Sohu.com Ltd (SOHU) 2023 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's First Quarter 2023 Earnings Conference Call. (Operator Instructions). 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.

Thank you, Peter. Thank you for joining us to Sohu's First Quarter 2023 Results.

On the call are Chairman and the Chief Executive Officer, Dr. Charles Zhang; CFO, Joanna Lv; and Vice President of Finance, James Deng. Also with us are Changyou's CEO, Dewen Chen; and the CFO, Yaobin Wang.

Before management begins their prepared remarks, I would like to remind you of the company's safe harbor statement in connection with today's conference call. Except for the historical information contained herein, the matters discussed on this call may 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 any forward-looking 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 20-F.

With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed.

Thanks, Huang Pu and thank you, everyone, for joining our call.

In the first quarter of 2023, we hit the high end of our prior guidance for brand advertising revenue, while our bottom line performance came in well above expectations despite the impact of seasonality. And Sohu Media, we further improved operating -- operational efficiency and focused on enhancing user experience through product and algorithm refinements. We closely monitored market trends and provided innovative marketing solutions to our advertisers.

At Sohu Video, we continue to develop both long-form and short-form original content under our Twin Engine strategy. Leveraging the advantages of our product mix metrics, we were able to consolidate our resources and proactively explore a diverse range of monetization opportunities. Online games remained stable during the quarter, with revenues in line with the prior guidance.

Now let me go into detail about each of our businesses. I'll go into our each of business in a moment, but first, a quick overview of the overall financial performance. For the first quarter of 2023, total revenue, $162 million, down 16% year-over-year, up 1% quarter-over-quarter. Brand advertising revenue, $23 million, down 5% year-over-year and 22% quarter-over-quarter. Online game revenues, $129 million, down 18% year-over-year and up 7% quarter-over-quarter. GAAP net loss attributable to Sohu.com Limited was $18 million compared with a net income of $3 million in the first quarter of 2022 and net loss of $7 million in the fourth quarter of 2022. Non-GAAP net loss attributable to Sohu.com Limited was $13 million compared with net income of $9 million in the first quarter of last year and a net loss of $2 million in the fourth quarter of 2022.

Now we'll go through our key businesses in more detail. First Media Portal and Sohu Video. At Sohu Media Portal, we harnessed the cutting-edge technology to steadily optimize our products and algorithms. As a mainstream media platform, we not only deliver reliable and real-time news and information to our users, but also stimulate high-quality self-media content generating -- generation among users and expand our social network distribution. Through this effort, we have continuously improved user experiences and further strengthened our brand influence.

At Sohu Video, we focused on developing high-quality long-form and short-form content. For the long-form content in the first quarter, we have rolled out (foreign language) Sweet Love (foreign language) both of which won acclaim from audiences. In April, we released Crime Scenes, Idle romance, Love of Replica (inaudible), the upgraded sequel to 2021 Mysterious Love (foreign language). So the Love of Replica became a hit show again at the time of its release, actually last week and further boosted our audience base. For reality shows, we saw the successful release of On Her Way Home special edition for the Spring Festival and the On Her Way Home series has gained (foreign language) widespread attention and generated in-depth discussion of various social issues, helping its reach and penetrate to larger audiences.

In terms of short-form content, we continue to focus on the social -- science-related live streamings and supported by our advanced live streaming broadcasting technology. With abundant and professional reserve of broadcasters across numerous verticals such as -- and a rich offering of high-quality content, Sohu Video continues to consolidate its reputation as a leading -- lead as a leading science and technology-based live broadcasting platform.

On the monetization front, the overall market recovered moderately during the quarter. As advertising demand bounced back, we proactively explored various monetization opportunities in differentiated scenarios. For example, during the quarter, we successfully hosted the annual Super Fashion Awards, (foreign language). And our off-line event, which has become a distinctive IP for Sohu and demonstrates our position as the mainstream media platform. The Sohu Fashion Awards together with the Charles' Physics class, my teacher in physics, and also the talks under the [starry sky] and the talk on the show of [snow mountains] these are the interview program that generated significant attention and created various hot topics and discussions on our product metrics as well as across various social media platforms. These unique campaigns leveraging by our dual platform of Sohu Video and Sohu News reinforced our strong brand influence and our good contents and provided our advertising -- at the same time have provided our advertisers with ample market exposures.

So next, turning to online game business. During the first quarter of '23, online game revenues were in line with the company's prior guidance. Within our PC games business, we launched some Chinese New Year themed holiday events and promotions for the regular TLBB PC. It continues to improve the functionality of TLBB vintage based on players' needs and also introduced a new cross-server PvP event that matches players randomly.

In our mobile game businesses, we launched updates for Legacy TLBB mobile to celebrate the Chinese New Year, introducing not only a series of holiday events but also optimization of (inaudible) skills. In the second quarter of 2023, we will launch expansion packs and content updates for TLBB PC, Legacy TLBB mobile and other games to keep players engaged. As technology in the game business, the industry keeps advancing and market demand becomes deeper and more diversified. We intend to stick with our top game strategy, allocating more resources to professional talent development as well as content and technology innovation in order to roll out more high-quality mobile games.

In terms of the game pipeline, while maintaining our core competitiveness in MMORPGs, we also produced games in various packs, including car-based RPGs, strategy, sports and idle games.

I will now turn the call over to our CFO, Joanna, who will walk you through our financial results. Joanna?

Thank you, Charles. I will now walk you through the key financials of our major segments.

For the first quarter of 2023, all the numbers on the non-GAAP basis you may find a reconciliation of non-GAAP to GAAP measures on our IR website. For Sohu Media Portal, quarterly revenues were [$80] million, compared with revenues of $80 million in the same quarter last year. The quarterly operating loss was $35 million compared with an operating loss of $45 million in the same quarter last year.

For Sohu Video, quarterly revenues were $30 million compared with revenue of $50 million in the same quarter last year. Quarterly operating loss was $32 million, compared with an operating loss of $21 million in the same quarter last year. For Changyou's online game business and 17173, quarterly, $131 million compared with revenue of $160 million in the same quarter last year. Quarterly operating profit was $55 million compared with an operating profit of $85 million in the same quarter last year.

For the second quarter of 2023, we expect brand advertising revenues to be between $23 million and $26 million. This implies an annual decrease of 8% to an annual increase of 4% and a sequential increase of 2% to 15%, online game revenues to be between $112 million and $122 million. This implies an annual decrease of 22% to 29% and a sequential decrease of 6% to 13%. Non-GAAP net loss attributable to Sohu.com Limited to be between $15 million and $25 million and GAAP net loss attributable to Sohu.com Limited to be between $18 million and $28 million. Our guidance reflects our 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.

(Operator Instructions) Our first question comes from Thomas Chong of Jefferies.

I have 2 questions. The first one is about advertising industry in 2023 outlook. And also advertising spending budget among auto, FMCG, Internet service and property service advertisers. And my second question is about online game outlook and our game pipelines in 2023.

So for 2023 advertising, we see the top 3 categories, auto 25%, FMCG 15%, internet service 15%. We see some opportunities for auto industry, probably later -- in Q2 or Q3 later this year. For Q1, it's -- because there is a new policy for the July 1 policy for a stricter emission standard, so some auto companies trying to lower the price and try to get rid of their stockpiles. So there's some advertising on Q1 is soft. There is a negative impact on that.

But for the whole year, it seems there are some opportunities, there's more competition in the auto industry, especially for electrical -- electric car -- new energy for electric car industries. And for FMCG, we see some -- people have less money in larger item spending, but for small items, it seems there's a kind of recovery because Q1 and this year is the first quarter and first year after the 2019 -- basically after the lifting of the lockup -- or the lockdown or the 0 COVID policy. So everything in Q1 and Q2 will be very indicative of a normal economy, what the economy should be. It seems less -- it's bouncing back not as much as we expected, but we do see some -- I would say, the lipstick economy -- lipstick economy effects, right, because people have less money.

So they are not spending on large items. But then they are left with more -- they are not buying real estate, means they are not buying houses. They're not spending on large items, but we have -- that's why it leaves them with more -- some cash to spend -- small spending, including the spend some -- pay some monthly subscription to pay for our video long-form, the video drama subscription. So this is what I see for the advertising this year.

[Interpreted] In terms of game pipeline, we will release new TLBB Mobile in the third quarter this year. It has got the license approval in February and the other one is new Western Journey mobile project. It is applying for the license. And we plan to launch it in the Chinese, Hong Kong, Macau and Taiwan regions in the third quarter this year. And if we can get the license this year, we will release this in Chinese Mainland probably before year end or the first quarter next year. For the overseas market, we licensed a game -- a Japanese [manga] game called (inaudible) and we'll release it in Korean -- South Korean and Japan in fourth quarter this year. And also self-developed game, Sea of Dawn, we plan to launch it in South Korean and also American and Europe overseas market in the third quarter this year. For overall gaming business this year, we -- our goal is to maintain the stability of our older games and also it depends on the new game performance.

(Operator Instructions) Next up, we have the line from Alicia Yap from Citigroup.

Charles, Joanna and management team. I do have a follow-up on both the advertising and gaming. So first of all, on advertising, Charles, I think you mentioned during the first quarter, it was recovering moderately. And then you did also explain some of the big ticket items, small ticket items. But then what about in general in terms of the overall at sentiment. So for advertisers that are in the industry that is still kind of lacking, are they also preparing maybe they wanted to spend more? Or are they actually still cautious on the spending? Do you expect second half some of these big-ticket items spending could be improving and hence, will be driving the advertising growth? So this is the first question.

And then second question on the gaming, is the second quarter guidance. So it does looks like the guidance was relatively weaker compared to what we have delivered for the first quarter. Is it because there is lack of new games and also the seasonality? And then given we're going to launch the TLBB in third quarter, should we expect a pretty meaningful sequential bounce in the third quarter and then fourth quarter?

All right. So the first question, basically answering continuing with the previous question. About advertising, I want to draw the attention -- your attention that actually, in Q1 and also the Q2 forecast, our advertising in terms of RMB actually represent a growth of 2%, both 2% in Q1 and 2% in Q2, 3% in growth in terms of guidance because of the -- after the currency exchange, I mean, adjustments. That's what I want to point out.

I think real estate is just basically no hope, okay. So advertising on real estate is just not at all -- not possible any growth or -- and those -- this is one of the big ticket, right, item.

And in terms of auto industry, yes, we do see some opportunities. And I hope that in Q3, there will be some pick up of advertising recovery because competition is virtually is in the electric car company industry, intense competition, drive the marketing, especially if we can provide some unique differentiated marketing package -- unique, that can really have their brand exposed across the whole social network. The industry standard represents how (inaudible) we spend money on our platform.

And I have more hope for this small ticket item, FMCG. And -- so the good thing about our advertising platform is that any businesses, any products, they need market, they need to have a brand building, they will -- they need our platform. So if 1 industry just went down, there's other industries emerging. And people are spending, as I mentioned, the lipstick effect, people in some small item areas, FMCG or even some luxury goods -- I mean some -- yes, the cosmetics and all those places and actually, represent some opportunity, yes, because people have the money now. Just like our people -- as people during the May holiday, people go to the board to have Carol, that's the kind of really low-cost spending, right? People don't have much large items to go to the fancy hotels and/or to the sports clubs to -- health clubs to spend, but people do have some -- less with money to spend on other small items things. And that's the FMCG side that we see some opportunity in the later half of the year. So we look at growth. Yes. Gaming.

[Interpreted] The decline of the second quarter guidance is we expect fewer promotions in Q2 than in Q1. And some of our other teams, including TLBB will have some natural decline. It is still too far to forecast the performance in third quarter.

(Operator Instructions). We have no further questions at this time. Thank you, everyone. That concludes today's conference call. You may now disconnect your lines.

Right.