Sohu.com Inc. (NASDAQ:SOHU) announced its first-quarter earnings for 2024, with total revenues reaching $139 million, a 14% year-over-year decline. Despite the drop, the figures met market expectations. Brand advertising revenues fell by 29% to $16 million, and online game revenues decreased by 9% to $118 million. The company is actively working on enhancing user experience and content for Sohu Media and Sohu Video and is exploring new avenues to expand its gaming portfolio.
Sohu also bought back 1.7 million American Depositary Shares (ADS) for $17 million, signaling confidence in its business strategy. Looking ahead, Sohu anticipates brand advertising revenue in the second quarter to be between $18 million and $20 million and online game revenues to range from $133 million to $143 million, reflecting the current uncertain macroeconomic climate.
Key Takeaways
- Sohu's total revenues for Q1 2024 were $139 million, a 14% decrease from the previous year.
- Brand advertising revenues dropped to $16 million, and online game revenues fell to $118 million.
- The company is focusing on improving user experience and content across its media platforms.
- Sohu repurchased 1.7 million ADS for $17 million as part of its share repurchase program.
- Q2 brand advertising revenue is expected to be between $18 million and $20 million, while online game revenues are projected to be between $133 million and $143 million.
- The company launched new games in Japan, South Korea, and China, leading to a sequential revenue increase.
- Sohu plans to maintain cash for marketing and development and continues its share buyback program, constrained by daily volume limits.
- The Q2 net loss guidance is wider than Q1 due to increased marketing expenses for Changyou's new game.
- Some recovery is observed in the FMCG and electric vehicle industries, but overall advertising remains cautious.
Company Outlook
- The company's guidance for Q2 reflects the uncertain macroeconomic situation.
- Sohu plans to explore new ways to meet players' needs and expand its game portfolio.
Bearish Highlights
- There is a decrease in revenue from older games.
- The Q2 net loss is expected to widen compared to Q1, attributed to increased marketing expenses.
- Overall advertising remains cautious despite improvements in certain industries.
Bullish Highlights
- Sohu's new game launches led to a sequential increase in revenue.
- The company is actively enhancing user experience and content generation on its media platforms.
- There are signs of recovery in the FMCG and electric vehicle sectors.
Misses
- The company experienced a year-over-year decline in both brand advertising and online game revenues.
Q&A Highlights
- Sohu executed a $5 million share buyback in the last three months, limited by daily volume.
- The company is hopeful for improved volume to complete its $150 million buyback.
- No increase in spending on the media side is planned for Q3.
- Recent policies in the real estate sector have not positively impacted the advertising market.
InvestingPro Insights
Sohu.com Inc.'s (SOHU) first-quarter earnings report for 2024 has brought to light several noteworthy metrics that investors should consider. According to the latest data from InvestingPro, Sohu is trading at a low Price / Book multiple of 0.37 as of the last twelve months ending Q4 2023. This could indicate that the company's stock is potentially undervalued relative to its assets, which may attract value investors.
In line with the company's report on revenue and profit margins, the InvestingPro Data reveals a gross profit margin of 75.73% for the same period, highlighting Sohu's ability to retain a significant portion of its sales as gross profit. This impressive margin underscores the company's efficient cost management and strong pricing power within its market segment.
Still, despite these positive indicators, Sohu faces challenges as noted by the InvestingPro Tips. Analysts forecast a drop in net income this year, and they do not expect the company to be profitable within the current fiscal year. Additionally, Sohu's valuation implies a poor free cash flow yield, which may concern investors focused on the company's cash generation abilities.
For readers looking to delve deeper into Sohu's financial health and future prospects, more InvestingPro Tips await at https://www.investing.com/pro/SOHU. There are 11 additional tips available, offering a more comprehensive analysis of Sohu's financial position and market potential.
To access these insights and more, consider using the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. This exclusive offer can provide investors with the valuable information needed to make informed decisions in an uncertain market climate.
Full transcript - Sohu Com Inc (SOHU) Q1 2024:
Operator: Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's First Quarter 2024 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, 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 2024 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 risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from containing annual 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 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 2024, our top line performance was in line with our expectations and our bottom-line performance exceeded our guidance despite the impact of seasonality. For Sohu Media and Sohu Video, we continue to enhance user experience by refining products and optimizing algorithms. We proactively integrated our product matrix and resources to stimulate content generation, consumption and social distribution. Meanwhile, leveraging our unique IP and differentiated advantages, we continue to host various events and campaigns, which not only stimulated users' interaction and content provision on our platforms, but also help us gain more monetization opportunities. Games delivered stable performance with revenues in line with our expectations. Before going through each business unit in more detail, let me first give you a quick overview of our financial performance. For the first quarter of 2024, total revenues were $139 million, down 14% year-over-year and 1% quarter-over-quarter. Brand advertising revenues were $16 million, down 29% year-over-year and 20% quarter-over-quarter. Online game revenues $118 million, down 9% year-over-year and up 3% quarter-over-quarter. GAAP net loss attributable to Sohu.com Limited was $25 million compared with a net loss of $18 million in the first quarter of last year and a net loss of $13 million in the fourth quarter of last year. Non-GAAP net loss attributable to Sohu.com Limited was $22 million, compared with a loss of $13 million in the first quarter of 2023 and a net loss of $11 million in the fourth quarter of 2023. Now I'll go through our key businesses in more detail. First, Sohu Media and Sohu Video. We continue to improve our products, upgrade algorithms, enhance the user experience during the quarter. We deeply integrated the Sohu News and Sohu Video apps to allow users to generate and distribute premium content across both platforms simultaneously. This resulted in a substantial addition of high-quality content to our product matrix, which in turn drove even greater content consumption and distribution. We held a variety of offline campaigns and continue to refine operations of online entries clubs in various verticals. As a result, our user metrics and interactions have steadily increased. In this quarter, we hosted various events to improve user engagement, interactions and further [indiscernible] in video social ecosystem, especially among the young generation. We successfully hosted the off-line event 2024 Spring Convention of Sohu Video influencers where users and live broadcasters in different verticals came together in person to share their perspectives and interact with each other. This event further fueled broadcasters' overall enthusiasm and the vitality on our platform. During this quarter, we also launched 2024 Sohu Video K-pop Master Class, which attracted a large number of K-pop fans and to participate in our events, generating lots of fascinating K-pop related content and widespread discussions and distributions across various social media platforms. Besides, we hosted several noteworthy events promoting handful, the traditional Chinese culture and Chinese customs, which also gained a lot of traction and recognition. We have consistently focused on building our unique IPs in the field of knowledge, live broadcasting and kept exploring innovated monetization opportunities. For example, we integrated Charles' Physics Class, myself is getting physics class for the last 3 years into the 2024 Beijing International Automobile Exhibition, which further expanded our brand influence while at the same time, increasing our monetization capabilities. To cater to the needs of advertisers, we also adopted a new approach of live exhibition as the '24 China Home Appliance and Consumer Electronics Expo in Shanghai. This not only allowed audiences to gain a deeper understanding of the product and helped advertisers to achieve better marketing outcomes, but they also highlighted the unique monetization value we offer. Going forward, we will continue to leverage the advantages of Sohu product matrix to provide differentiated marketing solutions for advertisers and drive advertising budgets. Next, turning to online game business. During the quarter, online game ad revenues were in line with our expectations. Winning our TV games business, we rolled out holiday events around Chinese New Year and Valentine Day as well as promotional events for regular TLBB PC which increased players' willingness to play not to pay. In addition to holiday events, we fully upgraded simulation game play for TLBB vantage which was quite popular among players. In our mobile games business, we launched an expansion pack for Legacy TLBB Mobile to celebrate the Chinese New Year and continue to optimize the skills of each plan, which resulted in user engagement stabilizing. Next quarter, we will launch expansion packs and content updates for the TLBB series and other titles to keep the players engaged. For new games, we launched a licensed card-based RPG New Westward Journey in the Chinese Mainland on May 16 this month. Its current performance is in line with our expectations. As gaming technology rapidly advances and the market demand becomes deeper and more diversified and our top game strategy, we will creatively explore new ways to better meet players' needs, expand our portfolio for international markets and continue to invest in professional talent development as well as content and technology innovation in order to bring more high-quality games to the market. We'll maintain our core competitiveness in developing MMORPGs going forward. We are also producing multiple types of games, including card-based RPGs, sports games and casual games, et cetera. Now I would like to give an update on -- give an update on the ongoing share repurchase program. As of May 16, 2024, Sohu had repurchased 1.7 million ADS for an aggregate cost of approximately $17 million. With that, I will now turn the call to Joanna, our CFO.
Joanna Lv: Thank you, Charles. I will now walk you through the key financials of our major segments for the first quarter of 2024. All the numbers on a non-GAAP basis. You may find a reconciliation of non-GAAP to GAAP measures on our IR website. For Sohu Media and Sohu Video, quarterly revenues were $20 million compared with revenues of $30 million in the same quarter last year. The quarterly operating loss was $74 million, compared with an operating loss of $67 million in the same quarter last year. For Changyou's online game business and the [indiscernible], quarterly revenues $119 million compared with revenue of $131 million in the same quarter last year. Quarterly operating profit was $55 million, flat with the same quarter last year. For the second quarter of 2024, we expect brand advertising revenue to be between $18 million and $20 million. This implies an annual decrease of 16% to 25% and a sequential increase of 12% to 24%. Online game revenues to be between $133 million and $143 million. This implies annual increase of 12% to 21% and a sequential increase of 13% to 21%. Non-GAAP net loss attributable to Sohu.com Limited to be between $27 million and $37 million and the GAAP net loss attributable to Sohu.com Limited to be between $30 million and $40 million. This forecast reflects Sohu's management's 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.
Operator: [Operator Instructions] Our first question comes from Thomas Chong from Jefferies.
Thomas Chong: My first question is about our advertising business. How should we think about advertising segment common quarters? In particular, we have all impact in Q3. Should we expect our advertising back to positive year-on-year growth in the second half? And that's my first question. And then my second question is about our online game guidance in Q2. Should we assume the sequential growth is mainly coming from our new license game? Or can we actually break out the contribution from a license game in Q2 that will be paid for? And then my third question is more about our capital allocation strategy. I think Charles you also mentioned that the aggregate amount that we repurchase is about USD 17 million. Just wanted to get some color with regard to our full year plan. Should we assume that any color about how much share repurchase we will do in the remainder of the year? Or should we think about the 150 million share repurchase program should be fully used up in 2 years' time?
Charles Zhang: Well, let me answer your third question first, okay? So we've been bought $17 million, and we have $150 million because of the daily volume that we can buy. So our plan is to finish -- I mean finish all the $150 million buyback and probably takes 2 years. So -- and so limited by daily volume -- daily volume trading. And so the first question on advertising, I think the -- well, the macroeconomic situation is still kind of with a lot of uncertainty. So economy -- yes, so there's some recovery in certain sectors in Q2, but not very strong and advertisers spending are kind of cautious. So we do have -- in Q2, we do have a Q-o-Q increase for brand advertising compared with Q1. But compared with last year, I'm not sure we can -- in terms of 2023, we achieved growth or leverage. Yes, still decrease, yes. It all depends on we are able to -- because we need to continue to develop our user base so that we have a scale up our user base. That's the time when we kind of achieve advertising growth. Yes. Then the second question is about online gaming and about whether there's a sequential increase.
Dewen Chen: [Foreign Language].
Joanna Lv: The sequential increase of our revenue is mainly from IP Fly High, which we launched in Japan and in South Korea at the end of March and also from New Westward Journey that we launched in May 16th in the Chinese Mainland. And at the same time, there are some -- there will be some decrease of our older games. Thomas, I think I missed the second.
Charles Zhang: Yes. So the allocation of capital, besides the buyback, we will -- we still need to have the cash level to fight better, right, to market our products and to develop our products.
Operator: Our next question comes from the line of Alicia Yap from Citi.
Alicia Yap: I have a couple of questions follow up. So number one is the follow-up on the guidance. So I understand the sequential growth in the gaming guidance. But however, I think given gaming is a high-margin and profitable business, the sequential increase in revenue and profit from gaming should support overall group profitability and why is your 2Q net loss guidance is actually wider than you delivered for the first quarter? So any color if you can share with us on the expense side, that would be great. And the follow-up questions on the buyback. I just wanted to make sure I got it correct. So I think last quarter, you mentioned you bought back about $12 million as of February -- the end of February and now that you have $17 million. So is that true that you actually executed about $5 million over the last like 3 months or so? And is it just because of the daily volume that is the limitation? Or is there anything on the money transfer or kind of like moving out the money? Is there any restrictions on that?
Charles Zhang: Just -- I think the last question, it's just the daily limit. We'd like to buy them all, right, buy back the -- to carry out over the $150 million buyback, but we can't because of daily volume limit. So yes, I think your calculation is right, right? The last 2 months, we bought $5 million back, right? Yes, we are trying to -- we hope that in the future, the volume will improve so that we can buy more, so that to finish this $150 million as early as possible. As to the Q3, right?
Joanna Lv: Because in Q2 net loss guidance is lower than Q1 is because of we spend more on marketing expense for the Changyou's new game.
Charles Zhang: Yes.
Alicia Yap: I see. So it's only for the game promotion, but nothing on like a step-up for the Video or the Media business?
Charles Zhang: We -- a few TV drama, right, that already spent, the money already spent in Q1, right? Yes. So no increase in media side spending.
Alicia Yap: I see. Okay. Helpful. Maybe can I treat in last question on also to follow up. I think, Charles, you mentioned while the macro kind of remain a little bit uncertain, but you did see a little bit -- some recovery in certain sector in the second quarter. Can you share with us which vertical or industry vertical that you actually see a little bit improvement in the second quarter?
Charles Zhang: I think FMCG is getting better with beverage and food and yes, and also the electric vehicle, I mean, electric vehicle industry. The competition is very, very intensified and people are -- because of the competition, people are forced to spend some money, although they're spending much less than before, but still there is some spending in the car auto industry, right? And overall, still advertising is still very cautious.
Alicia Yap: I see. Maybe just a quick follow-up with recent positive policy measure from the government especially on the real estate side. Do you think overall sentiment from advertiser will be improving in -- maybe in the second half?
Charles Zhang: I think that is -- in particular that is about real estate industry, right? It has nothing to do with other, right, the recent policies about the real estate. And -- but that real estate does not well -- does not reflect any not -- I don't think the people -- consumers income will be improved. So spending -- consumer spending will not be -- will not increase. So that's when consumers are not spending, but they do -- it seems they're spending a lot on traveling. Travel business is becoming -- coming back a little bit. But overall spending willingness is not as strong. So the product -- that means when people are not buying things, then the company's products will not -- you will not expect sales than advertising. So it's not direct. The recent policies does not have a direct impact, positive impact on the advertising market.
Operator: Thank you. Well, I'm showing no further questions. Thank you very much for all of your questions. And with that, we conclude today's conference call. Thank you for participating. You may now disconnect.
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