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Sohu.com Inc (NASDAQ:SOHU)Q2 2020 Earnings CallAug 10, 2020, 7:30 a.m. ETContents:
Ready Remarks
Questions and Solutions
Name Members
Ready Remarks:
OperatorLadies and gents, thanks for standing by and good night. Thanks for becoming a member of Sohu’s Second Quarter 2020 Earnings Convention Name. [Operator Instructions] At present’s convention name is being recorded. If in case you have any objections, you may disconnect at the moment.I might now like to show the convention over to your host for in the present day’s convention name, Huang Pu, Investor Relations Director of Sohu. Please go forward.Huang Pu — Investor Relations DirectorThanks, operator. Thanks for becoming a member of us in the present day to debate Sohu’s second quarter 2020 outcomes. On the decision are Chairman and Chief Government Officer, Dr. Charles Zhang; CFO, Joanna Lv; and Vice President of Finance, James Deng. Additionally with us in the present day are Changyou’s CEO, Dewen Chen; and CFO, Yaobin Wang.Earlier than administration begins their ready remarks, I wish to remind you of the Firm’s Secure Harbor assertion in reference to in the present day’s convention name. Apart from the historic info contained herein, the issues mentioned right here — on this convention name may include forward-looking statements. These statements are primarily based on present plans, estimates and projections and subsequently, you shouldn’t place undue reliance on them. Ahead-looking statements contain inherent dangers and uncertainties. We warning you that quite a few necessary components might trigger precise outcomes to vary materially from these contained in any forward-looking assertion. For extra details about the potential dangers and uncertainties, please confer with the Firm’s filings with the Securities and Change Fee, together with the latest Annual Report on Kind 20-F.With that, I’ll now flip the decision over to Dr. Charles Zhang. Charles, please proceed.Charles Zhang — Chairman and Chief Government OfficerThank you, Huang. Thanks for — to everybody for becoming a member of our name. Within the second quarter of 2020, our model promoting enterprise carried out nicely, the model promoting income had an honest improve, up 48% quarter-over-quarter. Each the model promoting income and backside line exceeded our prior steerage. Through the quarter, we built-in our Media Portal’s model benefit and affect with Sohu Video’s superior stay broadcast applied sciences. These initiatives allowed us to extra successfully generate and distribute our high-quality authentic content material, and additional enhanced our credibility by reflecting the angle and values of Soho.For Changyou, the privatization was accomplished on April 17, 2020, and after that Changyou’s internet revenue and loss was wholly attributable to Sohu.com Restricted. Through the second quarter 2020, on-line sport revenues met our prior steerage and declined quarter-over-quarter, primarily because of the resumption of labor following the easing of COVID-19 restrictions.For Sogou, it delivered in-line ends in the second quarter with Search sustaining a gradual share of visitors and Cellular Keyboard enter additional increasing its DAU base.Earlier than I am going into extra element of our key monetary outcomes, please be reminded that for the second quarter 2020, Changyou acknowledged a further $88 million accrual for withholding revenue tax, since Changyou modified its coverage for its PRC subsidiaries for the distribution of cash dividends after the completion of the privatization. As well as, again within the third quarter of 2019, final 12 months, Changyou’s cinema promoting enterprise ceased operations. Until indicated in any other case the outcomes that we’ll focus on in the present day exclude the affect of the above talked about withholding revenue tax and the cinema promoting enterprise.So now, for the second quarter of 2020, complete revenues have been $421 million, down 9% year-over-year and three% quarter-over-quarter. Model promoting revenues $38 million, down 14% year-over-year, up 48% quarter-over-quarter. Search and Search-related promoting revenues $241 million, down 13% year-over-year and up 1% over — quarter-over-quarter. On-line sport revenues $106 million, up 4% year-over-year and down 21% quarter-over-quarter.GAAP internet loss attributable to Sohu.com Restricted was $80 million. Excluding the affect of the extra accrual of withholding revenue tax described above, GAAP internet revenue attributable to Sohu.com Restricted was $eight million, in contrast with a internet lack of $35 million within the second quarter of 2019 and a internet lack of $20 million within the first quarter of 2020.Excluding the affect of extra accrual of withholding revenue tax described above, non-GAAP internet revenue attributable to Sohu.com Restricted was $11 million revenue. Additional excluding the loss generated by Sogou, non-GAAP internet revenue attributable to Sohu.com Restricted was $12 million, in contrast with a internet lack of $41 million within the second quarter of final 12 months and a internet lack of $eight million within the first quarter of 2020.So now, let me undergo a few of our key companies. First, Media Portal and Sohu Video. For Media Portal, we proceed to consolidate our core competitiveness and credibility as a mainstream media platform by producing and distributing information and premium content material. We additionally proceed to improve the standard of our content material and suggestion algorithms to supply customers with broader and a extra customized expertise. Consequently, we noticed the consumption of content material elevated considerably throughout the second quarter.For Video, we proceed to strengthen our long-form and short-form so-called two-engine technique. For the long-form authentic content material, we launched the 2 authentic idol romance dramas, one is the Excessive Faculty Large Bang, Wo Cheng Le Ta De Ban Zhu Ren, and likewise, one other one is My Expensive Woman, Ni Cheng Gong Yin Qi Wo De Zhu Yi Le, which have been nicely obtained by audiences and gained widespread consideration.For brief-form content material, we additional strengthened our stay broadcast capabilities by with the ability to set up popularity with our medical and well being stay — well being areas, stay broadcast — broadcasters by producing and distributing correct and dependable info in these areas. We’ll proceed to push ahead on this space whereas proactively exploring new alternatives in different verticals.On the monetization facet, we saved exploring new monetization alternatives by integrating the model affect of our Media Portal with Sohu Video’s superior broadcast applied sciences. Through the quarter, we efficiently hosted a number of occasions that built-in each on-line, offline options. We launched a brand new stay broadcast collection known as BOSS1+1, the place we invited trade celebrities to share the perception views on the economic system and the market wherever they’re throughout the stay broadcast sharing know-how. We additionally efficiently hosted the Sogou [Phonetic] Tech 5G Summit and Sogou [Phonetic] Information Marathon, which broke geographical boundaries and offered members with broader views and a higher consumer expertise wherever they’re.In June, July, we moved additional towards the sphere of e-commerce by internet hosting one of the best of sister [Phonetic] choice stay from Sohu [Foreign Speech]. We invited celebrities to share their ideas on stay whereas recommending premium items. The favourite product, the products they use. We’ve seen quite a few optimistic outcomes from these new initiatives, provided that they’re offering advertisers with a wide range of advertising methods that match the present second and meet normal public demand. Going ahead, we’ll proceed to diversify our income supply and actively discover new alternatives to develop promoting {dollars}.Subsequent, let’s discuss Changyou. For the second quarter 2020, on-line sport revenues decreased for — quarter-over-quarter and met our prior steerage, primarily as a result of a lower in participant engagement because of the work resumption following the eased COVID-19 pandemic in China.For PC video games, Changyou launched a brand new enlargement pack of TLBB PC throughout the quarter with numerous anniversary occasions, and likewise new maps and dungeons that have been developed utilizing superior rendering applied sciences. All of this new content material served to vastly enhance the consumer expertise.For cell video games, an enlargement pack of Legacy TLBB Cellular’s three-year anniversary was launched throughout the quarter. The newly launched gameplay, which permit gamers to discover randomly generated content material was additionally nicely obtained.For third quarter of 2020, Changyou will give attention to stabilizing participant engagement and the rollout in-game rewarding — reward-giving occasions and recent content material for TLBB PC and the Legacy TLBB Cellular. Wanting forward, Changyou will proceed to give attention to executing its core technique of prime video games.MMORPG cell video games will stay a key strategic focus, whereas we’re additionally scanning the marketplace for alternatives throughout numerous genres as they appear to diversify — as we glance to diversify our product portfolio. In the meantime, we may even improve increasing our effort abroad. Presently, a number of key video games are being developed and ready for launch. We consider Changyou will deliver extra high quality video games for gamers sooner or later.Lastly, let me discuss Sogou. Regardless of nice challenges below the COVID-19 pandemic, Sogou has been proactively upgrading its improvement technique to give attention to producing extra consumer value and constructing out a enterprise that’s oriented towards a long-term value and progress. Within the second quarter of 2020, Sogou delivered in-line outcomes with wholesome momentum in its core Search and Cellular Keyboard companies. Sogou Search maintained a gradual share of visitors and bolstered its place as China’s second largest search engine. Cellular Keyboard, additional expanded its DAU base to 484 million, sustaining the third largest Chinese language cell app by way of DAUs in keeping with iResearch. As well as, its AI {hardware} enterprise recorded stable progress throughout the quarter. Going ahead, Sogou will additional enhance AI empowerment and synergies throughout their companies, whereas regularly drive know-how — technological advances.Now, let me flip to — over — the decision to — over to Joanna, our CFO, who will stroll you thru our monetary outcomes. Joanna?Joanna Lv — Chief Monetary OfficerThank you, Charles. I’ll stroll you thru the important thing financials of our 4 main segments for the second quarter of 2020. The entire numbers that I’ll point out are all on the non-GAAP foundation. You could find a reconciliation of non-GAAP to GAAP measures on our IR web site.So Sohu Media Portal, quarterly revenues have been $22 million, down 7% year-over-year and up 49% quarter-over-quarter. The quarterly working loss was $80 [Phonetic] million, in contrast with an working lack of $38 million in the identical quarter final 12 months.For Sohu Video, quarterly revenues have been $22 million, up 6% year-over-year and down 4% quarter-over-quarter. The quarterly working loss was $10 million, in contrast with an working lack of $23 million in the identical quarter final 12 months.For Changyou, quarterly revenues, together with 17173, $109 million, up 3% year-over-year and down 20% quarter-over-quarter. Changyou posted an working revenue of $37 million, in contrast with an working revenue of $38 million in the identical quarter final 12 months.For Sogou, quarterly revenues have been $261 million, down 14% year-over-year and up 2% quarter-over-quarter. Internet loss was $6 million, in contrast with internet revenue of $28 million in the identical quarter final 12 months.For the third quarter of 2020, we anticipate model promoting revenues to be between $37 million and $42 million. This suggests an annual lower of 9% to 20% and a sequential lower of three% to a sequential improve of 11%.On-line sport revenues to be between $85 million and $95 million. This suggests an annual lower of 12% to 21% and a sequential lower of 10% to 20%.Excluding revenue/loss generated by Sogou, non-GAAP internet loss attributable to Sohu.com Restricted to be between $10 million and $20 million. And GAAP internet loss attributable to Sohu.com Restricted to be between $15 million and $25 million. This forecast displays Sohu’s administration present and preliminary view, which is topic to substantial uncertainty, significantly in view of the potential ongoing affect of COVID-19 virus, which stays troublesome to foretell.Lastly, please be reminded that we cannot take questions relating to any Sogou enterprise updates, and Tencent’s non-binding proposal for Sogou privatization within the Q&A session.And this concludes our ready remarks. Operator, we’d now prefer to open the decision to questions.Questions and Solutions:OperatorThank you. [Operator Instructions] Our first query comes from the road of Eddie Leung from Bank of America Merrill Lynch. Please ask your query.Eddie Leung — Bank of America Merrill Lynch — AnalystHey. Good night, guys. Simply two fast questions. The primary one is about broadcasting. I feel, Charles, you talked about that there was some synergy from utilizing the influencer, in addition to broadcasting. Questioning when you’ve got any working metrics or monetary share — to share with us on the efficiency of broadcasting you achieved within the quarter. And the way is it rising into third quarter? In order that’s my first query.The second query is about video games. I additionally suppose you talked about that after folks returning to work there was some weak spot within the gaming trade normally. So simply questioning whether or not we have now seen some stabilization on that entrance. And as we finish the summer season, which historically ought to be quarter normally for the gaming trade? Any colour on the final trade development of gaming trade into third quarter can be nice? Thanks.Charles Zhang — Chairman and Chief Government OfficerSo, Eddie, your first query is about stay broadcasting, proper?Eddie Leung — Bank of America Merrill Lynch — AnalystYes.Charles Zhang — Chairman and Chief Government OfficerSo, we have now fairly a — like, I feel every day, like dozens of influencer to broadcast. After which there may be most likely 10 or 20 that we — truly utilizing our platform to market. So there’s a — so these are the stay broadcast, like we’re utilizing normal push to market about 10 broadcasts. After which we name it a value broadcasting or we name it — the place the folks from just like the medical, well being trade or way of life or beauty trade or these sort of influencer to show folks and to acknowledge identical [Phonetic] info.After which we have now some few prime stay broadcast like myself take part, like every month we do like three or 4 with some prime celebrities. And to — as a result of they share the life expertise and a few merchandise after which we’re in a position to join our stay — our chat room or stay broadcast room via e-commerce platforms like Jingdong or Taobao and others. In order that when a celeb suggest some merchandise they use, then the customers can click on that small card, buying card to be delivered on to the e-commerce platform to buy.So, we’re not — so due to this transaction-based promoting and principally, some — and likewise we truly give them a reward or some sort of lottery for folks to click on. In order that it is not likely the gross sales quantity of these merchandise, it is actually the entire — the chat rooms recognition and likewise the celebrities suggestion or a verbal suggestion or these sort of factor is an effective promoting set that grow to be purpose for among the large advertisers spend cash on our total promoting. So this can be a central a part of the entire contract.Am I answering your query, Eddie?Eddie Leung — Bank of America Merrill Lynch — AnalystYes. So principally, there isn’t a direct e-commerce income, I feel, proper? So, Charles, you might be utilizing the content material to draw promoting normally. That does truly the present [Speech Overlap].Charles Zhang — Chairman and Chief Government OfficerThere is e-commerce income, as a result of the advertisers, they offer us a deep low cost, higher as a result of — yeah. So, truly, why persons are — it grow to be so fashionable and persons are actually coming to this chat room as a result of they’re getting one of the best price on-line as a result of the Jingdong and Taobao, these — or the others — the advertiser, they’re prepared, as a result of that is actually good for the model. They’re prepared to provide the deepest low cost to us. So, that price distinction is taken into account to be the — our e-commerce income.Eddie Leung — Bank of America Merrill Lynch — AnalystOh, I see. Understood.Charles Zhang — Chairman and Chief Government OfficerI’m saying that is one other large half. The principle half is actually the overall promoting greenback and the promoting spend. And it drives the entire contract, prefer it’s grow to be essential element of our total contract. For example, if a automobile firm or I imply, auto firm spend like RMB3 million promoting. On this contract, most likely like RMB1 million was spent on this chat room promoting. And likewise we’re in a position to get that RMB3 million contract as a result of we have now this element. It is very artistic and it is very — it is bought — everybody bought — are speaking about this.Eddie Leung — Bank of America Merrill Lynch — AnalystYeah. Understood. And any colour on the trade development of video games heading into summer season, which historically a powerful quarter can be useful. Thanks.Charles Zhang — Chairman and Chief Government OfficerSo, the persons are — in contrast with Q1, persons are spending much less time at dwelling. And likewise truly persons are — due to the decline in economic system, persons are spend — folks have much less disposal revenue, proper? The 2 causes that, in order that the, proper, [Foreign Speech].Unidentified Speaker[Foreign Speech]Dewen Chen — Chief Government Officer of ChangyouFirst of all, throughout the pandemic, there are totally different for various gaming corporations and totally different genres of video games. So we bought totally different affect brought on by the pandemic. For our — largely our video games are MMO hardcore RPG video games, so we depend on these free [Phonetic] participant to — or higher-paying customers. So, we benefited from the restrictions within the first quarter. However throughout the second quarter, we see — we noticed some pressures on the economic system. So, we noticed some stress on the fee gamers funding in video games. So, you possibly can see that from the info within the second quarter, we had a decline APA quantity. So — however we anticipate within the third quarter, will probably be stabilized.Eddie Leung — Bank of America Merrill Lynch — AnalystGot it. Thanks. [Foreign Speech], Dewen.Charles Zhang — Chairman and Chief Government OfficerSo my query is stabilized concerning the earnings much less due to the associated fee improve, proper, due to advertising of…Unidentified Speaker[Foreign Speech]Dewen Chen — Chief Government Officer of ChangyouThe trade will likely be extra stabilized.Charles Zhang — Chairman and Chief Government OfficerThe trade [Foreign Speech] Changyou-specific. Okay. All proper. Subsequent?OperatorThank you. Our subsequent query comes from the road of Thomas Chong from Jefferies. Please ask your query.Thomas Chong — Jefferies — AnalystHi. Thanks administration for taking my query. I feel, first, I’ve a query concerning the 3Q model promoting steerage. Given that may be a destructive 3% to optimistic over 10% sequential progress, I am simply questioning below what circumstances would we anticipate to hit the low-end and the high-end of the steerage. And might you remark concerning the advert spending amongst totally different classes?And my second query is concerning the China and the US pressure. Does which have any affect to our income coming from worldwide advertisers? Thanks.Charles Zhang — Chairman and Chief Government OfficerAnswer your second query, we do not have — you imply worldwide advertiser?Thomas Chong — Jefferies — AnalystLike these worldwide manufacturers.Charles Zhang — Chairman and Chief Government OfficerSo for worldwide promoting, they really elevated their promoting. Yeah. It is truly higher. So to reply the second.Your first query, I feel the — a variety of — the vary, proper, of the forecast, it depends upon actually the COVID-19 state of affairs, the economic system, and — yeah. So, we’ll proceed our revolutionary — product innovation and consumer base improvement, in order that attempting to realize momentum, however the economic system and the uncertainties that will give a variety of forecast.Thomas Chong — Jefferies — AnalystI see. Thanks, Charles. Is there any colour about our key classes? Is the momentum much like what we noticed not too long ago?Charles Zhang — Chairman and Chief Government OfficerIt’s — I feel it is a euro allocation, like auto trade. After which, auto, I feel then FMCG begin transferring items and Web companies like e-commerce. Yeah. E-commerce. I feel e-commerce is quantity two, proper. Auto, remains to be primary. E-commerce is quantity two and FMCG. After which, some IT corporations, proper? After which adopted by monetary sectors, proper, monetary industries. Actual property, yeah, actual property additionally, yeah. That is the euro rank, yeah, rating of this spending.Thomas Chong — Jefferies — AnalystI see. Received it. Thanks, Charles.Charles Zhang — Chairman and Chief Government OfficerOkay.OperatorThank you. Our subsequent query comes from the road of Alicia Yap from Citigroup. Please ask your query.Alicia Yap — Citigroup — AnalystHi. Thanks and good night, Charles and administration. Thanks for taking my query. I’ve two questions. One is that following the nearer integrations of your advert system and likewise the gross sales staff between the Sohu Video and Sohu Portal. So, might you elaborate and assist us to know extra the long run prospect of Sohu Portal? What’s your plan and aspiration to rework the Sohu Portal to grow to be to?After which the second query is in your video content material technique. So, assuming you might be getting extra cash, will you spend extra money in video content material manufacturing once more? Or would you truly proceed your technique on chopping the loss on the media enterprise? Thanks.Charles Zhang — Chairman and Chief Government OfficerYeah. We’ve now a transparent technique for each our key software, meaning the Portal — the Sohu Information App and Sohu Video App. Effectively, we have now different H5-based [Indecipherable] Sohu and likewise PC that is one other — however our focus actually on the Sohu Information App and Sohu Video App.On the Sohu Information App, the product innovation will largely give attention to the 2 info supply mechanism: one is actually will proceed to have high-quality content material, editorial content material and authentic content material and likewise content material with collaborators, however the supply via — editorial supply plus the machine supply, principally, the algorithm, will proceed to enhance the algorithm in order that the information grow to be so related to every particular person customers and knowledge and likewise the share of video content material within the info stream.The second supply can also be, our focus is actually the social community. I imply, social media supply principally persons are followers and people sort of — we have now a special channel for that. That is the 2 space that we consider would be the driver for our Information App’s consumer progress.And for Video, the long-form content material is drama. After which the short-form is actually the brief video clips, like principally the YouTube sort, the folks truly add brief video. And folks additionally produce brief video by stay broadcasting. Dwell broadcasting as a strategy to produce short-form or not even short-form, generally folks broadcast for one hour after which grow to be a one-hour replay. So, these are the — additionally the 2 prime — two sort of — after which the supply additionally both is the entrance web page editorial supply and likewise we have now additionally, [Indecipherable], social media supply. These are the — particularly the social media supply, the next — followers and the tweet, retweet, and people sort of — is our focus.After which the synergy of this two app for stay broadcast, we do not enable — we don’t enable the Information App to reinvent the wheel to have a stay broadcast function. However the entire Firm has solely the stay broadcasting function on the Sohu Video App and different consumer base will likely be — the visitors will likely be pushed via the Information App — via the Video App, for — that is the synergy, the place just like the — a few of these — our stay broadcast as a result of beforehand earlier than the Sohu Video App had well-known for its TV drama and the US American dramas, however now — it is now established as one of many key stay broadcast app. And likewise some sort of key breaking information app, the video information, after which persons are utilizing the Information App usually tend to watch this type of content material after which they’re — you possibly can — there’s a hyperlink or a direct hyperlink between the 2 apps, in order that persons are utilizing Information App can instantly one click on away simply the — enter into the stay broadcast room to look at these stay broadcast content material — video content material of reports sort or different data sort, and never simply the long-form of the video drama. So, it is sort of difficult. And I feel — I hope you — you see — you perceive what I am saying.Alicia Yap — Citigroup — AnalystYeah.Charles Zhang — Chairman and Chief Government OfficerWe are principally a matrix of consumer base with two apps specializing its options and content material kind. And likewise the H5, Sohu app with extra of the normal PC and the PC [Indecipherable] the extra conventional shopping actions. So, it is a matrix of content material. After which for video and stay broadcast, all of the traffics have been diverted into the video app. Yeah.Alicia Yap — Citigroup — AnalystSo meaning we’re not going to spend extra money within the long-form content material manufacturing once more, proper?Charles Zhang — Chairman and Chief Government OfficerWe are — in the previous couple of years we have been in a position to — handle to generate — to supply some — by way of [Indecipherable] like some low-budget TV collection, episodes. After which — however may very well be a success. We’ve finished it many occasions. So, we — if we have now extra money, we’re not going to spend like we did in 2017 or 2016, spend — shopping for numerous very costly content material, however most likely we’ll improve the density or frequency of — I imply, quite a few TV collection per quarter. Like in 2019, or as an example, the primary two quarters, we solely have three TV episodes, proper, TV drama. Then within the — on the present tempo, within the subsequent half of the — this 12 months, we solely — we additionally solely have one other two, proper, two or three. However with — if with extra money, we’ll most likely solely double that, meaning we most likely have like — as a substitute of 5 – 6 TV dramas a 12 months, we most likely have 10 to 12, which — and so meaning not numerous improve of spending on the long-form. So, our video enterprise progress are most — will likely be pushed by the short-form consumer add, UGC content material and the stay broadcast.And any TV dramas will likely be a chance to develop new customers as a result of it is unique content material right here, in order that numerous customers will come right here to look at our new TV dramas and they’ll keep, as a result of they not solely watch that TV drama, they most likely — they discover numerous different social community options, so they are going to keep. So, yeah, that is our technique.Alicia Yap — Citigroup — AnalystOkay, nice. Thanks, Charles. Very useful.Charles Zhang — Chairman and Chief Government OfficerOkay. Welcome.OperatorThank you. [Operator Instructions] All proper. There are not any additional query.[Operator Closing Remarks]Length: 37 minutesCall members:Huang Pu — Investor Relations DirectorCharles Zhang — Chairman and Chief Government OfficerJoanna Lv — Chief Monetary OfficerUnidentified SpeakerDewen Chen — Chief Government Officer of ChangyouEddie Leung — Bank of America Merrill Lynch — AnalystThomas Chong — Jefferies — AnalystAlicia Yap — Citigroup — Analyst
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