Sohu.com Ltd (SOHU) 2025 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining Sohu's third-quarter 2025 earnings conference call. (Operator Instructions) 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 2025 results. On the call are Chairman and the Chief Executive Officer, Dr. Charles Zhang; CFO, Joanna Lv; and the Vice President of Finance, James Deng. Also with us are Changyou's CEO, Dewen Chen; and 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 historic 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-20F.

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 third quarter of 2025, our marketing services revenues were in line with our guidance, while both our online game revenues and the bottom line performance benefiting from our continuous efforts in the gaming business were well above our prior expectations.

We recorded positive net income this quarter for the Sohu Media -- now for the Sohu Media platform, we continue to refine our products and integrate resources to better meet users' needs and enhance their experiences. Meanwhile, leveraging our product metrics and distinctive events, we remain committed to generating and distributing diversified premium content and continuously energizing our platform.

Our differentiated advantages and unique IP enabled us to further unlock monetization potential. For online games, both new and established titles delivered outstanding performance driven by our deep understanding of our needs and proven operational expertise.

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 2025, total revenues of $180 million, up 19% year-over-year and 43% quarter over quarter. Marketing services revenues were $14 million, down 27% year-over-year and 13% quarter-over-quarter. Online game revenues, $162 million, up 27% year over year and 53% quarter-over-quarter.

GAAP net income attributable to Sohu.com Limited, $9 million compared with a net loss of $16 million in the third quarter of '24, and a net loss of $20 million in the second quarter of this year. Non-GAAP net income attributable to Sohu.com Limited was $9 million compared to a net loss of $12 million in the third quarter of last year and a net loss of $20 million in the second quarter of this year.

Now, I'll go through our key businesses in more detail. So for Sohu platform, we continue to leverage the cutting-edge technologies to optimize our products and promote deeper integration across our product metrics. This enabled us to further adapt to various (inaudible), improve operational efficiencies and enhance user experiences, at the same time relying on the synergies between various online and offline events. We continue to stimulate the generation dissemination of premium content and attract more users to our platform.

During the quarter, we hosted a variety of events and activities to further build a vigorous social networking platform, providing users with abundant opportunities for online and offline communications. The 2025 Autumn Convention of Sohu Video Influencers, (inaudible) effectively promoted deeper communication among broadcasters across different verticals and significantly increase their vitality and retention on our platform. The ongoing 2025 Sohu HipHop Dancing Festival, (inaudible); and also the (inaudible) Model Competition, (inaudible), both successfully ignited the passion of young people and further consolidated our influence in these areas.

All these activities gain or spread recognition and popularity and continuously infused a large amount of content and traffic into our platform. As a result, we were able to further expand the influence of Sohu and fostered a prosperous platform ecosystem. In addition, we also held a special team activities such as the Halloween American TV series party, (inaudible) party.

It not only engaged users with innovative content but also became a highlight of our social video -- Sohu Video American TV series, (inaudible), which brought audiences with classic dramas such as the West World and also the Mandalorian. Meanwhile, we also launched multiple [GV] dramas, original drama and short dramas during the quarter to attract and retain users. The original drama, (inaudible) is well received by audiences and attract more users to our platform.

Through our flagship IP, the [Physics Class] and (inaudible) class, we continue to strengthen our differentiated competitive advantages while at the same time, exploring greater monetization opportunities with Charles' Physics Class, we were able to reach a wider range of audiences through discussions on popular science topics and hot events and brought physics knowledge closer to the general public, not only helped us generate unique and premium content, but also consistently unlock money -- monetization potential. Together with the resources of Sohu's product metrics and our marketing capabilities, we actively adapted changes in the market trend and provide advertisers with customized marketing solutions through a series of innovative campaigns and events, which are highly recognized by our both audiences and advertisers.

Next, turning to our (inaudible) business. In the third quarter of 2025, we launched a new PC game LBB, Return. Based on a beloved early version of TLBB PC, the game features reduced grinding and pay to win pressure, offering players a lighter gaming experience. It helped us attract back many [former] players and its revenue performance has so far exceeded our expectations.

For TLBB PC, we also launched the game content for TLBB -- game content for TLBB Vintage that recreated the classic design of the game, which evolved in a way of nostalgia among players. Players' enthusiasm and the in-game spending were far beyond our expectations. With regular TLBB PC, we offered a new rare gear as rewards for our promotional events and redesigned the cross-server Clan Wall gameplay, which boosted willingness to pay among higher paying players.

For more games, we launched -- for mobile games, we launched an expansion pack for Legacy TLBB Mobile, which brought an enhancement to the skills of (inaudible) clan alongside a new storyline and engaging activities. Revenue for this game remained stable on a sequential basis, the TLBB Mobile. Next quarter, we will continue to launch expansion packs and content updates for the TLBB series and other titles to further keep players engaged.

We made an increasingly competitive market. We remain committed to our top game strategy. We follow a user-centric philosophy and adhere to solve (inaudible) and systematic R&D process to enhance efficiency and product successfully. As a part of the strategy, we are taking concrete steps to unlock the potential of our TLBB IP. Meanwhile, building upon our core strengths in MMORPGs, we are working to diversify into new types of games, including card-based RPG sports games and casual games as well as we expand our offerings for global markets.

Now I would like to give an update on the ongoing share repurchase program. As of November 13, 2025, Sohu has repurchased 7.6 million ADS for an aggregate cost of approximately $97 million, so basically 2/3 of the $150 million program.

With that, I will now turn the call over to Joanna, please.

Thank you, Charles. I will now walk you through the key financials of our major segments for third quarter of 2025. All numbers on a non-GAAP basis. You may find a reconciliation of non-GAAP to GAAP measures on our IR website.

For Sohu Media platform, quarterly revenues were [$17 million,] compared with $23 million in the same quarter last year. Quarterly operating loss was $71 million compared with an operating loss of $72 million in the same quarter last year. For Changyou, quarterly revenues, $163 million compared with $129 million in the same quarter last year. Quarterly operating profit was $88 million, compared with operating profit of $62 million in the same quarter last year.

For the fourth quarter of 2025, we expect marketing service revenues to be between $50 million and $60 million. This implies annual decrease of 15% to 20%, and a sequential increase of 10% to 18%, online game revenues to be between $130 million and $123 million. This impacts annual increase of 3% to 12% and a sequential decrease of 34% to 30%. Both non-GAAP and GAAP net loss attributable to Sohu.com Limited to be between $25 million and $35 million. This forecast reflects Sohu 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.

(Operator Instructions) Thomas Chong, Jefferies.

My first question is about the online game business. Given our online games performed very strongly in Q3, I'm just wondering how's the quarter-to-date performance so far? In particular, when I look into the guidance, it basically implies a sequential decline. So I'm not sure if we are a bit conservative in giving out the Q4 gaming guidance.

And on the other hand, when I look into our [portal] business, when I look into the advertising side, we are actually seeing a quite sequential rebound in terms of the advertising revenue. Can -- Charles, may I ask about how you think about the macro sentiment coming into Q4 as well as the trend for different categories. And based on the current visibility, how should we think about the brand advertising outlook in 2026, if there's any color on that?

First question is about online game, whether it is contributing to guidance.

(spoken in foreign language)

(interpreted) The performance of the fourth quarter so far is in line with our expectations. The strong third-quarter results is primarily driven by the successful launch of new game, TLBB: Return. And meanwhile, the new servers of TLBB Vintage also performed very well, achieving historic high.

So the actual revenue of third quarter exceeded our expectations a lot. And the performance of the fourth quarter depends mainly on the performance of new game, TLBB: Return, and the performance of the content and activities that we will launch during the first quarter for TLBB PC like in TLBB Mobile that -- yeah. Thank you.

I'm in line, right? Yeah.

Okay so, I think the Q4 rebound, right? Comments you're seeing -- the (multiple speakers)?

Yes.

Yeah, I think since the whole ad base is not that big, right? So it's kind of not -- it's kind of oscillated a little bit. It depends on something like some a pack, a contract allocated to this quarter, but because the contract was signed late and then went to the next quarter, right?

So it's -- but we do have some -- so first of all, the macroeconomic situation is really not that good under pressure in the different sectors like auto and IT services. So it's continued to kind of deteriorating. But as our new -- we have kind of an innovative, unique marketing campaign or services that are kind of unique that still we're able to attract some of the advertising.

So we were able to go against the trend and basically stabilized the advertising revenue on a small basis. So because I think in Q4, we have some good events that we're able to create -- are able to create such opportunities for them to advertise.

I see. Thank you, Charles. May I ask a follow-up question about AI? Can you comment about how AI is integrated within Sohu right now? And are we actually seeing better productivity, cost savings, or better advertising monetization so far? Thank you.

I think AI has more impact, more usage or improvement on productivity on the gaming business, right? For Sohu, we are not developing a large language model. We are using AI to improve the user experience like for our social media platform, the AI can summarize videos content and give the -- and so the subtitles.

And also, in our new service, news app, there's this AI-enhanced search and question answering features. So we're basically using AI in different models to improve our existing service of media and social network instead of spending a lot on the hardcore large language model. Yeah, maybe the AI can improve. (spoken in foreign language)

(spoken in foreign language)

(interpreted) The application of AI is now -- is mainly applied in art design and the code generation and the game planning creation.

Alicia Yap, Citi.

I have a couple of follow-ups. First of all, on the gaming. Can management share with us what are the biggest surprise that you learned from the TLBB: Return version? And which one is the bigger driver in terms of the helping on the outperformance for this quarter? Is that the TLBB Vintage new server or is that the new games, TLBB: Return?

And I understand you gave out the 4Q guidance. You mentioned this is reflecting the current situation that you're seeing. And I wanted to know is the vintage server that you are seeing the drop off of the user or you actually see that the new title, TLBB: Return are seeing the sequential drop off or decline on the user and the revenue? So any color that you can give us on that for the 3Q and 4Q would be helpful.

And then second question for Charles on the macro situation. I think you mentioned auto IT services, the ad sentiment seems to be a little bit deteriorating. Are there any industry verticals or industry subsector that you are seeing is actually either improving on the sentiments or at least the sentiment is about the same as last few quarters?

Okay. (spoken in foreign language)

(interpreted) The first surprise from TLBB: Return is the user spending is beyond our expectation.

(spoken in foreign language)

(interpreted) Because TLBB: Return was positioned to be -- the game play is more relaxing and it requires less time and the demand for paying, spending is also less. So originally, we thought the users paying would not be very good.

(spoken in foreign language)

(interpreted) Second, the retention. The retention of TLBB: Return is very stable, better than our expectations.

(spoken in French)

(interpreted) As for the contribution to the revenue increase over the quarter, we don't disclose the specific number for individual gain.

(spoken in foreign language)

(interpreted) So far, the user base of both TLBB: Return and TLBB Vintage are both very steady, but their revenues are actually trending down because for TLBB Vintage, its performance in the third quarter was very good. So in the fourth quarter, we plan to roll out fewer promotional activities. And for (inaudible), as it was newly launched in the third quarter, so it really experienced a natural decline compared with the initial launch period because users tend to have stronger willingness to pay when the game was initially launched.

Okay. So your second question is about the ad situation, right, the sectors?

Yeah.

So I think the overall, the really kind of advertising market is under pressure. For example, the auto industry, there is the two (inaudible) effective trend. First of all, the competition, the fears because there are just too many car companies, right? So they need to stand out, try to have a larger market share, the pressure to market and to promote their brands and the sales.

On the other hand, because of too many cars, there's the profit margin is very low for them. So the ad budget for each car companies are seeing getting less. So that's why it's the -- so with this situation, we have some kind of unique like The Physics Class or to -- like myself and live streaming to live streaming, visit of their factories and some unique and also with social network, social media distribution, all kind of unique advertising instead of the traditional sponsorship of our channels, the portal channels. We were able to get the ad budget.

So the auto industry is kind of flat, but it's still declining. And also, we are also looking at the other -- the consumer electronics. We are just -- that manufacturer base, China's manufacturer base is very strong, and they have a lot of new products, but they need to also market those products to domestic market and still with our innovative offering of live streaming or social media distribution and lectures, lectures and the various events, we were able also to get some of those consumer electronics advertisers. And so that's why we are able to -- with this deteriorating market situation, we're still able to get some of the advertising part or section and still at a relatively small base.

Thank you. I am showing no further questions. And with that, we conclude our conference call today. Thank you for your participation. You may now disconnect your lines.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.