Sohu.com Limited

Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining SOHO's third quarter 2024 earnings conference call. At this time, all participants are in the 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'd 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.

Thanks, operator. Thank you for joining us to discuss SOHU's third quarter 2024 results. On the call are Chairman and Chief Executive Officer Dr. Charles Zhang, CFO John Liu, and Vice President of Finance James Dunn. Also with us are Chang Youze, CEO Duan Wenchuan, and CFO Bing Wang. Before management begins their prepared remarks, I would like to remind you of the Comprehensive Hubbard Statement in connection with today's conference call. Except for the historical information contained herein, the matters discussed on this call may contain forwarding statements. These statements are based on current plans, estimates, and projections, and therefore, you should not place undue reliance on them. Forwarding statements involve interior risks and uncertainties. We caution you that a number of important factors will cause actual results to differ materially from those contained in the NFO Leading Statement. For more information about the potential risks and uncertainties, please refer to the company's filings 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.

Thanks, Peng Pu, and thank you everyone for joining our call. In the third quarter of 2014, our brand advertising revenue met the high end of our previous guidance, while both our online game revenues and our bottom line performance exceeded expectations. For Sohu Media and Sohu Video, in addition to continued product refinements and user experience improvements, We continued to integrate resources and host various unique events and marketing campaigns. With these efforts, we were able to effectively stimulate social interactions among users, strengthen our brand influence, and secure more monetization opportunities. As a result of high-quality content updates and robust game operations, online game business delivered better than expected performance. Before going through each business unit in more detail, let me first give you a quick overview of our financial performance. For the third quarter of 2024, total revenues $152 million, up 5% year-over-year and down 12% quarter-over-quarter. Grand Edified Revenues $19 million, down 15% year-over-year and 6% quarter-over-quarter. Online game revenues, $128 million, up 9% year-over-year and down 13% quarter-over-quarter. Gap net loss attributable to Sohu.com Limited was $16 million, compared with a net loss of $14 million in the third quarter of last year and a net loss of $38 million in the second quarter of this year. Non-gap net loss attributable to Sohu.com Limited was $12 million compared with a net loss of $10 million in the third quarter last year and a net loss of $34 million last quarter, in the second quarter of 2024. Now I'll go through our key businesses in more detail. First, social media and social video. During this quarter, we kept promoting the social distribution features, Connections between users and their increasing needs further consolidated our brand influence. We carry out unique and influential events covering various verticals. In September, we successfully hosted the 2024 Autumn Convention of Sohu Video Influencers. where users, broadcasters, and pop stars met in person to share their thoughts and build their social network through our platform. This event greatly enhanced the recognition of the Soho Video platform among broadcasters and users, and significantly improved user engagement and interaction. We also proactively hosted diversified events based on our influential online interest clubs and groups in different areas. In October, we initiated a groundbreaking overseas collaboration with the event 2024 Dream Concert in South Korea, where we gathered 100 superb top hip-hop contestants who stood out after six months of intense competition nationwide. And we led the team to provide them a chance to go to South Korea to dance together with their idols, the world's well-known idols. This event attracted lots of K-pop fans and generated hot discussions across various social media platforms. So the video has become a leading platform for K-pop dance enthusiasts. in china drawing a large number of fans and providing them with the stage to realize their game their dreams moreover we consistently reinforce our leading position in knowledge and science related live streaming our highly regarded uh physics class my you know my child's physics class which has just celebrated third year anniversary and published published third physics book has formed a dynamic multi-dimensional dissemination through various forms. Together with the Charles Physics class, we also have the Charles English class and other native relative live contents that further strengthen our core competitiveness in this field. We continuously innovated our content offerings and combined it to customize brand marketing solutions for advertisers. These helped us Gain recognition from large number of high-value audiences and advertisers provided us with innovative monetization opportunities. Now, let me turn to the online game business. During the third quarter of 2024, Changyou's online game revenues exceeded our prior guidance, as TLBB PC performed better than expected, and our PC game revenues increased on a sequential basis. Meanwhile, due to the natural decline of the New Westworld Journey, which was launched during the second quarter, mobile games grew a new decrease on a sequential basis. We launched a series of crossover events around the Chinese Valentine's Festival, Qixi Festival, for both regular TLBB PC and TLBB Vintage, featuring theme outfits maps, and gameplay plays, which were well received by players. Besides, we also revamped the skill sets of a major clan of regular TLBB PC, which effectively threw back former players to the game. For Legacy TLBB Mobile, we upgraded the skill sets of a clan based on players' feedback and introduced the corresponding new storyline and activities. which players were happy with. Next quarter, we will continue to launch expansion packs and content updates for the TLBB series. New Westworld Journey and other titles to keep players engaged. As market competition intensifies, user demand becomes more diversified. We will forge ahead with our top game strategy and remain committed to a user-centric philosophy. We will continuously optimize the R&D process, enhance execution, and expand our international presence. By doing so, we are confident that we can bring more high-quality games to the market. in terms of the game's pipeline to maintain our core competitiveness on MMORPGs going forward, while also exploring possibilities in multiple types of games, including card-based RPGs, sports games, and casual games, et cetera. Now I'd like to give an update on the ongoing share purchase program. SOHU today announced that its board of directors has authorized to extend the period of the program for an additional one year to November 10, 2026. Previously, it was a two-year program of 2025. As of November 7, 2024, this year, SOHU has had repurchased 3.4 million ADS for an aggregate cost of approximately $42 million. So the total buyback program is $150 million. It's about one-third less than one-third of the total. So that's why we need three years, right? With that, I'll now turn the call over to Joanna. Joanna?

Thank you, Paul. I will now walk you through the key financials of our major segments for the third quarter of 2024. All the numbers on the NANDGAP basis. You may find our recommendations on our website. For social media and social video, quarterly revenues were $23 million, compared with $20,000 million in the same quarter last year. Quarterly operating loss was $72 million, compared with operating also $66 million in the same quarter last year. For Charlie's online game business and 17173, quarterly revenue, $129 million compared with $180 million in the same quarter last year. Quarterly operating profit was $62 million compared with operating profit, $52 million in the same quarter last year. For the fourth quarter of 2024, we expect grant advertising revenues to be between $70 million and $90 million. This impacts annual decrease of 6% to 16% and the sequential decrease of 9% to the sequential increase of 2%. Online gain revenues to be between $97 million and $107 million. This implies annual decrease of 7% to 15% and a sequential decrease of 16% to 24%. The gap net loss attributable to Soho.com Limited to be between $26 million and $36 million. And the gap net loss attributable to Soho.com Limited to be between $30 million and $40 million. This forecast reflects those of management's current and preliminary view, which is subject to substantial uncertainties. This concludes our prepared remarks. Operator, we would now like to open the call to questions.

Thank you. We will now begin the question and answer session. To ask a question, please press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. We will now take our first question from the line of Alicia Yap from Citigroup. Please ask your question, Alicia.

Oh, hi. Thank you. Good evening, Charles and management team. Thanks for taking my questions. I have a few questions. First is that In terms of the advertising outlook, have you seen any improvement in terms of the ad budget spent by advertisers entering fourth quarter? Do you think overall advertiser sentiment has improved slightly heading into the remaining of the year? And then, given your guidance actually implying year-over-year decline is narrowing for your ad revenue guidance, Is that what you are seeing is an improving trend? And also possible if you could also resume positive growth as we enter 2025. Second question is on your gaming guidance versus your reported revenue. So in 3Q, you guided very conservatively, and then yet you deliver a massive beat in third quarter, like 128 million. And then you guided 4Q again very conservative. So just what are the main reasons for you to guide conservatively? Which game performance that you have not factored into the guidance for 4Q? And then last question is, it seems like it takes a little bit slow to execute your buyback given the trading liquidity. Just wondering if management could think of any better way to enhance the return to shareholder, or would you consider to speed up? Is there any way you consider to speed up the buyback in more shares in the shorter term period? Thank you.

In terms of advertising, the economy is steady, but gradually It's losing a little bit of growth rate, right?

The GDP growth is slowing down.

So the advertising market is still soft, not a strong, robust advertising market. But in Q3, we achieved a higher end of the forecast because our unique offline and online marketing events designed very unique and very unprecedented kind of events that provide some opportunity for advertisers to spend money on our projects on the events and because overall our overall the advertising amount is not that large so it's So we did better than we thought, because not that much related to the microeconomic situation, because it's a very small percentage of the total. I think recently there's some kind of a stimulus package on the policy side, and the effect, we'll see that the end-to-end market will recover probably sometime in the next year.

Yeah.

This is a game-related question. Alisha wants to ask about our game guidance. 3Q we gave is more conservative, and then we actually exceeded the deadline. 4Q's guidance looks more conservative. May I ask why we gave conservative guidance like this? We think 4Q may not perform well in some games. The reason for the revenue beat in the third quarter is mainly because the new content and new servers that we launched during the quarter for both TLPB Vintage and the regular TLPB PC, their performance are better than our expected.

The reason we guided quite conservatively for the fourth quarter

It's because the strategy for TLB PPC during the fourth quarter is mainly to maintain the user's stability, to offer them more benefits instead of increasing the revenue. So it looks a bit conservative. Thank you.

Yeah, the buyback program. Yeah, it's because the daily limit, right? Daily volume limit, you know, we don't want to impact or shake the price up, you know, too much. So there's a limitation of, you know, the number of shares we can buy. That's why two years is not enough. We probably can finish, can buy, you know, 50 million a year probably. That's why we need to extend to 2026.

Thank you. Do you have any follow-up question, Alicia? No, thank you. That's it. Thank you so much. Thank you. As a reminder, to ask a question, please press star 11 on your telephone keypad. Our next question comes from the line of Thomas Chong from Jefferies. Please ask your question, Thomas.

Thanks, management, for taking my question. I have two questions. First, how should we expect the 2025 online games outlook? And my second question is that how should we expect the operating margin trend in the next few years? Thank you.

The trend of game development in 2020?

Yes, the trend of game development in 2025. Is it the industry? Yes.

Is it the oil or the industry? Your question is about the Chang You's game or the industry, the game industry, 2025.

About Chang You, thank you.

Chang You, yes, of course.

First of all, we are still trying to make the old game stable and even grow. In fact, there are about 10 new games that are being played now. Some of them have already received a board number. Uh, uh, uh, uh, uh.

For 2025, our goal is to maintain the stability of older games, and we will strive to make them grow. We have around 10 games under development now, with some of them having obtained the license approval, including one game called NBA Absolute Superstar, and the other one called Heroes Three Kingdoms. We will start the testing recently. And besides, we also have a new version of the BBPC game that we're going to have a monetization test recently. Okay, we will have started the test for a new version of our TLB PC game. Thank you.

Great. Thank you. We have now reached the end of the question and answer session. Thank you all very much for your questions. And with that, we conclude our conference call today. Thank you for your participation. You may now disconnect.