Sohu.com (SOHU) Q1 2025 Earnings Call May 19, 2025 07:30 AM ET Company Participants Pu Huang - Director, IRCharles Zhang - Founder, Chairman & CEOJoanna Lv - CFOThomas Chong - Managing DirectorNone - Executive Conference Call Participants Alicia Yap - Analyst Operator Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After management's prepared re ...

Financial Performance and Key Metrics - In Q1 2025, total revenues were $136 million, down 3% year-over-year and up 1% quarter-over-quarter [7] - Marketing services revenues were $14 million, down 15% year-over-year and 27% quarter-over-quarter [7] - Online game revenues were $117 million, flat year-over-year and up 7% quarter-over-quarter [7] - GAAP net income was $182 million compared to a net loss of $25 million in Q1 2024 [8] - Non-GAAP net loss was $16 million compared to a net loss of $22 million in Q1 2024 [8] Business Line Performance - Sohu Media platform revenues were $70 million, compared to $20 million in the same quarter last year, with an operating loss of $70 million [19] - Changyou's quarterly revenues were $180 million, down from $190 million in the same quarter last year, with an operating profit of $55 million [19] Market Data and Key Metrics - For Q2 2025, marketing services revenues are expected to be between $60 million and $70 million, implying a year-over-year decrease of 14% to 19% [20] - Online game revenues are expected to be between $96 million and $106 million, implying a year-over-year decrease of 28% to 35% [20] Company Strategy and Industry Competition - The company is focusing on enhancing its social media platform and leveraging unique IPs for monetization opportunities [6] - The online gaming business is adopting a top game strategy, diversifying its portfolio with various game types, and expanding into global markets [15][16] Management's Comments on Operating Environment and Future Outlook - Management noted that the advertising sentiment is mixed, with the auto sector performing better while luxury goods and alcohol spending is declining [24] - The company expects a similar trend in advertising for the second half of the year, with a focus on accelerating growth through its social network platform [25] - AI is seen as beneficial for the gaming business, improving efficiency in art design and production [29] Other Important Information - The company reversed a tax expense previously recognized, amounting to approximately $199 million, which was an accounting treatment issue rather than a cash flow event [8][42] Q&A Session Summary Question: Recent trend in advertising sentiment and outlook for the second half - Management indicated that the auto sector is performing better, while luxury goods and alcohol spending is declining, with expectations for a similar trend in the second half [24][25] Question: Impact of AI on advertising and online games - Management stated that AI has a marginal impact on the media platform but is beneficial for gaming, improving efficiency in various production aspects [26][29] Question: Details on the tax reversal - The tax reversal was an accounting issue related to uncertainty that has now been resolved, with no actual cash flow involved [42][45] Question: ADR delisting risk and alternative plans - Management noted that the situation is speculative and that they would consider alternatives if necessary, but currently, there are no immediate plans [48][52]

Core Viewpoint - Sohu.com Limited reported strong financial results for the first quarter of 2025, with marketing services and online game revenues exceeding expectations, while also benefiting from a significant tax reversal that contributed to a net income of $182 million [2][3][11]. Financial Performance - Total revenues for Q1 2025 were $136 million, a decrease of 3% year-over-year but an increase of 1% quarter-over-quarter [5]. - Marketing services revenues were $14 million, down 15% year-over-year and 27% quarter-over-quarter [5]. - Online game revenues were $117 million, flat year-over-year and up 7% quarter-over-quarter [5]. - Both GAAP and non-GAAP gross margins were 76%, compared to 77% in Q1 2024 and 73% in Q4 2024 [6]. - GAAP operating expenses were $122 million, down 9% year-over-year and 1% quarter-over-quarter [7]. - GAAP net income attributable to Sohu.com Limited was $182 million, or $6.07 per fully-diluted ADS, compared to a net loss of $25 million in Q1 2024 [11]. Tax Reversal Impact - The company fully reversed a tax expense of approximately $199 million related to a one-time transition tax, resulting in a significant income tax benefit for Q1 2025 [3][9]. Non-GAAP Financial Measures - Non-GAAP net loss attributable to Sohu.com Limited was $16 million, or a net loss of $0.55 per fully-diluted ADS, compared to a net loss of $22 million in Q1 2024 [12]. - Non-GAAP results exclude share-based compensation and the income tax benefit related to the Toll Charge [4][21]. Liquidity and Capital Resources - As of March 31, 2025, the company had cash and cash equivalents, short-term investments, and long-term time deposits totaling approximately $1.2 billion [13]. Business Outlook - For Q2 2025, Sohu estimates marketing services revenues between $16 million and $17 million, indicating an annual decrease of 14% to 19% [27]. - Online game revenues are expected to be between $96 million and $106 million, reflecting an annual decrease of 28% to 35% [27].

Company Overview - Sohu.com Limited (NASDAQ: SOHU) is a leading Chinese online media platform and game business group, established by Dr. Charles Zhang in the 1990s [3] - The company operates a comprehensive matrix of Chinese language web properties, including Sohu News App, Sohu Video App, mobile portal m.sohu.com, PC portal www.sohu.com, and online games platform www.changyou.com/en/ [3] Business Operations - Sohu provides a vast array of content such as news, information, text, pictures, videos, and live broadcasting, making it indispensable to the daily life of millions of Chinese users [4] - The online game business is conducted through its subsidiary Changyou, which develops and operates a diverse portfolio of PC and mobile games, including the well-known Tian Long Ba Bu ("TLBB") [4] Financial Reporting - Sohu will report its first quarter 2025 unaudited financial results on May 19, 2025, before U.S. market hours [1] - A conference call hosted by Sohu's management team will take place on the same day at 7:30 a.m. U.S. Eastern Time [1]

Group 1 - Sohu.com Limited filed its Annual Report on Form 20-F for the fiscal year ended December 31, 2024, with the Securities and Exchange Commission [1] - The Annual Report is accessible on the Company's investor relations website and hard copies are available upon request [1] - Sohu is a leading Chinese online media platform and game business group, established in the 1990s by Dr. Charles Zhang [2] Group 2 - Sohu operates a comprehensive matrix of Chinese language web properties, including Sohu News App, Sohu Video App, and an online games platform [2] - The platform provides a wide array of content such as news, information, text, pictures, videos, and live broadcasting, engaging millions of users [3] - Sohu's online game business is managed by its subsidiary Changyou, which develops and operates a diverse portfolio of PC and mobile games [3]

Financial Performance - Total revenues for 2024 were approximately $598.4 million, stable compared to 2023, with a gross margin decrease from 76% to 72%[699] - Net loss from continuing operations for 2024 was $100.2 million, compared to $66.1 million in 2023, with diluted net loss per share increasing from $1.93 to $3.13[699] - Revenues from Sohu were $69.7 million for 2024, down from $83.7 million in 2023, with the number of advertisers decreasing to 1,059[718] - Revenues from Changyou's 17173.com website were $3.8 million for 2024, down from $5.0 million in 2023, with the average spend per advertiser decreasing to approximately $61,000[719] - Revenues from other services decreased to $22.5 million in 2024, down $9.8 million from 2023, mainly due to a decline in paid subscription services[727] - Operating loss for 2024 was $109.4 million, compared to a loss of $87.3 million in 2023[749] - Interest income for 2024 was $38.6 million, down from $45.2 million in 2023[751] - Brand advertising gross margin decreased to 9% in 2024, down from 20% in 2023[732] - Net loss from continuing operations attributable to Sohu.com Limited for 2024 was $100.3 million, an increase from a net loss of $65.8 million in 2023 and $17.3 million in 2022[757] Revenue Breakdown - Brand advertising revenues decreased by 17% year-over-year to $73.5 million, representing 12% of total revenues[717] - Online game revenues increased by 5% year-over-year to $502.4 million, accounting for 84% of total revenues[699] - Revenues from PC games were $359.3 million for 2024, representing 72% of Changyou's online game revenues, with TLBB PC generating $309.2 million, accounting for approximately 52% of the Sohu Group's total revenues[722] - Mobile game revenues for 2024 were $143.1 million, a year-on-year increase of $32.1 million from 2023, primarily driven by new game contributions[723] - Legacy TLBB Mobile generated $44.4 million in 2024, accounting for approximately 9% of Changyou's total revenues[723] Advertising and Market Conditions - Sales to the five largest advertising agencies comprised approximately 24% of total brand advertising revenues for 2024, down from 28% in 2023[720] - The advertising market continues to face uncertainties, which may adversely impact revenues and results of operations[702] Cash Flow and Liquidity - Cash and cash equivalents as of December 31, 2024, were approximately $159.9 million, down from $365.7 million in 2023[761] - Net cash used in continuing operating activities for 2024 was $48.0 million, primarily due to a net loss of $100.2 million[765] - Net cash used in continuing investing activities for 2024 was $113.4 million, with $1.94 billion spent on short-term investments and time deposits[768] - Cash flows from continuing operations showed a net decrease of $205.8 million in cash, cash equivalents, and restricted cash for 2024[764] - The company may require additional cash resources due to changes in business conditions and general economic conditions[762] Capital Expenditures and Obligations - Capital expenditures for 2024 were $19.9 million, compared to $18.4 million in 2023 and $23.8 million in 2022[781] - Total payments required for contractual obligations as of December 31, 2024, amounted to $34.5 million[782] - Long-term tax liabilities recorded were $211.8 million, primarily related to unrecognized tax benefits and previous business transactions[783] Accounting Standards and Disclosures - The company expects to adopt ASU No. 2023-09 for income tax disclosures, effective after December 15, 2024, and is currently evaluating its impact[788] - The adoption of ASU No. 2023-07 on segment reporting will enhance disclosures of significant segment expenses, effective for fiscal years beginning after December 15, 2023[786] - Other accounting standards adopted from January 1, 2024, did not significantly impact the consolidated financial statements[787] - ASU No. 2023-09 on income taxes will require disaggregated information about effective tax rate reconciliation, effective for annual periods beginning after December 15, 2024[788] - ASU No. 2024-03 on comprehensive income will require disclosure of specified components of costs and expenses, effective for annual reporting periods beginning after December 15, 2026[789]

Financial Performance - In Q4 2024, total revenues were $135 million, down 5% year-over-year and 11% quarter-over-quarter [8] - Brand advertising revenues were $19 million, down 7% year-over-year and 1% quarter-over-quarter [8] - Online game revenues were $110 million, down 4% year-over-year and 14% quarter-over-quarter [8] - GAAP net loss attributable to Sohu was $21 million, compared to a net loss of $13 million in Q4 2023 [9] - For the full year 2024, total revenues were $598 million, flat compared to 2023 [10] - GAAP net loss for the full year was $100 million, compared to a net loss of $66 million in 2023 [11] Business Segment Performance - Sohu Media platform revenues for Q4 were $24 million, compared to $25 million in the same quarter last year, with an operating loss of $69 million [24] - For Changyou's online game business, Q4 revenues were $111 million, compared to $116 million in the same quarter last year, with an operating profit of $48 million [25] - For the full year 2024, Changyou's revenues were $506 million, up from $485 million in 2023 [25] Market Insights - The advertising market is experiencing a decline due to macroeconomic conditions, leading to reduced spending by advertisers [38][63] - FMCG has become the top sector for advertising spend, surpassing the automotive sector [70] Company Strategy and Industry Competition - The company is focusing on enhancing user experience and content generation through technology and events [7][12] - There is an emphasis on producing high-quality games and expanding the game portfolio to include diverse types [21] - The integration of AI technologies, such as DeepSeek, is being explored to improve content generation and user interaction [45][66] Management Commentary on Operating Environment and Future Outlook - Management noted that the overall economic situation is affecting consumer spending, which in turn impacts advertising budgets [63] - There is cautious optimism regarding the application of AI technologies, although immediate benefits in marketing are not expected [66] Other Important Information - As of February 13, 2025, the company had repurchased 4.2 million ADS for approximately $52 million, with $100 million remaining in the buyback program [22][61] Q&A Session Summary Question: Insights on brand advertising business and gaming performance - Management attributed the decline in advertising to the macroeconomic situation, with advertisers spending less due to reduced consumer spending [38][63] - For gaming, management expects Q1 performance to be flat quarter-over-quarter [43] Question: Overall macro sentiment and advertising budget - Management indicated that FMCG is currently the strongest sector for advertising, with a notable decline in automotive advertising budgets [70]

Core Viewpoint - Sohu.com Limited reported its financial results for Q4 and fiscal year 2024, highlighting a decline in total revenues and net losses, while emphasizing improvements in brand advertising and online game revenues compared to expectations [2][3][11]. Financial Performance Summary Fourth Quarter Highlights - Total revenues for Q4 2024 were US$135 million, down 5% year-over-year and 11% quarter-over-quarter [3][12]. - Brand advertising revenues were US$19 million, down 7% year-over-year but up 1% quarter-over-quarter [3][12]. - Online game revenues were US$110 million, down 4% year-over-year and 14% quarter-over-quarter [3][12]. Fiscal Year 2024 Highlights - Total revenues for the fiscal year were US$598 million, flat compared to 2023 [11][12]. - Brand advertising revenues decreased by 17% to US$73 million compared to 2023 [11][12]. - Online game revenues increased by 5% to US$502 million compared to 2023 [13][12]. Gross Margin - Both GAAP and non-GAAP gross margin for Q4 2024 were 73%, down from 76% in Q4 2023 [4][14]. - Gross margin for brand advertising was 6%, down from 16% in Q4 2023 [4][14]. - Gross margin for online games was 83%, down from 87% in Q4 2023 [4][14]. Operating Expenses - Total operating expenses for Q4 2024 were US$123 million, down 8% year-over-year and 2% quarter-over-quarter [5][12]. - For the fiscal year 2024, operating expenses totaled US$542 million, flat compared to 2023 [15][12]. Net Loss - GAAP net loss for Q4 2024 was US$21 million, compared to a net loss of US$13 million in Q4 2023 [8][12]. - Non-GAAP net loss for Q4 2024 was US$15 million, compared to a net loss of US$11 million in Q4 2023 [9][12]. - For the fiscal year 2024, GAAP net loss was US$100 million, compared to a net loss of US$66 million in 2023 [18][12]. Liquidity and Capital Resources - As of December 31, 2024, Sohu had approximately US$1.2 billion in cash and cash equivalents, short-term investments, and long-term time deposits [10][12]. Business Outlook - For Q1 2025, Sohu estimates brand advertising revenues to be between US$13 million and US$14 million, indicating a potential annual decrease of 13% to 19% [25][37]. - Online game revenues are expected to be between US$105 million and US$115 million, implying an annual decrease of 2% to 11% [37].

Group 1 - Sohu.com Limited will report its fourth quarter and fiscal year 2024 unaudited financial results on February 18, 2025, before U.S. market hours [1] - A conference call will be hosted by Sohu's management team on the same day at 4:30 a.m. U.S. Eastern Time [1] - Participants can preregister for the conference call and will receive details including dial-in numbers and a unique access PIN [2] Group 2 - Sohu.com Limited was established in the 1990s by Dr. Charles Zhang and is a leading online media platform in China [3] - The company provides a comprehensive matrix of Chinese language web properties, including Sohu News App, Sohu Video App, and various online gaming platforms [3][4] - Sohu offers online brand advertising services and operates a diverse portfolio of PC and mobile games through its subsidiary Changyou [4]

Financial Performance and Key Metrics - In Q3 2024, total revenues were $152 million, representing a 5% year-over-year increase but a 12% decrease quarter-over-quarter [7] - Brand advertising revenues were $19 million, down 15% year-over-year and 6% quarter-over-quarter [7] - Online game revenues reached $128 million, up 9% year-over-year but down 13% quarter-over-quarter [7] - GAAP net loss attributable to Sohu.com Limited was $16 million, compared to a net loss of $14 million in Q3 2023 and a net loss of $38 million in Q2 2024 [8] - Non-GAAP net loss attributable to Sohu.com Limited was $12 million, compared to a net loss of $10 million in Q3 2023 and a net loss of $34 million in Q2 2024 [9] Business Segment Performance - Sohu Media and Sohu Video revenues were $23 million, down from $27 million in the same quarter last year, with an operating loss of $72 million compared to a loss of $66 million in the previous year [18] - Changyou's online game business revenues were $129 million, up from $118 million in the same quarter last year, with an operating profit of $62 million compared to $52 million in the previous year [18] Market Data and Key Metrics - The advertising market remains soft, with a gradual decline in growth rates, although unique marketing events helped achieve better-than-expected results in Q3 [22][23] - The company anticipates brand advertising revenues for Q4 2024 to be between $17 million and $19 million, indicating a year-over-year decrease of 6% to 16% [19] Company Strategy and Industry Competition - The company is focusing on maintaining user stability and offering benefits rather than aggressively increasing revenue in the gaming segment [25] - The strategy includes optimizing R&D processes and expanding international presence while maintaining competitiveness in MMORPGs and exploring new game types [15] Management Commentary on Operating Environment and Future Outlook - Management noted that the advertising market is not robust, but there are signs of potential recovery due to recent policy stimulus [23] - For Q4 2024, the company expects a non-GAAP net loss between $26 million and $36 million and a GAAP net loss between $30 million and $40 million, reflecting substantial uncertainty [19] Other Important Information - The share buyback program has been extended for an additional year to November 10, 2026, with $42 million spent on repurchasing 3.4 million ADS as of November 7, 2024 [16] Q&A Session Summary Question: Advertising outlook and budget spend - Management indicated that the advertising market is steady but gradually losing growth, with unique marketing events contributing to better-than-expected results [22][23] Question: Gaming guidance and revenue performance - The revenue beat in Q3 was attributed to new content and servers for TLBB Vintage and regular TLBB PC, with conservative guidance for Q4 aimed at maintaining user stability [24][25] Question: Share buyback execution - The buyback program's slow execution is due to daily trading volume limits, necessitating the extension of the program to 2026 [26]