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spk06: Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining SOHU's third quarter 2023 earnings conference call. At this time all participants are in a listen only mode. After management's prepared marks there will be a Q&A 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.
spk03: Thanks, operator. Thank you for joining us to discuss SOHU's third quarter 2023 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, UCCO Dylan Chen, and CFO Yubing Wang. Before measurements begin their prepared remarks, I would like to remind you of the comments we have on statements 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 containing any forward-looking statements. For more information about the potential risks and uncertainties, please refer to the complex findings with the Securities and Exchange Commission, including the most recent annual report on Form 20-F. With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed.
spk01: Thanks, Huangpu, and thank you, everyone, for joining our call. In the third quarter of 2023, we continue to improve our product offering and enhance operational efficiency. Thanks to these efforts, we delivered both top and bottom line performance in line with our prior expectations. As Zoho Media Portal, we further refined our products and upgraded the user experience. At Soho Video, with our Tin Engine strategy, we focused on the generation and distribution of compelling short-form content as well as live broadcasts. These efforts helped us further boost user engagement and social interactions. At the same time, benefiting from our unique content marketing campaigns, we continue to explore a diverse range of monetization opportunities that leverage our differentiated competitive advantages. For online games, with consistent release of new content updates and operational efforts, game revenues remain stable. Before I go into more detail of our key financial results, please be reminded that the bankruptcy proceedings for Changyou's cinema advertising business concluded during the quarter. This release is related to continuing operations only, so this includes the disposal gain from the Chinese cinema advertising business. So for the third quarter of 2023, the total revenues were $145 million, down 22% year-over-year and 4% quarter-over-quarter. Brand advertising revenues, $22 million, down 14% year-over-year and 8% quarter-over-quarter. Online game revenues were $117 million, down 21% year-over-year and 1% quarter-over-quarter. Gap net loss attributable to Sohu.com Limited was $14 million compared with a net loss of $22 million in the third quarter of 2022 and a net loss of $21 million in the second quarter of 2023. Non-gap net loss attributable to Sohu.com Limited was $10 million compared with a net loss of $17 million in the third quarter of 2022 and a net loss of $18 million in the second quarter of this year. So now let me go through our key businesses in more detail. First, Media Portal and Soho Video. At Soho Media Portal, we continue to upgrade our products and strengthen operational efficiency. We actively promoted the generation and social distribution of high-quality content through enhanced engagement and interaction. We also integrated cutting-edge technologies in our products, resulting in a better user experience for both audiences and content providers. At Soho Video, our focus remains on executing the chain engine strategy. We further diversified our long-form content library and continuously promoted our unique live streamings and short-form content. We're committed to establishing a leading position in the field of knowledge and science-related live broadcasting, leveraging our distinctive IP, the Charles Physics class. And this IP has formed a multidimensional dissemination through live broadcasting, short videos, offline seminars, books, and other means, which has driven considerable traffic and engagement on various topics across our platforms. In addition, as a video social platform, we were also proactively attracting broadcasters and users across various fields by refining our broadcaster ecosystem and organizing events centered on hot topics, such as the 2023 Sohu K-pop Dancing Festival and 2023 Sohu Broadcasters Conference. So basically a user conference. These live broadcasting events enabled users to interact with each other online and offline and further enhanced their vitality and engagement on the Sohu video platform. On the monetization side, despite the advertising budgets remained cautious, we closely followed the market trends and were developing synergies between Soho's product matrix and our advanced live broadcasting technology. These efforts enabled us to execute unique high-value marketing campaigns and unlock new monetization opportunities. During the quarter, We hosted traditional and innovative events, such as Talk Under the Starry Sky and the Boss One Plus One high-end dialogue. These events have been disseminated across the various social media platforms, not only demonstrating our influence as a mainstream media platform, but also effectively attracting millions of audiences and generating significant exposure for advertisers. Now turning to the online game business, game revenues remained stable during the quarter, driven by consistent release of new content updates and robust game operations. Within our PC games business, we rolled out promotional events for regular TLBB PC and further optimized its character development system. With TLBB Vintage, we launched a month-long event during the Qixi Festival, which helped stabilize player engagement. The Chinese Valentine's Day. In our mobile game business, we introduced a new strategic plan or gameplay mode for legacy TLBB Mobile. Next quarter, we'll launch expansion packs and the content updates for the TLBB series and other titles to keep players engaged. We'll stick to our top game strategy going forward as gaming technology advances rapidly and the market demand becomes deeper and more diversified. We will explore new ideas to better meet the players' needs, allocate more resources, to professional talent development and invest in content and technology innovation in order to bring more high-quality games to the market. In terms of games pipelines, we will maintain our core competitiveness in MMORPGs while also producing card-based RPGs or sports and casual strategy games. Before I pass the call to Joanna to go through our financial results in detail, we are pleased to announce that on November 11, 2023, two days ago, our board of directors authorized a share repurchase program of up to $80 million over a two-year period. The repurchase program and the scores the continued confidence we have in our long-term growth prospects, as well as our ongoing commitment to increasing shareholder value. So with that, I will now turn the call over to Joanna, please.
spk00: Thank you, Charles. I will now walk you through the key financials of our major segments for third quarter of 2023. All the numbers on a non-GAAP basis you may find a reconciliation of non-gap-to-gap measures on our website. For SOGU Media Portal, quarterly revenues were $16 million, compared with revenues $80 million in the same quarter last year. The quarterly operating loss was $33 million, compared with operating loss $39 million in the same quarter last year. For SOGU Video, Quarterly revenues were $11 million, compared with revenues $60 million in the same quarter last year. Quarterly operating loss was $33 million, compared with an operating loss of $31 million in the same quarter last year. For Child's Online Game Business and 17173, quarterly revenues, $180 million. compared with revenues $150 million in the same quarter last year. Quarterly operating profit was $52 million, compared with the operating profit of $58 million in the same quarter last year. For the fourth quarter of 2023, we expect brand advertising revenues to be between $20 million and $23 million, This implies annual decrease of 20 percent to 31 percent and a sequential decrease of 9 percent to a sequential increase of 4 percent. Online game revenues to be between $106 million and $116 million. This implies annual decrease of 4 percent to 13 percent and a sequential decrease of 1 percent to 9 percent. Non-GAAP debt loss attributable to SOHO.com Limited to be between $10 million and $20 million. And the GAAP debt loss attributable to SOHO.com Limited to be between $30 million and $23 million. This forecast reflects SOHO's management 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. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Please stand by while we compile the Q&A queue. Our first question comes from the line of Thomas Chong from Jefferies. Please go ahead.
spk02: Hi, good evening. Thanks, management, for taking my questions. My first question is relating to the advertising business. I saw our Q4 revenue guidance for brand advertising sequential down 9% to 4% growth at the high end. So I just want to get some color from Charles. If I may know about the October and so far the performance in November, under what situation should we expect it to be down by 9%? Or is that conservative guidance? And my second question is relating to AIGC. Given that everyone, I think, talks about how AI can help to drive the conversion, the content creation, just want to get some color from Sohu's perspective, our strategies in coming quarters. And finally, may I also ask a quick follow-up? It's more relating to 2024 online advertising outlook. Thank you.
spk01: All right, so the Q4 forecast is, I think we are providing a range. And Q4 is quite similar to Q3, right? And there's nothing, it's still, the macroeconomic situation is really kind of bad. And we're trying to have some innovative marketing campaigns and events that attract advertisers. so that in Q4 we have about equal number of events or content activities like the Soku fashion ceremony and also the finance conference and also we have a few others like the K-pop festival, the national contest, and all these things. So I think the Q4 is similar to Q3. It was just providing a range. The AIGC, I think it's only had some incremental improvement with the application of AIGC to our content generation. And it's only now have a kind of incremental improvement of efficiency of content creation, but it's not, so far it's not getting any, you know, major impact on our business side, positive impact on business side yet. With basically like the video content, we have a better, with the AI technology, we have better the titles, words, and translations, and the voice. voice to words and also for articles we have using AIGC to summarize, to write, to summarize the abstracts of the articles so it's not a big deal yet.
spk02: Got it. Thank you, Charles. May I also ask a very quick follow-up question? It's relating to how we should think about the advertising market in 2024. Any preliminary discussion? Yes, 2024. Do we have any preliminary discussion with the advertisers yet about next year's spending? Thank you.
spk01: Sure. Yeah, I think overall the microeconomy is doing not that good. And so especially for example, the auto industry, which consists of a quarter of 25% of our advertising base, the marketers are more cautious now in spending. because across all the businesses, people are spending less because consumers have limited disposable income to spend. So in this situation, the advertisers tend to center their budgets around some top tier user base top tier platform So with those current user base We're not in that you know in a top tier So that we have to have this kind of innovative events and campaigns and others to attract the brand advertisers so unless we have so I think the next year 24 things will be similar and Unless we have our SoFu News and SoFu Portal, I mean, SoFu Portal and SoFu News and SoFu Video have really the uptake or the social media platform, social video, social media platform have a major rise or explosive growth of user base. I think 2024 will be similar to 2023. But we definitely have some hope that in 2024, our social media strategy will have some positive hope to expand rapidly.
spk02: Got it. Thank you, Charles.
spk06: Thank you. We'll now move on to our next question. Our next question comes from the line of Alicia Yap from Citigroup. Please go ahead.
spk07: Hello. Thank you. Good evening, Charles, Johanna, and team. Thanks for taking my questions. I have three questions. First, I wanted to follow up on the comment, Charles, you just mentioned for the 4Q advertising outlook. Would you say the macro situation is improving from what you are seeing in 3Q or about similar? Or is it no improvement and is it not getting worse in 4Q? So just any color as you compare to what you saw in 3Q would be great. So that's the first question.
spk01: Well, I think in Q4, the internet service will have some improvement, right? Because Q3 is kind of a slow season for internet services. Like Q4, that will have this W11, right? And e-commerce. But overall, the auto industry has been contracting. I mean, people are not spending. because of competition and less budget, and because the car sales is not as robust. So they're becoming more cautious in promoting their products or sales. Well, some industries, like fast-moving consumer goods industry, FMCG industry, seems they're spending more. It's typical of an economic downturn, right? People are drinking more, right? Drinking wine, consuming leisure time, and spending smaller, you know, small items, right? So that's a... FMCG is only have some bright spots, yeah.
spk07: I see, I see. That's very helpful. So second question is related to the GAINS guidance for Q. I think I thought you mentioned there will be some expansion pack content update for TLBB series. So just wondering what's the reasons for the game's guidance to also experience sequential decline?
spk04: Because most of the old games in Q4 will have a natural decline. And Q4 is not a very big game.
spk05: So it's not enough to have a huge decline. The content updates in the fourth quarter are not major ones, so they cannot offset the natural declines from the game revenues.
spk07: Can I follow up on that one? So when you have new games launched next year, then we should assume to see some sequential growth in the coming quarters beyond 4Q.
spk05: Yes, typically yes, but it also depends on the performance of the new game launched. Okay, thank you.
spk07: My last question is on your share buyback. So it is great that we are seeing this 80 million buyback that newly authorized. Just assuming if we are using finish up all the 80 million, just wondering what's the next plan that management may have? will that be more buyback down the road if we finish that $80 million, or is that will be some other things that you are thinking? Thank you.
spk01: Well, we'll first execute this $80 million buyback, right? And then we'll decide next. I think our focus is still on really... to really make sure our business grow and our social network strategy works. So there will be, actually we haven't, we've been refining our products, both the social video and the social news, and the battle to be, to really, you know, to grow, to really grow our user base has not started. We've been refining our products and spending. So we definitely need the War Chest to continue to launch, to major product. I mean, to expand, to grow our products, the user base. And we're competent, actually. So that's why. And also gaming and, yeah. So once the social media and social video user base grow, I would say, I hope exponentially, you know, because social network, that's the way it grows. It stays flat and then suddenly you got the product right and explode or exponentially and we hope that day will come. And then our advertising dollar will grow because it's all tied with this user base scale. And also, we hope that our game will be even better in the future.
spk07: I see. All right. Good. Thank you, Charles.
spk06: Thank you. Once again, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Please stand by while we wait for further questions. Thank you. As there are no further questions at this time, this concludes today's conference call. Thank you for participating. You may now disconnect.
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