Sohu.com Limited (NASDAQ:SOHU) Q1 2023 Earnings Call Transcript May 15, 2023

Sohu.com Limited beats earnings expectations. Reported EPS is $-0.53, expectations were $-0.56.

Operator: Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu’s First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. [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.

Huang Pu: Thanks, operator. Thank you for joining us to discuss Sohu’s first quarter 2023 results. On the call are Chairman and 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 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 conference 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.

Charles Zhang: 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. At 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 continued to develop both long-form and short-form original content under our Twin Engine strategy. Leveraging the advantages of our product mix — matrix, 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 business. I’ll go into 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 $80 million, compared with a net income of $3 million — 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. 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 their — our social network distribution. Through these efforts, we have continuously improved the user experiences and further strengthen our brand influence.

At Sohu Video, we focus on developing high quality, long-form and short-form content. For the long-form content in the first quarter, we have rolled out [indiscernible], both of which won acclaim from audiences. In April, we released a crime scene idle Roman love of Replica, the upgraded sequel to 2021 Mysterious Love. 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 Specialization from the Spring Festival and the On Her Way Home series has gained widespread attention and generated in-depth discussion of various social issues, helping its rich and penetrate to larger audiences. In terms of short-form content, we continue to focus on the social science-related live streaming 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 Sohu Fashion Awards, and our offline 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 [indiscernible] physics and also the talks under the Starry Sky [ph] and the [indiscernible] the interview program generated significant attention and created various hot topics and discussions on our product metrics as well as across various social media platform.

These unique campaigns leveraging by our dual platform of Sohu Video and Sohu News reinforced our strong brand influence and our good content and provided our advertising — 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 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 [indiscernible] 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 MMO RPGs, we also produce games in various types, including car based RPGs, strategy, sports and idle game. I will now turn the call over to our CFO, Joanna, who will walk you through our financial results.

Joanna?

Joanna Lv: 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 $18 million, compared with revenues of $18 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 revenues, $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 impacts 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 $80 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.

Q&A Session

Operator: Thank you [Operator Instructions] Our first question comes from Thomas Chong of Jefferies. Please proceed.

Operator: Thank you for the questions. [Operator Instructions] Next up, we have the line from Alicia Yap from Citigroup. Please proceed.

Operator: [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.