Actionable news
0
All posts from Actionable news
Actionable news in SOHU: Sohu.com Inc.,

Edited Transcript of SOHU earnings conference call or presentation 31-Jul-17 12:30pm GMT

Q2 2017 Sohu.Com Inc Earnings Call

Beijing Jul 31, 2017 (Thomson StreetEvents) -- Edited Transcript of Sohu.Com Inc earnings conference call or presentation Monday, July 31, 2017 at 12:30:00pm GMT

================================================================================

================================================================================

Sohu.com Inc. - Founder, Chairman, CEO, Lead Director and Chairman of Changyou.Com

* Eric Yuan

* Joanna Lv

Sohu.com Inc. - Acting CFO

Sogou Inc. - CEO and Director

================================================================================

================================================================================

* Alicia Yap

Citigroup Inc, Research Division - MD and Head of Pan-Asia Internet Research

* Eddie Leung

BofA Merrill Lynch, Research Division - MD in Equity Research and Analyst

* Han Joon Kim

* Jialong Shi

Nomura Securities Co. Ltd., Research Division - Head of China Internet and Media Research and VP

T.H. Capital, LLC - Founder, CEO, and Senior Analyst

* Yue Wu

================================================================================

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's Second Quarter 2017 Earnings Conference Call. (Operator Instructions) Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference over to your host for today's conference call, Mr. Eric Yuan, Investor Relations Director of Sohu. Please go ahead, sir.

--------------------------------------------------------------------------------

Eric Yuan, [2]

--------------------------------------------------------------------------------

Thanks, operator. Thank you for joining us today to discuss Sohu's second quarter 2017 results. On the call, our Chairman and CEO, Dr. Charles Zhang; Acting CFO, Joanna Lv. Also with us today are Changyou's CEO, Dewen Chen; CFO, Jasmine Zhou; Sogou's CEO, Xiaochuan Wang; and CFO, James Deng.

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 in this conference call are 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 containing 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 its registration statement and the most recent annual report on Form 10-K.

With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed.

--------------------------------------------------------------------------------

Charles Zhang, Sohu.com Inc. - Founder, Chairman, CEO, Lead Director and Chairman of Changyou.Com [3]

--------------------------------------------------------------------------------

Thank you, Eric. Thank you, everyone, for joining the call. Sohu delivered better-than-expected revenue growth in the second quarter, driven by solid performance from Changyou and Sogou.

Group revenues totaled $461 million, up 10% year-over-year and 23% quarter-over-quarter. The highlight of the quarter was Legacy TLBB, our new mobile game that is a big hit and ranked as one of the top grossing games in China between its launch in mid-May and end of the quarter.

Sogou's financial results exceeded our prior guidance as its mobile search growth maintained strong momentum. Our Brand Advertising business performance was relatively soft largely due to a lackluster video and ad sales. Nonetheless, for Sogou Video, we have been shifting our content focus to self-developed dramas. We expect the move to generate substantial cost savings and improve our bottom line results in 2018.

Before I give more details about our key businesses, let me summarize our financial results for the second quarter. Total revenues were $461 million, up 10% year-over-year, 23% quarter-over-quarter. These results were largely negatively affected by the depreciation of the RMB. On a constant currency basis, total revenues would have been $23 million higher or an increase of 15% year-over-year.

Net brand advertising revenues, $86 million, down 24% year-over-year and up 6% quarter-over-quarter. Sogou revenues, $211 million, up 20% year-over-year and 30% quarter-over-quarter. Online game revenues, $122 million, up 23% year-over-year and 43% quarter-over-quarter. Non-GAAP net loss attributable to Sogou.com Inc. was $72 million or a loss of $1.85 per fully diluted share.

Now let me go through some of our key businesses. First, our media business. For our media portal business, Sohu News APP and Sohu H5 Portal, our 2 key mobile products for us, we strive to continuously upgrade their features and enrich the content offering in order to grow our user base in a very competitive market.

In the latest version of Sohu News APP, we introduced a greater number of short-format video clips into the main information stream and improved the functionality so that users can more easily interact with third-party writers. We have also applied machine learning technology to refine the algorithm to push more targeted and relevant stories to our users.

In terms of monetization, revenues from large brand advertisers remained soft, while demand for our small medium enterprises content customers were solid. We expect that SME segment will be a key growth driver as we continue to develop a more sophisticated advertising system that specifically serves their needs.

Now moving to Sohu Video. In the beginning of 2017, we made a critical decision to overhaul our content strategy that we would focus on self-developed dramas going forward in the time when the price of premium TV dramas, [the head content,] keeps escalating. We believe the traditional ad-supported model doesn't work since the revenue -- ad revenues don't keep up with the pace of the cost inflation. We decided to pursue a different approach that we will nearly expand our resources, our original content and drive our subscription base.

And production cost of our original shows is on average only about 20% to 30% of top-tier head TV content, TV dramas. This is partly because we don't need to pay very expensive stars in original shows to attract audience. Instead, we can focus on selecting superior screenplays, hiring young and talented directors and actors and [reaching a] standard of production, quality of filming.

In many cases, the popularity of our original dramas have been as good, if not better than TV dramas, which costs us much more additionally because original dramas are exclusive for our platform. We cannot only generate ad sales, but also bolster our subscription-based revenue.

In the first half 2017, we broadcasted top original dramas, of this (foreign language), The [Souls Teacher;] and (foreign language), Men with Swords; and (foreign language), Reborn a Monk, were quite popular. We have stronger lineup in the pipeline for the second half, like Dear Prince, (foreign language); and the (foreign language), The Monster Killers; and (foreign language), Campus Beauty. So for 2017, the total number of original dramas will reach nearly 30, which is about 20% more than last year. The growing library of our original content should lay a solid foundation for expanding our user subscriber base.

Financially, since early this year, we have stopped chasing expensive domestic TV dramas that are scheduled to release next year. Consequently -- confidently, we expect our overall content costs will be meaningfully lower in 2018. This savings, combined with the ramp-up in subscription revenue will help cut the losses of Sohu Video.

Next, moving to -- moving over to Sogou. In the second quarter, Sogou search traffic and revenue growth were healthy. We continue to invest heavily in various artificial intelligence related, AI-related initiatives for current product portfolio and also for our long-term ambitions. Xiaochuan will update you on more details in his remarks.

Lastly, let me talk about Changyou. In the second quarter, Changyou's financial results were quite solid, helped by the success of our new mobile game, Legacy TLBB. Since its debut in mid-May, legacy TLBB is consistently ranked among the top-grossing games in the market, demonstrating Changyou's ability to develop top-quality MMORPG mobile games.

In the meantime, we are aware that the life span of mobile games are shorter compared with PC games. To maximize the longevity of Legacy TLBB, we'll continue to invest in [plays] and social systems.

In terms of overall mobile game strategy, our main focus is still on MMORPG games and advanced casual games and SLG games. We'll soon be presenting to the market a more diversified portfolio centered on these 3 genres. In the pipeline, we plan to launch mobile game Blade Online (foreign language), at end of the year, which is another game that we have adapted from PC to mobile. PC -- Blade Online PC game was launched as early as 2004 and enjoyed very loyal following along the way. In addition, new MMORPG games such as (foreign language) and (foreign language) are planned to hit the market by late 2017 or early next year, 2018.

So now let me pass the call over to Xiaochuan Wang for an overview of our Sogou business. Xiaochuan?

--------------------------------------------------------------------------------

[Foreign language) Thank you, Charles. In the second quarter, benefiting from strong mobile traffic growth and a reviving search advertising market, Sogou saw its growth back to the fast lane. Revenues totaled RMB 1.45 billion, up 26% from a year ago, exceeding our prior guidance and continuously outpaced the industry growth. As of June, aggregate search traffic grew by 24% from a year ago, of which mobile traffic jumped over 50% and represented nearly 80% of the overall traffic. This kept our market share in an upward trajectory.

On Sogou Mobile Keyboard, our market-leading Chinese input application, our user base continued to expand rapidly. According to iResearch, the user base of Sogou mobile keyboard increased by more than 70% over the past year, solidifying our position as the #3 mobile application in China in terms of DAUs.

(foreign language) During the second quarter, we continued to promote AI-empowered technology and product innovation. We integrated our proprietary AI technologies like question-and-answer, voice and machine translation into our core product, including Sogou search and Sogou input method. Our strong Q&A-based search capability, which caters to the increasing amount of search queries in question format provides direct answers to users instead of only displaying links. This has greatly improved user experience on mobile search.

For voice, in the second quarter, Sogou Mobile Keyboard supported 260 million voice inputs on a daily basis, up more than 80% from a year ago. For machine translation, our Sogou English search channel, we are able to fully translate English web pages into Chinese. And on Sogou Mobile Keyboard, we can convert user's voice into text input from Chinese to English. In May at WMT, Workshop on Machine Translation international academic competition, Sogou won the global championship for Chinese-to-English machine translation.

(foreign language) Our partnership with Tencent on product cooperation also progresses well. For example, Sogou Baike, one of the largest online encyclopedias in China, now provides exclusive content for search function within Weixin. Sogou's machine-based Q&A capability also provides technical support to Tencent Cloud Xiaowei, a smart device -- a smart services open platform.

(foreign language) Financially, our total revenues in the second quarter reached $211 million, up 20% year-on-year and a 26% increase in RMB terms. Mobile search revenues accounted for 76% of total search revenues compared with 49% last year. GAAP net income was $23.5 million, compared to $33 million net income, excluding a one-off item from the same period in 2016.

I will now turn the call over to Joanna, who will walk you through group financials.

--------------------------------------------------------------------------------

Joanna Lv, Sohu.com Inc. - Acting CFO [5]

--------------------------------------------------------------------------------

Thank you, Xiaochuan. I will walk you through the key financials on our 4 major segments for the second quarter of 2017. The profit and loss numbers mentioned below are all on a non-GAAP basis. You may find a reconciliation of Sogou and Changyou's non-GAAP net income result to GAAP measures on Sogou's IR website. For Sohu Media Portal, in the second quarter, revenues were $42 million, down 12% year-over-year. The quarterly loss was $10 million compared with net loss of $50 million in the second quarter...


More