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spk04: Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining Sohu's second quarter 2024 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. 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.
spk06: Thank you for joining us to discuss SOHO's second quarter 2024 results. On the call are Chairman and Chief Executive Officer Dr. Charles Zhang, CFO John Lee, and Vice President of Finance Jim Stone. Also with us are Chang Youze, CEO Du Wenchuan, and CFO Yao Bin Wang. Before management begins their prepared remarks, I would like to remind you of the Commissary of Harbor Statement in connection with today's conference call. Except for the historical information contained herein, the matters discussed on the column contain forward-looking statements. These statements are based on current plans, estimates, and projections, and therefore, you should not place undue reliance on them. Forward-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 forward-looking statements. For more information about the potential risks and uncertainties, Please refer to the conference findings with the Securities and Exchange Commission, including the most written annual report on Form 20F. 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 second quarter of 2024, we hit the high end of our prior guidance in brand advertising, revenues, while our online game revenues came in well above expectations. Our bottom line performance was in line with our prior guidance. For Suhu Media and Suhu Video, leveraged by our increasingly integrated and sophisticated product matrix, we further promoted the generation and consumption of premium content and vigorously boosted social interactions among users. Benefiting from our differentiated events and marketing campaigns, we were able to continually strengthen our brand influence and explore diverse range of monetization opportunities. Online games performed well, with revenues exceeding our expectations. Before going through each business unit in more detail, let me first give you a quick overview of our financial performance. For the second quarter of 2024, total revenues, $172 million, up 13% year-over-year and 24% quarter-over-quarter. Brand advertising revenues, $20 million, down 17% year-over-year and 24% up quarter-over-quarter. Online game revenues, $147 million, up 24% year-over-year and 25% quarter-over-quarter. Gap net loss attributable to Soho.com Limited was $38 million compared with a net loss of $21 million in the second quarter of last year and a net loss of $25 million in the last quarter. Non-gap net loss attributable to Soho.com Limited was $34 million compared with a net loss of $18 million last year, the second quarter of last year, and a net loss of $22 million in the first quarter of this year. Now let me go through the key businesses in more detail. First, media and video together. We consistently optimized our products, introduced innovative features, and further enhanced user experiences. We have built up a close connection among the platforms, content creators, and at the same time, there are also users. These enhancements greatly promoted a continuous generation and distribution of diversified content, improved user engagement, and inspired active social interactions. During the quarter, we focused on stimulating content innovation through various online and offline events and actively explored opportunities in developing our influential online interest clubs in different verticals For example, the 2024 Soho Video K-pop Masterclass has attracted nationwide attention and recognition from a large number of K-pop fans. We'll follow this up by launching 2024 Soho K-pop Dancing Festival, the second, last year we also did that, so the second annual event this year. In early August, Besides K-pop, we have also hosted various events related to the traditional Chinese hanfu, costumes, and photography. These events have gained notable traction and recognition as younger users with same interests flocked to our flourishing online interest clubs. Meanwhile, in June, we hosted our traditional flagship event of 16th Sohu News Marathon in Shenzhen this time. During the marathon, entrepreneurs, sports celebrities, and pop stars actively shared their ideas and their pictures by broadcasting short video clips on Soho News app and Soho Video app, also the social network channel. These have provided us with abundant premium content, stimulating user engagement and social interactions across our platform, as well as attracting various advertisers at budgets. First of all, we continue to enrich our video content library by acquiring exclusive dramas, rolling out unique original content, introducing short-form dramas, short-form clips, short-form dramas. Our original drama, Present is Present, 奔向所有时空的你, and the Olympic... variety show, the topic variety show, reality show, Be a Hero, Xiangguan Junyang, were both well received by audiences and generated widespread discussions across various social media platforms. Although advertisers remain relatively cautious in the quarter, thanks to our knowledge-based video platform and advanced and live broadcasting technology, and the strong dissemination ability, we were able to strengthen our differentiated advantages and continue to explore innovative monetization opportunities. For example, we integrated our distinctive My Own Child physics class into various marketing campaigns, which were highly appreciated by other advertisers. And this class helped us capture advertising budgets because through these events, We not only helped audiences simultaneously comprehend the physics knowledge behind, you know, especially the auto industry, auto companies, the products, the cars, the physics knowledge behind the products. Also promoted branding for advertisers. So meanwhile, we kept integrating advertisers' needs into our traditional content marketing campaigns to maximize the monetization value we offered Next, turning to online game business. During the quarter, online game business performed well, with revenue succeeding prior guidance. Our TLBB series remained stable, while New Westworld Journey, a licensed card-based RPG that we launched during the quarter, performed well. In our PC game business, we launched various events for regular TLBB PC to celebrate its anniversary. We also supplemented and optimized its gameplay and content based on player feedback. With TLBB Vantage, we introduced a Team PvP event to satisfy players' demands of combat. In our mobile game business, we launched an expansion pack for Legacy TLBB Mobile for its anniversary, updating its graphics and adding a fun strategic gameplay, which were well received by players. Next quarter, we will continuously launch expansion packs and content updates for the TLBB series' new Westworld journey and other titles to keep players engaged. As market competition intensifies, the market demand becomes more diversified. We will forge ahead with our top game strategy, continuously optimizing the R&D process, enhancing execution, and expanding our international presence. In addition, we will continue to invest in professional talent development as well as content and technology innovation in order to bring more high-quality games to the market. We will maintain our core competitiveness on MMORPGs going forward while also seeking to make breakthroughs in multiple types of games, including card-based RPGs, sports games, and casual games, etc., Now I would like to give an update on the ongoing share repurchase program for SOHU. As of August 1st, 2024, SOHU has repurchased 2.3 million ADS for an aggregate cost of approximately $26 million US dollars. With that, I now turn the call to our CFO Joanna. Joanna, please.
spk09: Thank you, Charles. I will now walk you through the key financials of our major segments for the second quarter of 2024. All the numbers on a non-GAAP basis. You may find the reconciliation of non-GAAP to GAAP measures on our website. For Soho Media and Soho Video, quarterly revenues were $24 million, compared with $32 million in the same quarter last year. Quarterly operating losses, $72 million, compared with operating loss $67 million in the same quarter last year. For China's online game business and 17173, quarterly revenue $148 million, compared with $120 million in the same quarter last year. Quarterly operating profit was $32 million. compared with operating profit $49 million in the same quarter last year. For third quarter of 2024, we expect brand advertising revenues to be between $17 million and $19 million. This implies annual decrease of 14% to 23% and a sequential decrease of 4% to 14%. Unlike game revenues, to be between $104 million and $114 million. This implies annual decrease of 3% to 11% and a sequential decrease of 22% to 29%. Now gap net loss attributable to SOHO.com Limited to be between $13 million and $14 million. And the gap net loss attributable to SOHO.com Limited to be between $34 million and $44 million. This forecast reflects SOFUS management's 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.
spk04: Thank you. As a reminder, if you'd like to ask questions, please press 011 and wait for a name to be announced. One moment for the first question. The first question comes from Thomas Chong of Jefferies. Please go ahead.
spk02: Hi, good evening. Thanks, management, for taking my question. My first question is about the brand advertising business. Can management comment about how the MECO headwinds affect the advertising market quarter to date? Because if I look at the guidance, we are expecting a sequential decline of 4% to 14%. I just want to get some color with regard to sectors like auto, FMCG, internet service, and property sector. How are we seeing the quarter to date so far? And my second question is about our gaming business. Given that we are expecting our gaming business to decline by about, 22% to 29%. I just want to get some color with regard to the sequential decline. This is mainly due to Westwood Journey. How should we think about TLBB series? And my first question is about our share repurchase program. Given that we have a $150 million share repurchase program, how should we think about the share repurchase in the second half, if any color? Thank you.
spk01: Okay, thank you for the question. First of all, on advertising, the overall macroeconomic situation is not that good, the downward trend. So advertising is still a challenge, a big challenge, because advertisers are very cautious in spending, and some advertisers tend to have the effect-driven advertising, right, Lawrence? The brand side is spending less. So overall, it's not good. But because of, as I just said, I just said that, you know, scripted report that we've been using innovative marketing campaigns and this platform, innovative platform to, was able to attract some brand advertising spending so that we achieve a 24% quarter-to-quarter increase over Q1. And, of course, in Q1, in Q2, the auto industry spending is more. It's going to spend more compared with Q1. And in the long run, auto industry is still hopeful. It looks promising. But it's still very competitive. And the electric car, BEV, I think, It's upcoming an increase, but the luxury cars are really facing out because of the price walls and everything. So Q2, auto now have 25% of overall advertising, and then also internet services. So Q2, the auto spend more, and also Q2 is the e-commerce quarter, especially like the Louis Alba in June 18th. And in the summer, the FMCG is coming up because of the hot weather and the drink companies, beverage companies start spending. So that's the overall, and yeah, that's the at the time situation. About Changyong, so Tiananmen.
spk08: The sequential decrease of the third quarter Gaining revenue guidance is mainly because Westward Journey, which accounts about half of the decrease, and the natural decline of other older games accounts the other half.
spk01: And then about the share repurchase, we spent $26 million out of the $150 million. We have a program of $150 million, right? So we'll keep the same pace in Q3 because of the limitation of the volume, total volume, percentage volume, right, each day. That's why we're not able to purchase, you know, faster or same pace in Q3.
spk02: Got it. Thank you, Charles. All right.
spk04: Thank you for the questions. One moment for the next question. Next question comes from the line of Alicia Yap from Citigroup. Please go ahead.
spk10: Thank you. Good evening, Charles and management. Thanks for taking my questions. A few questions here. Number one, I wanted to follow up on the gaming question. So 3Q... The guidance obviously implying there is a sequential reversal or decline, mainly, as you mentioned, half of it is driven by vasogeny. I'm just wondering, will this game actually have a chance to rebound in the later quarters, or you actually would expect, you know, after the decline, there's probably less hope for that to recover back to the 2Q level? And then second question is on your sales and marketing spend. Obviously, 2Q, due to the game promotion, you spend a very big number, which I think is you guided. But then for 3Q, the loss guidance, it also seems to be implying that the expenses side seems to be winning quite high. So can you maybe elaborate a little bit among the expense in terms of the gross margin trend and also the sales and marketing trend? And then just related to that on the last question is that any planning or initiative for you to think about to narrow your operating loss in the coming quarter? Thank you.
spk08: The first question is about the game. We just said that the three-season lead-down is partly because of Xiyou. Will there be a chance for Xiyou to rebound after this game? Is there any hope to return to the level of the second season?
spk05: First of all, Xiyou has a chance to rebound because it is a leading game. Previously, the development and the direction of the game's content are different, but we have recently gained unification. We think there's possibility for New Westward Journey to rebound because it's a licensed game. And before we were kind of divided
spk08: about the game's improvement and its development direction with a third-party developer. And recently, we have agreed upon it. And the center will be around the user's experience. And we did a lot of user research. If those managers are effective, we think they should have a chance to recover. Thank you.
spk05: And then, this game is mainly... This game is based on Really?
spk08: The retention rates before 30 days are excellent. And the main problem lies in the content after 30 days. So actually, we have postponed our overseas release plan. And we hope we can improve the game, modify the game, solve the problem. And after that, we will release the game in the overseas market.
spk01: Thank you. The growth margin for online game will recover in the third quarter because the marketing expenditure and as well as the revenue sharing payments will decrease as well.
spk04: Thank you for the questions. As a reminder to ask questions. Sorry, please go ahead.
spk10: Sorry, I wanted to follow up. Any plans or initiatives to narrow the operating loss in the coming for us?
spk01: In terms of game or the overall solo?
spk10: Overall business.
spk01: I mean, probably on the... Well, a lot depends on the gaming, right? Spending, because that's the large part, right? So if the game does not risk rebound in Q3, then our spending will not, you know, be much. So gross margin definitely will improve for the gaming part. For Sohu, I think we are at, you know, people often ask us about, you know, with our cash, you know, how are we going to spend our cash? Besides, you know, repurchasing of the shares, we are actually still in a battlefield, right? So we need to build a user base. And only when we have, you know, a sizable user base that we can turn the SOHO part, the media part, to be turned into profitable, turn profitable. So we need to invest in the building the products, developing the products, and also acquire new users. And that's where we're going to spend. So I think on the SOHO part, the gross margin will be similar, right? Or yeah, we'll spend, keep spending.
spk10: I see. I see. Thank you, Tom. Maybe just slip in one last one regarding the cash position. I mean, given there is this 20% daily limit restriction, any other, you know, thinking about other shareholder return policies that are in your mind?
spk01: No, no, no, no, no. Yeah, buyback. Yeah, buyback is the main one. And then the best one is we are very confident, we're hopeful that we are going to be successful in building up the user base and then to turn into a profitable company. That's the best reward for shareholders.
spk10: Okay. Thank you, Charles.
spk04: Thank you for the questions. Once again, to ask questions, please press star 11. There are no more questions on the line. I would like to conclude today's conference call. Thank you for your participation. You may now disconnect your line.
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