Sohu.com Limited

Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining Soho's first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, 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 Soho. Please go ahead.

Thanks, Operator. Thank you for joining us to discuss SOGO's fourth quarter 2025 results. On the call are Chairman and Chief Executive Officer Dr. Charles Zhang, CFO John Liu, and Vice President of Finance John Stone. Also with us are Chang Youze, CEO Du Wenchuan, and CFO Albin Wang. Before I begin the preparatory remarks, I would like to remind you of the Comprehensive Harbor Statement in connection with today's conference call. Except for the historical information contained herein, the matters discussed are commonly contained in the following statements. These statements are based on current plans, estimates, and projections, and therefore, you should not place undue reliance on them. Following statements involving risks and uncertainties, we caution you that a number of important factors could cause actual results different from those containing any following statements. 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 20F. With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed.

Thanks, Hongpu, and thank you, everyone, for joining our call. In the first quarter of 2025, both our marketing services revenues, this is formally known as the brand-adopting revenue, and the non-GAAP bottom line performance reached the high end of our previous guidance, where our online game revenues were well above our expectations. For the Soho Media platform, in addition to devoting efforts in product requirements and technology improvements, we continue to concentrate on strengthening the distinctive social features, social network features of our platform. Through various unique events, we were able to engage with more users while promoting vigorous social interactions and distributions on our platform and generating massive premium content at the same time. Leveraging our competitive advantage as a mainstream media platform and our unique IPs, we proactively explored greater monetization opportunities. Online games business also achieved a satisfactory performance thanks to the high quality content updates and continued improvements to our games. Before going into each business unit in more detail, let me first give you a quick overview of our financial performance. For the first quarter of 2025, total revenues $136 million, down 3% year-over-year and up 1% quarter-over-quarter. Marketing services revenues were $14 million, down 15% year-over-year, and a 27% quarter-over-quarter. Online game revenues, $117 million, flat year-over-year, and up 7% quarter-over-quarter. GetNet income attributable to Sofu.com Limited was 182 million dollars compared with a net loss of 25 million dollars in the first quarter of 2024 and a net loss of 21 million in the fourth quarter of 2024. In this quarter, the company reversed a tax expense that had been previously recognized as an uncertain tax position and its related accrued interest expense at approximately 199 million dollars. Excluding this, non-GAAP net loss attributable to SOHO.com Limited was $16 million compared with the net loss of $22 million in the first quarter of 2024 and net loss of $15 million in the fourth quarter of 2024. Now, I will go through our key businesses in more detail. First, SOHO Media Platform. We continuously optimized our products and with cutting-edge technologies while further strengthening the social network features. By strategically integrating resources across our platforms and leveraging the synergies created by our unique offline events, we successfully attracted a wide range of broadcasters who are also our users from diverse fueled and greatly increased their engagement. These helped to generate more high-quality content, further promote online social interaction and distribution, and ultimately build a vibrant and dynamic social community on our platform. In April, we successfully hosted the 2025 Spring Convention of the Soho Video Influencers. in Beijing, where we gathered hundreds of pop stars, KOLs, and broadcasters and users in diverse verticals, such as K-pop and Chinese costumes, among others. This event offered a chance not only for enthusiastic participants with similar interests to connect and share in person, but also for them to get to know and interact with those in different fields and thus further boosted the vitality of our platform. This quarter, we also hosted our traditional flagship event, the 17th Soho News Marathon, Soho News Marathon in Weihai City. As an influential cross-border marathon in China, this season's events continue to be presented through immersive live broadcasting, attracting both online and offline participants. Participation. This event not only generated a large amount of content from real-time updates posted by runners during the marathon and other derivative content after the race. They also promoted continuous social dissemination of related content and supported by the active social atmosphere on our platform. And we also continue to attract users and audiences as well as advertisers with a distinctive my physics class, Charles Physics Class, IP. In April, I was invited to give a physics lecture at Beijing Planetarium, reflecting the recognition of the class, of the physics class brand, and so leading position in a polarization of physics sciences. Popularization of physics sciences, At the same time, we continue to explore the monetization potential of this IP and these derivatives, such as everything has physical principles in various scenarios. For example, we combined the physics class with famous exhibitions, such as the 2025 China AWE, the Appliance and Electronics World Expo in Shanghai, and also 2025 Shanghai International Auto industry exhibition, Automobile Industry Exhibition in Shanghai, Zhejiang. In these exhibitions, we provided audiences with our live explanations of the physics principles involved and integrated in the exhibited products and which effectively build up connections between advertisers and audiences. Through these efforts, we were able to provide advertisers with customized marketing solutions and further demonstrated our unique monetization value. Besides the content generated from the above events, we also proactively expanded our content library. During the quarter, we released several original dramas and American TV series while introducing a large number of short dramas, among which Mystic Tales, Hu Siyi, Zhi Guan, and other American TV episodes like Mandalorian were well-received by our audiences. Next, turning to our online game business. During the quarter, our online game business performed well with revenues exceeding our prior guidance. In our PC game business, we rolled out various holiday events, around Chinese New Year and Valentine's Day as well as promotional events for regular TLBB PC. In addition to holiday events, we upgraded a character development system for TLBB Vintage to give players a whole new gaming experience. For Legacy TLBB Mobile, we launched an expansion pack to celebrate the Chinese New Year featuring a variety of festival theme the gameplay and enrich benefits for players. Thanks to these efforts, both player engagement and the revenue for this game remained stable on a sequential basis. Next quarter, we'll continue to launch expansion packs and content updates for the TLBB series and other titles to further keep players engaged. As market competition intensifies and user demand for quality and innovation continues to rise, we'll forge ahead with our top game strategy, staying true to our user-centric philosophy. We'll continue to optimize our R&D process and enhance execution to improve efficiency and the product success rate. With these efforts, we look to bring more high-quality games to the market. Specifically, in terms of product development, we are actively exploring opportunities to unlock the potential of our TLBB IP. Meanwhile, as we maintain our core competitiveness in MMORPGs, we will diversify our portfolio with multiple types of games, including card-based RPGs, sports games, and casual games, and expand our portfolio for global markets. Now, let me give the update on the ongoing share repurchase program. As of May 15, this year, 2025, Sohu had repurchased 5.5 million ADS for an aggregate cost of approximately $67 million. With that, I will now turn to our CFO, Joanna. Joanna, please.

Thank you, Charles. I will now walk you through the key financials of our major segments for the first quarter of 2025. All numbers on a non-GAAP basis. You may find the reconciliation from non-GAAP to GAAP matters on our website. For social media platform, quarterly revenues were $70 million, compared with $20 million in the same quarter last year. Quarterly operating loss was $70 million, compared with an operating loss of $74 million in the same quarter last year. For Changyong, quarterly revenues, $180 million, compared with $190 million in the same quarter last year. Quarterly operating profit, $55 million, less with the same quarter last year. For the second quarter of 2025, we expect marketing services revenues to be between $16 million and $17 million. This implies annual decrease of 14% to 19% and the sequential increase of 17% to 24%. Online gain revenues to be between $96 million and $106 million. This implies the annual decrease of 28% to 35% and a sequential decrease of 10% to 18%. Both and the gap net loss, attributable to Soho.com Limited, should be between $20 million and $30 million. This forecast reflects Soho's 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.

Thank you, management. As a reminder, to ask a question, please press star 11 and wait for a name to be announced. To cancel a request, please press star 118. First question comes from Thomas Chong of Jefferies. Please go ahead.

Hi, good evening. Thanks, management, for taking my question. My first question is about our marketing services. Can management comment about the recent trend in advertising sentiment and how is it, of course, a different category such as FMCG, IT, auto, food, and electronics? And how should we think about the second half advertising outlook? Should we expect a recovery trend in advertising momentum in the second half? And my second question is about AI. Can management comment about how AI benefits our advertising and online games operations? Are we seeing our eCPM or traffic benefits from better recommendation? And also for gaming, we are seeing efficiencies or productivity increase in our gaming business? Thank you.

Okay, the first question is about the marketing services, which is formerly called advertising. And in this quarter, the sectors-wise, auto is doing better. And yeah, so auto is doing better and IT services stay stable. And FMCG is stable, but luxury goods and the alcohol is that the spending is dropping a little bit. So that's the overall situation. And yeah. So we have auto advertising or marketing service is 26%, and IT service is 17%, and FMCG is 16%. For the second half, I think, well, probably similar, right? The economy is still not doing well, and we will only look forward to our social network platform to have accelerated growth so that we have a much larger platform so that we can get a larger market share of the advertising market. Your second question is about the AI impact, right? So first of all, AI and deep-seq development. So first of all, since our platform, media platform, now take the social network as our central strategy, And the social network is really people-to-people interaction. It has relatively less exposure to AI and large model or deep-seq, large language model deep-seq. Unlike those information retrieval services like search engines or the recommendations. Yeah, we do have recommendations on our on our social news app and the social video, but now our video and the news app, the strategy is centered around the social network, so it has less exposure or less impact by this. Of course, we can, you know, take advantage of the AI development or the advent of AI to improve some efficiency, but it's kind of like a generation of content or some abstract of the articles and also for the live streaming and the video tools to do live streaming and the subtitles or the digital image or those kind of things we need to help our users to with better tools, that's kind of beneficial, but it's marginal. It's not that big. So what I'm saying is that the AI development, you know, pose as kind of a threat or kind of impact to certain companies that mainly depend on information retrieval providing, you know, retrieval but but we for us now with the social network strategy we have less less in you know exposure to this kind of threat um yeah unlike game i think ai impact it's beneficial it's better right it's helped is

Also, dubbing, music and audio production, as well as advertising material production.

In Chang'e, we have largely applied AI technology in terms of art design, art production, UI design, the audio effect design, and the material for marketing.

It greatly improves our efficiency.

It has greatly improved our efficiency.

We've also achieved some progress in terms of the planning through the ways

to make AI to learn by themselves. Thank you.

Thank you. Thank you for the questions. OK. One moment for the next question. The next question comes from .. Please go ahead.

Hello, thank you. Good evening, Charles and management. Thanks for taking my questions. I have two, three questions. First is that I wanted to follow up on the AI. I'm just wondering which AI model Sohu is currently integrating or incorporate into your gaming. Are you using DeepSeq or other comparable AI? large language model. And then I understand you mentioned about social network on your media, which is less impact. But if you were to incorporates that into your search and recommended functions within your SOHU portal, which, you know, again, which AI models or tools that you will be using? I assume you're not going to develop your own large language model. So this is the first question. Thank you.

Yeah, both in our SOHU video app and the SOHU news app, both now are social network centered application. But it also has these recommendation channels and also search engine, search box. Both of them are integrating some deep seek and also some open. We actually developed, based on some open source language model, we developed ourselves based on some open source language model.

In terms of games, did we include big models like Deep Seek or others? We included a lot of AI models. As I said, games have art, dubbing, music, and video production. So we used a lot of different AI tools.

For online gaming business, we've employed different kinds of AI tools, a lot of different AI large-language models to be used in the production of different aspects, for example, for the art design, for the audio, for music, for video production.

We also developed an AI agent that allows us to easily input needs

We also developed our own AI agent that can very conveniently, based on our own needs and demand, to integrate different AI tools to automatically finish the job.

Okay, thanks. Thank you.

My second question.

My second question is, I actually not quite understand the tax reversal. So can you elaborate again? Oh, you know, what is which business is that it's related to that tax reversal that you have to gain this quarter?

Tax reversal.

The tax thing that you actually have.

Oh, tax. Oh, OK. Tax. Oh, next tax. OK. Tax. Tax. I think it's a counting issue. So let me let Joanna to explain.

This is mainly a counting treatment. The nature is that on certain tax matters, which is calculated by weighted average basis according to a different possibility, Now, the uncertainty is gone, so in this quarter, we totally reversed the expense.

I see. Is that related to the Sohu media business, or is it a gaming business? A Sohu.

The Sohu company. The Sohu company.

Oh, OK. I see.

It's an accounting issue. It's not just the uncertainty now become a certainty. So there's no, yeah, there's no actually cash cash flow or real money flowing. So it's just accounting.

I see. Okay. And then last question. I know, I mean, maybe now we have less risk, but Obviously, this whole ADR delisting risk is on and off, right? As the heavens or the noises, just in the event is that risk go up again. It's the management or are we thinking about any of the alternative life, for example, coming back to Hong Kong for the secondary listing? Appreciate any comment on that.

Well, it's still up in the air, basically. It's not, you know, it's, we'll just, when anything happens, we'll have a, you know, now we don't have any, because it's not happening, right? It's just a kind of speculation, so.

I see, but if there's really, really coming, then you obviously have an alternative plan that you actually are in, you know, already thinking about it.

Not thinking about it. So when it happens, we'll start thinking about it.

Okay. All right. Great.

Thank you. We always have time, right? We are not a company that has to be listed, right? We can have a period of time that is not listed, right? So we always have time to think about those things, right?

Okay. All right. Okay. Okay. Great. Thank you so much, Charles. Thank you for the answer.

Thank you for the questions. Once again, to ask questions, please press star 11.

There are currently no further questions at this time. That concludes today's conference call.

Thank you all for participating. You may now disconnect your line.