Sohu.com Limited

Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining Sohu's first quarter 2025 earnings conference call. At this time, all participants are in a listen only mode. After the management's preparing remarks, there will be a Q&A session. Today's conference call has been 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, Wang Pu, Investor Relations Director of Sohu. Please go ahead.

Thanks, operator. Thank you for joining us to discuss Sohu's first quarter 2025 results. On the call, our chairman and chief executive officer, Dr. Charles Chang, CFO Joanne Lu, and the vice president of finance, James Stone. Also with us are Chang, Youzi, CEO, Dewen Chen, and CFL, Bing Wang. Before I imagine the beginning of the preparatory remarks, I would like to remind you of the common safe harbor statement in connection with today's conference call. Except for the historical information contained herein, the matters discussed under the common content following statements. These statements are based on current plans, estimates, and projections. And therefore, you should not place and do rely on them. For looking statements involving here risks and uncertainties, we caution you that a number of important factors could cause actual results differently from those contained in any following statements. For more information about the potential risks and uncertainties, please refer to the comprehensive findings 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 Chang. 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 formerly known as the grand ad hoc revenue. And the non-GAAP bottom line performance reached the high end of our previous guidance, while our online game revenues were well above our expectations. For the social 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. Our 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 up 27% quarter over quarter. Online game revenues $117 million, flat year over year, and up 7% quarter over quarter. Gap net income attributable to Sofa.com Ltd. was $182 million, compared with the net loss of $25 million 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. Excluding this, non-gap net loss attributable to Sofa.com Ltd. was $16 million, compared with the net loss of $22 million in the first quarter of 2024 and a net loss of $15 million in the fourth quarter of 2024. Now, I will go through our key businesses in more detail. First, Sofa 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 fields and greatly increased their engagement. These help 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 Sofa Video Influencers, the Chunji Poudu Dahui in Beijing, where we gathered hundreds of pop stars, KOLs, and broadcasters and users in diverse verticals such as K-pop and Chinese costumes, hand-full among others. This event offered a chance not only for enthusiastic participants with similar interests to contribute 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 platforms. This quarter we also hosted our traditional flagship event, the 17th Sohu 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 random 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 discriminative physics class, Charles Physics Class IP. In April, I was invited to give a physics lecture at Beijing Planetarium, Beijing Tiananmen Gwa, reflecting the recognition of the class, of the physics class brand. And Sohu's leading position in polarization of physics sciences. Popularization of physics sciences. At the same time, we continue to explore the monetization potential of this IP and its derivatives, such as everything has physics, 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 live explanations of the physics principles involved and integrated in the exhibited products, and which effectively built up connections with different 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, Gu Si Yi, Zhi Guan, and other American TV episodes like Manda Lurian 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 PCs. 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. This year, we launched a variety of festival themes, gameplay, and rich benefits for players. Thanks to these efforts, both player engagement and revenue for this game remained stable on a sequential basis. Next quarter, we will 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 will forge ahead with our top game strategy staying true to our user-centric philosophy. We will continue to optimize our R&D process and enhance execution to improve efficiency and product success rates. 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 shared repurchase program. As of May 15, 2025, Sohu had repurchased 5.5 million ADS from aggregate cost approximately $67 million. With that, I will now turn to our Seattle Adrenalina.

Thank you, Charles. I will now walk you through the key financials of our major segment for the first quarter of 2025. All numbers on the NGAP basis, you may find the reconciliation for NGAP to GAP measures on our IR website. For Sohu Media Platform, quarterly revenues were $17 million compared with $20 million in the same quarter last year. Quarterly operating loss was $17 million compared with operating loss $74 million in the same quarter last year. For Changyou, quarterly revenues were $180 million compared with $19 million in the same quarter last year. Quarterly operating profit was $55 million, plus 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 a sequential increase of 17% to 24%. Online gain revenues to be between $96 million and $106 million. This implies an annual decrease of 28% to 35%, and a sequential decrease of 10% to 18%. Both NGAP and GAP net loss, attributable to Sohu.com Limited, to be between $20 million and $30 million. This forecast reflects Sohu's management's current and preliminary review, 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 1-1 in the return to be announced. To cancel requests, please press star 1-1. First question comes from Thomas Chong of Jeffreys. 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 across 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 recommendations? 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, sectors-wise, auto is doing better. And yeah, until 2016. So auto is doing better, and IT services stay stable, and FMCG is stable, but luxury goods and alcohol, the spending is dropping a little bit. So that's the overall situation. So we have auto advertising, our marketing service is 26%, and IT services 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 an 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-seek development. So first of all, since our media platform now takes the social network as our central strategy, and the social network is really -to-people interaction. It has relatively less exposure to AI and large model or deep-seek, large language model and deep-seek, unlike those information retrieval services like search engines or the recommendations. Yeah, we do have recommendations on our social news app and social video, but now those video and news app strategies are centered around the social network, so it has less exposure or less impact by this. So of course, we can take advantage of the AI development or the advent of AI to improve some efficiency, but it's kind of like the 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 to help our users with better tools. That's kind of beneficial, but it's marginal. It's not that big. So I'm saying that the AI development, you know, pose as kind of a threat or kind of certain companies that mainly depend on information retrieval providing, you know, retrieval. But for us now with the social network strategy, we have less exposure to this kind of threat. Yeah, unlike games, I think AI impacts, it's beneficial, it's better, it helps.

Yeah,

in Changyou, AI has been widely used in the US digital, UI, voice over, music, audio, and advertising materials.

In Changyou, 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 has greatly improved our efficiency. We've also achieved some progress in terms of the planning, in terms through the ways

to make AI to learn by themselves.

Thank

you.

Thank you. Thank you for the questions. Okay. One moment for the next question. Next question comes from Alicia. Yeah, our city crew. 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 impactful, but if you were to incorporate that into your search and recommend that functions within your Sohu portal, which, 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 applications, but it also has these recommendations, channels, and also search engine, search box. Both of them are integrating some DeepSeq and also some open. We actually develop based on some open source language model, we develop ourselves based on some open source language model.

And in terms of games, have we integrated into the large model DeepSeq or other?

We have integrated into many of the AI models. Because the game has art, dubbing, 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 the production of different aspects, for example, for the art design, for the audio, for music, for video production. 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 fix the job. Okay, thank you. My second question.

My

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

Tax reversal.

The tax that you actually have.

Okay, tax, tax, tax, okay. Tax, tax, tax. I think it's a counting issue. So let me join us to explain.

This is mainly a counting treatment. The nature is that uncertain tax matters, which is calculated by weighted average basis according to different possibilities. 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? Sohu.

So the Sohu company.

Sohu.

Sohu company.

Okay, I see.

It's a counting issue. It's a counting issue. Just the uncertainty now become a certainty. So there's no actually cash flow, real money flowing. So it's just accounting.

I see. And then last question. I know, I mean, maybe now we have less risk, but obviously this whole ADR, the listing risk is on and off, right, as the heavings or the noises. Just in the event is that risk go up again, it's management or are we thinking about any of the alternatives, like for example, coming back to Hong Kong for the secondary listing? I appreciate any comment on that.

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

I see. But if there's really, really coming, then you obviously have an alternative plan that you actually are 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 are, yeah, we always have time, right? We are not, you know, we are not a company that has to be listed, right? We 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. Great. Thank you. Thank you so much, Charles. Thank you for the answer.

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

star 11. Thank you. Currently, no further questions at this time. That concludes today's conference call. Thank you all for participating

in the Minority Connection Line.