Sohu.com Limited
Q3 2020 Earnings Call Transcript

Published: 16 Nov 2020

[Operator:]

Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining Sohu's Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference call is being recorded. 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 today to discuss Sohu's third quarter 2020 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 today are Changyou's CEO, Dewen Chen; and CFO, Yaobin Wang.

[Charles Zhang:]

Thanks, Huang Pu, and thank you to everyone for joining our call. In the third quarter of 2020, to further consolidate our core competitiveness and credibility, we continued to optimize our products, refine our technology, enhance the quality of premium content and improve its distribution. At the same time, we kept exploring creative new and differentiated monetization opportunities. Benefiting from our more mature and sophisticated Sohu Video App, and its advanced live broadcasting technology, we successfully hosted many innovative content marketing campaigns that could leverage the broad reach of our product portfolio. We saw positive feedback in terms of user interaction and from advertisers. So for this quarter, despite the current challenging macroeconomic environment, our brand advertising revenue reached the high end of our prior guidance and achieved the 8% quarter-over-quarter growth. Our game business, Changyou's online games performed well for the third quarter of 2020, with revenue exceeding the high end of our prior guidance. So before I go into more detail about our key financial results, please be reminded that on September 29th, 2020, our controlled subsidiary of Sogou and the subsidiary of Tencent entered into an Agreement and a Plan of Merger, which contemplate that Sogou will become a wholly-owned subsidiary of Tencent, and on the same date, we entered into a Share Purchase Agreement, in which we agreed to sell all of our Sogou Class A and Class B ordinary shares to Tencent shortly before the completion of the merger transaction between Tencent and Sogou.

[Joanna Lv:]

Thank you, Charles. I will walk you through the key financials of our major segments for third quarter of 2020. All of the numbers that I will mention are all 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 $25 million, down 3% year-over-year and up 9% quarter-over-quarter. The quarterly operating loss was $23 million compared with an operating loss of $31 million in the same quarter last year. For Sohu Video, quarterly revenues were $23 million, up 1% year-over-year and 2% quarter-over-quarter. The quarterly operating loss was $12 million compared with an operating loss of $20 million in the same quarter last year.

[Operator:]

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from the line of Thomas Chong from Jefferies. Please go ahead.

[Thomas Chong:]

Hi. Good evening. Thanks, management for taking my questions. My question is about the brand advertising. Can management comment about the trend for different key categories and how we should think about the momentum in 2021?

[Charles Zhang:]

Well, key sector, right. Auto industry, number one. And then -

[Joanna Lv:]

Internet -

[Charles Zhang:]

Internet services, followed by -

[Joanna Lv:]

Real estate.

[Charles Zhang:]

Real estate, that's the top three categories. Yeah, we achieved 8% increase quarter-over-quarter, I mean, yeah, with you know the microeconomics, basically a challenging microeconomics situation, by being you know with, well, we are having you know this organic growth or the stabilized user base. So, we are not spending a lot of money on our marketing channels, marketing for our products so, but with this creative marketing events and the content, actually content generation events, and also with live streaming, to you know beaming those events. This is very attractive to brand advertisers. That's the reason why we are able to achieve advertising revenue growth without spending marketing you know sales cost more, yeah.

[Thomas Chong:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Alicia Yap from Citigroup. Please ask your question.

[Austin Pastner:]

Thanks. I'm Austin Pastner on behalf of Alicia Yap. For online games, can you remind us the breakdown of PC versus mobile games in the third quarter? And what are the drivers for the strong sequential growth of online games inside on your 4Q guidance? Thank you.

[Charles Zhang:]

Well basically the - in Q3, the division between the PC game and mobile game, right?

[Yaobin Wang:]

In terms of revenue, PC game accounts for 61% in the third quarter and mobile game, 39%. In terms of gross billing cash receipts, PC game accounts for 45% and the mobile game accounts for 55%. In the fourth quarter, the increase mainly due to TLBB PC, actually we launched some special servers like Charles mentioned, that have old version as - for its content, and attracted some -

[Charles Zhang:]

Nostalgic, nostalgic experience, yeah.

[Yaobin Wang:]

Yeah. Attracted some players that we lost over year. And the other reason is, where we launched a game called the Illusion Connect in Korea - South Korea market. Thank you.

[Austin Pastner:]

Got it, thank you.

[Operator:]

Thank you. Your next question comes from the line of . Please ask your question.

[Unidentified Participant:]

Yeah. Good evening, management. Your guidance in online games are very encouraging. I just wonder you said you know we are going into growth mode for the online games going forward?

[Dewen Chen:]

Yeah, thanks. Currently, we can only say the performance of fourth quarter.

[Unidentified Participant:]

Or maybe can you provide us some outlook in terms of your pipeline in games, you know what are you going to do next year?

[Dewen Chen:]

We have couple of games that the development is well underway, but the schedule is, depends on the license approval supplying program, and also the testing and their adjustments program. So it's not very easy to predict the specific launch date. But for those game that we have obtained the license approval, we may have some more specific timing. Two of those are projects, the Sea of Dawn, the and also Tetris, we have had license approval. We will launch the two games in the next year. Next year, we will also put more efforts in the overseas market and we'll launch some other new games in the overseas market. Thank you.

[Unidentified Participant:]

Thanks. That's great.

[Operator:]

Thank you. Our next question comes from the line of Alex Ko from Morgan Stanley. Please ask your question.

[Alex Ko:]

Hi. Management, thanks for taking my question. So I have a question on Sohu Video. So we know that the industry peers have been stepping up for content investment these days. So just want to get more color like how would the management plan to navigate like this kind of industry trend and like the content investment strategy going forward? Thank you.

[Charles Zhang:]

Well, we have, as I just said, we have this twin-engine strategy with long-form content and then short-form, basically, UGC. So for the long-form, our spending on basically to produce like and most of the 15 episodes of drama episodes with reasonable investment, and then make sure that it can - again, you know it become a hit with much less spending compared with our peers. So that was - so our spending on producing the long-form TV dramas remain similar to the previous year. And then so - but for this UGC and also social you know network product of video, it's not much - it doesn't need lobby management and also this live streaming, it's user-generated, only spending on the product development.

[Alex Ko:]

Got it, thank you.

[Operator:]

Thank you. And there are no further questions. So with that, we conclude our conference for today. Thank you for participating. You may all disconnect.