Sohu.com Limited (SOHU) Q4 FY2025 Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's Fourth Quarter 2025 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.

Thanks, operator. Thank you for joining us to discuss Sohu's fourth quarter 2025 results. On the call are Chairman and the Chief Executive Officer, Dr. Charles Zhang; CFO, Joanna Lv; and the 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 inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in 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 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.

Thanks, Huang pu, and thank you, everyone, for joining our call. In the fourth quarter of 2025, our marketing services revenues exceeded our previous guidance, while our online game revenues were in line with our expectations. Our non-GAAP bottom line performance, excluding the impact of the Changyou withholding income tax reversal came in at the high end of our prior guidance. For Sohu Media Platform, we continue to improve our products and algorithms to address user needs and enhance the experiences across different scenarios. We continue to host a variety of innovative events, which generated abundant premium content, greatly promoted user engagement and enabled us to capture more monetization opportunities. For our online games, we remain committed to long-term operational excellence and continue to deliver high-quality content updates and compelling experiences to our players. Before going through each business unit in more detail, let me first give you a quick overview of our financial performance. For the fourth quarter of 2025, the total revenue, $142 million, up 6% year-over-year and down 21% quarter-over-quarter. Marketing services revenues, $17 million, down 10% year-over-year, up 25% quarter-over-quarter. Online game revenues, $120 million, up 10% year-over-year and down 26% quarter-over-quarter. After giving effect to the reversal of previously accrued withholding income tax of approximately $285 million related to Changyou, GAAP net income attributable to Sohu.com Limited was $223 million compared with a net loss of $21 million in the fourth quarter of last year -- I mean, 2024 and net income of $9 million in the third quarter of 2025. After giving effect to the above-mentioned reversal of the withholding income tax, non-GAAP net income attributable to Sohu.com Limited $261 million compared with a net loss of $15 million in the fourth quarter of 2024 and net income of $9 million in the third quarter of 2025. For the full year of 2025, total revenues $584 million, down 2% compared with 2024. Marketing services revenues, $16 million, down 18% compared with 2024. Online games revenues, $506 million, up 1% compared with 2024. GAAP net income attributable to Sohu.com Limited $394 million compared with a net loss of $100 million in 2024. Non-GAAP net income attributable to Sohu.com Limited $234 million compared with a net loss of $83 million in 2024. Yes. Excluding the reversal of accrued income tax, the 2025 non-GAAP net income is $51 million loss, right, $51 million loss, a 40% improvement over 2024. So now I will go through our key businesses in more detail. For Sohu Media Platform, we continue to refine our products and enhance algorithms to address diverse user needs in various scenarios. Through a mix of vibrant offline and online events across various verticals will continue to attract and retain a large number of users, especially younger generations. Through spontaneous and active connections and communication, we consistently improved the user experience and boosted user engagement, further strengthening their stickiness on our platform. With the above efforts, we were able to cultivate a healthy platform ecosystem with an active social atmosphere. For example, in the fourth quarter of 2025, we successfully hosted the year's most eye-catching finals for the 2025 Sohu K-pop Dancing Awards and 2025 Sohu Video Chinese Traditional custom Awards. These events received a widespread praise spark enthusiastic interaction among participants and audience and drove extensive discussions and disseminations across multiple social media platforms. These initiatives further consolidated our position as the most influential and preferred platform in these areas and boosted the vigorous development of the platform. During the quarter, we also continue to host traditional signature events such as the 2025 Sohu Fashion Awards and 2025 Sohu Finance Annual Forum. These events not only garnered significant attention, but also contributed to the continuous enhancement of our brand influence. Additionally, we held a Halloween themed American TV series, party during the Sohu Video American TV series month end of fourth quarter of 2025, which brought audiences with lots of high-quality American movies. We have -- on the TV series. We also continue to steadily expand our content library with American dramas as well as other attractive TV series, original dramas and [indiscernible] dramas to consistently drive traffic for our platform. Marking its fourth anniversary, the physics class, myself has conducted more than 270 live broadcasts over 30 offline classes and 270 online classes, multiple university seminars and published 3 books. It has continuously made physics more engaging for the general public while attracting lots of leading professional broadcasters in a variety of fields of knowledge on our platform. With this highly regarded IP, we were able to further reinforce our reputation in the field of knowledge and science-based related live broadcasts and demonstrate our commitment to being a socially responsible media platform. On the monetization side, we deeply integrated advertisers' needs with the above-mentioned events and customized marketing campaigns. We also actively explore more monetization opportunities, leveraging our deep understanding of the market. Through the dissemination of our premium content related to events, we facilitated advertisers' brand marketing while promoting the monetization value we offer. Now let me turn to our online game business. During the quarter, our online game business performed well with revenues in line with our expectations. With fewer launches of the in-game promotional activities for TLBB PC and a natural decline of our new PC game TLBB Return, online game revenues decreased on a sequential basis. In our PC game business, we raised a player level cap for regular TLBB PC, which effectively boosted user engagement. Meanwhile, we rolled out a new character development system for TLBB Vintage, providing players with fresh goals and a more engaging experience. Moving on to TLBB Return, we introduced its first new plan and continuously refine the game based on player feedback. In our mobile game businesses, we launched featured content centered on a return to classics and streamlined gameplay for the legacy TLBB Mobile. This effectively boosted player engagement and willingness to pay, leading to a sequential revenue increase. Next quarter, we will continue to launch expansion packs and content updates for the TLBB series and other titles to keep players engaged. Looking ahead, we remain committed to our top game strategy, user-centric approach, and we'll continue to deliver high-quality games to players. In terms of game development, we will adhere to sound methodologies and systematic R&D processes while driving the integration of our new technologies to enhance efficiency and product success rate. Regarding our pipeline, we're actively working to unlock the potential of TLBB IP. Meanwhile, as we maintain our core competitiveness in MMORPGs, we will continue to diversify our portfolio with multiple types of games and expanded product offerings with global appeal. Now I'd like to give an update on the ongoing share repurchase program. As of February 5, 2026, Sohu had purchased 8.1 million ADS for the aggregate cost of approximately $106 million. So we still have 1/3 to go to finish this tranche purchase. With that, I will now turn the call over to Joanna.

Thank you, Charles. I will now walk you through the key financials of our major segments for the fourth quarter and full year of 2025. All numbers are on a non-GAAP basis. You may find a reconciliation of non-GAAP to GAAP measures on our IR website. For Sohu Media Platform, quarterly revenues were $21 million compared with $24 million in the same quarter last year. Quarterly operating loss was $72 million compared with operating loss of $69 million in the same quarter last year. For the full year 2025, revenues were $75 million compared with $91 million in 2024. The full year operating loss was $283 million compared with an operating loss $287 million in 2024. For Changyou, quarterly revenues, $121 million compared with $111 million in the same quarter last year. Quarterly operating profit was $45 million compared with operating profit of $38 million in the same quarter last year. For the full year 2025, revenues $509 million compared with $506 million in 2024. The full year operating profit was $238 million compared with operating profit of $196 million in 2024. For the first quarter of 2026, we expect marketing service revenues to be between $10 million and $11 million. This implies annual decrease of 20% to 27% and a sequential decrease of 35% to 41% online game revenues to be between $130 million and $123 million. This implies annual decrease of 4% to an annual increase of 5% and a sequential decrease of 6% to a sequential increase of 2%, both non-GAAP and GAAP net loss attributable to Sohu.com Limited to be between $10 million and $20 million. This forecast reflects Sohu's management's current and preliminary view, which is subject to substantial uncertainties. This concludes our prepared remarks. Operator, we would now like to open the call to questions.

[Operator Instructions] Our first question comes from the line of Thomas Chong of Jefferies.

My first question is about advertising. When I look at the Q1 advertising guidance, it seems it is relatively soft on a sequential basis compared to historical Q1. So I just want to get some color. Is it due to macro uncertainties? And can we talk about the trend for categories like auto and IT sectors in Q1? And also on the gaming guidance, because when I look at the Q1 revenue guidance on gaming is seeing like a negative or positive Q-on-Q. And I just want to see what really drives the high end or the low end of the guidance and the trend we are seeing now. So that's my first question. And my second question is about AI. Given that I think there's a lot of industry discussion in overseas market with regard to whether AI will disrupt the online gaming sector. I just want to get some thoughts from management about whether AI is a productivity tool in gaming? Or are we actually seeing AI may disrupt the sector in the long term?

Okay, Thomas. The first question is about advertising. Your question about the Q1 softness, right? So I think it's mainly due to the seasonality because this year's Chinese New Year is kind of late. I mean, 2 weeks late, it's like in the middle of February. So companies not getting a lot of things done in January or February. The overall macroeconomic situation will remain similar to Q4. So that's why. And then the next question is about gaming, right? For gaming revenue? Yes, Q1, yes.

[Foreign Language]

[Interpreted] So since we have no new game launching in the first quarter, so the level of the revenue of the first quarter depends on the existing games performance, including such as the performance of the new content and activities that we will launch in the first quarter for TLBB PC, TLBB Return and lastly, TLBB Mobile. And so far, the performance is basically in line with our expectation.

[Foreign Language]

[Interpreted] We think so. We've been pushing the application of AI, especially in terms of the creation of game design plan, which we think is essential thing for the content production of game industry.

May I quickly also ask a follow-up question back to advertising. Charles, may I ask about how we are actually seeing the trend for different advertising categories such as auto and IT sectors. I remember in the last earnings call, we are actually seeing some softness. I'm not sure if there's any improvement for auto and IT sectors.

Yes, there is some improvement in the auto sector. It a higher percentage of the overall revenue split. So yes, because yes, there is -- so auto industry is doing better than IT and other FMCG, have a higher percentage of the total time -- I mean, of revenue.

This is Q4, we are talking about?

Yes, Q4, yes.

Our next question comes from the line of Alicia Yap of Citi.

I have a few questions. First is that I wanted to follow up on the first quarter guidance and also the 4Q. So was there any one-off revenue that were recognized in the 4Q that lead to the outperformance in the first -- in the fourth quarter? So any special ad campaign by any industry vertical that outperformed during the 4Q? And then second question is can management -- on gaming, can management share with us the game pipeline and also the major expansion pack that you plan to release for the remaining of 2026 so that we can better assess the game revenue trend for the next 3 quarters? And then last question is on your guidance, the net loss guidance. It seems like this quarter, the $10 million to $20 million net loss that you guided is a much smaller number than previously. Usually, the loss is around $20 million to $30 million range. So any particular reasons why the loss is narrower than previous quarter? And also, should we expect this trend to be consistent for the remaining of 2026?

So your first question is -- you're trying to understand why the Q4 -- there is a growth, right? And then the Q1, there's softness for the advertising, right? You were thinking the marketing campaign....

That's right. Why Q4 is stronger than your guidance, right? And then any particular special events that happened in 4Q?

No, I think the Q4, I think we are just doing better overall. The Q1 softness or the Q1 lower forecast is purely due to the Chinese New Year -- delayed Chinese New Year this year. Chinese New Year is like February 16, right? So it's like more than 2 weeks late than last year. So that advertisers, they just don't have much -- only after the Chinese New Year and after February and into March, they come back to work and start to plan for the year's ad marketing campaign, right? So it's purely due to Chinese New Year that our advertising are not doing that well in Q1. Even compared -- the seasonality, even compared with last first quarter, first quarter of 2025. But the Q4 is not because there's a major -- it's just like we're just doing better because -- well, the macroeconomic situation is still similar, it's still not very good and a lot of uncertainties. But we are just through -- there's basically a change or shift of advertising industry that the traditional advertising on those media channels, those so-called [indiscernible] is not working now. People are not spending much on that on the brand. But instead, we have the innovative marketing solutions like based on some KOL or influencer or the online and viral -- some event, offline events, live streaming, all these that actually consistent with our product development side, our user -- social media. So we have this innovative marketing solutions that differentiate us from others from the -- so that we are getting the -- adding the brand marketing -- I mean, the spending. So we're just -- especially like in Q4, we have some major events, offline events that attract advertisers and online KOL accounts and those -- it's live streaming, all these things. So it's really -- we are entering into a new age of marketing in the social media time. So I hope I answered your question. So next....

[Foreign Language]

[Interpreted] First, regarding the game pipeline, we have our card-based RPG based on TLBB IP. It's a mobile game, mid- to hard-form game. It is expected to launch by the end of 2026 or early 2027, subject to its development process and the testing results. Meanwhile, we also have several mini program, new games in development, and we will decide if we will launch the games or when to launch the games based on their development and their testing results. And for the existing games, we will launch expansion packs similar -- in a similar cadence as previous years. As for the revenue trend for this coming quarters, we can't forecast the trend right now, and it depends on the performance of the expansion pack of our older games and also depends on whether we can launch new games and the new games performance.

For the 2026, the loss -- average loss is similar, right?

Thank you for the questions. With that, that concludes the conference call for today. Thank you all for participating. You may now disconnect your lines.

Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]