisers, as I just said, in a script. Live broadcasting and innovative events. But overall, in terms of the categories, and so the real estate is basically, you know, it's not, right? It doesn't exist anymore. So our top advertisers, auto 26%, internet service 18%, FMCG 16%. With auto, it seems not doing well because the automakers are now more hesitant in spending much and not with the big marketing campaigns, not as they did. because the overall economy and in our service as well is the same thing same because our people are spending less even you know buying less and online so FMCG seems a little bit it's okay but it's still with a smaller percentage of our overall revenue so that's a kind of that that's a overall picture Did I answer your question, Thomas?
spk01: Yes, thank you, Charles, for the detailed answer. May I have a quick follow-up? That is about AIGC and industry LLM. I just want to seek management thoughts about how AIGC can benefit SOHO in the future and what are our strategies and the spending in this area. Thank you.
spk02: We believe that AIGC is a major technology advancement. And it's very, very important. It revolutionized the way formerly it's a search engine. Now it's a totally different way of delivering information. So it's a very important opportunity, especially for media and information providers like Sohu. We're not investing in the large model, big data model, large model. We will probably outsource the large model to use some services, service providers, third-party providers to us, and then we are redeveloped those applications in our consumer and services like Sohu News and social network. Like for example, we are now for each article we have a machine generated And also some of our products actually using AIGC. So we are going to be a heavy user of AIGC and we're closely monitoring its development and also to turn those developments into the real practical applications and turn it into a consumer-side product.
spk01: Got it. Thank you, Charles. I will get back to the queue.
spk08: Right. Thank you, Thomas. Our next question comes from Alicia Yup from Citi. Please go ahead, Alicia.
spk00: Hi. Yes. Good evening, Charles, Johanna, and management. Thanks for taking my questions. I have three questions. First, I wanted to follow up on the previous Thomas questions on the advertising, Charles. So can you elaborate? You mentioned advertising. it was a little bit sluggish and bouncing back. It's a little bit weaker than expected. So do you expect the situation to actually continue into the next few months and also the rest of the year? Internally, is that worse than what you had expected? previously expected? Or is this like worse than everybody has expected? So this is the first question on advertising, just the follow up.
spk02: I think it's probably throughout the year, not just a quarter. And it's just like everyone actually in q2, you know, you probably remember last quarter, a phone call conference call. that we have, you know, after the, you know, three years of the COVID lockdown, you know, after we, everyone expected a stronger, you know, a bounce back of economy, but then now in the middle of Q3, we are seeing, we're not seeing that strong bounce back like everyone did, like everyone is, you know, seeing, not seeing. I see.
spk00: I understood. Would you also, you know, kind of attribute some of the recent natural events like the flooding to maybe, you know, kind of like amplify the magnitude, you know, the overall macro sentiment is also getting softer or worse because of some of the natural events that happened as well?
spk02: I know the flooding just happened it's nothing to do with the flooding but I think the macroeconomic situation you know the export you know the people's had less people's disposable income because people you know so not having enough enough disposable income people are not buying things or and then the if you don't have to export and people are not buying, does not have the money to buy things, then those products that have, you know, there's no sell of those products, those companies then stop hiring, and job opportunity, no job opportunity. So it's a negative downward, you know, it's a spiral downward, right, trend. But I still, in terms of entire companies, a company like Sohu, I think I'm still not that, not that, you know, pessimistic because if our people not spending a lot, have large items spending like, you know, buying cars or buying houses, then in terms of cash, they probably have more cash to buy little things. So like the subscription of the monthly subscription of our video drama membership or just playing games, playing online games and consuming the social networks. And then so if the auto and some large item advertisers are kind of their spending is declining a little bit, then probably some small item FMCG side could come up because China's economy is still large and the population and the number of consumers is still the largest so I'm still kind of optimistic so that's why we are investing to continue to develop our social network and the information delivery and also social networks so that At this economic downtime, we take advantage of the, you know, we have, actually we are more, we are actually cash rich and we can spend it to grow our user base. So it's a good time to grow our user base.
spk00: Okay, thanks, Charles. The second question I wanted to ask is gaming. You just mentioned the small items. So I think I understand your guidance hasn't been in the new TLBB launch. Just anything that you can share in terms of your expectation. Is it something that the game potentially could be a title that you haven't seen it for a long time that you guys actually are looking for? are very much looking forward for that launch that are going to attract back some of the gamers and also potentially brings in the growth for the gaming business again. So any expectation that you can share would be helpful.
spk05: I'll let Chengduan share it then. I'd like to ask if you can share more about the future of the game, and whether it will be able to attract a lot of new players, or whether it will be helpful in the future for the development of our game. This project was launched by Tencent, and is currently in the pre-order phase.
spk04: So we have no way to control the release process. From the previous test data, it's still okay. But because the testing time is relatively short, we currently have no way to know more clearly what the middle-term process is like. So for careful consideration, we did not put the salary budget for the new Tengen 850 in the third quarter.
spk05: The game is developed by Chanyu itself and will be published by Tencent. Now, before its launch, it's being prepared in a registration phase because Tencent is in charge of the process. We just did the monetization test in June, and the testing results met with our prior expectations for the testing phase. But for sure, we cannot do any projections for the May to long-term games performance. So to be conservative, we just didn't put it into our guidance.
spk00: Okay, thank you. And then lastly, Charles, can you also share with us any updated views or thoughts on the cash use and also the shareholder return policy? For example, any thinking about a regular dividend policy or any upcoming new share buyback program? Thank you.
spk02: Well, currently, right now, we don't have any plan for dividend or buyback plans. We still have a huge task of growing our user base. We've been working on our products for the last few years to refine it and to develop the new applications, especially in the social network side. On the social network side, our battlefield will enter into the stage of major user acquisition. Yeah, stage of user acquisitions. So we need the... fund to do that so the user of cash will be continued to be to develop our user base we don't have any currently don't have much other other plans to investment okay all right thank you Charles thank you management thank you thank you
spk08: As a reminder, to ask a question, please press star 1 1 on your telephone keypad. All right, there's no further questions. So with that, we conclude today's conference call. Thank you for participating. You may now disconnect.
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