Sohu.com Limited ($SOHU)

Ladies and gentlemen, thank you for standing by, and good day. Thank you for joining Sohu's First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. 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.

Thank you, operator. Thank you for joining us to discuss Sohu's Fourth Quarter 2026 results. On the call are Chairman and the Chief Executive Officer, Dr. Charles Zhang; CFO, [indiscernible] and the Vice President of Finance, [indiscernible]. Also with us [indiscernible]. Before [indiscernible] begins their prepared remarks, I would like to remind you of the coming safe harbor statements in connection with today's conference call. Except for the historical information contained herein, the matters discussed may contain forward-looking statements. These statements are based on current plans, estimates, project and progress projections. Therefore, you should not place any reliance on one. For looking forward statement, [indiscernible] they caution you that a number of important factors could cause results to differ materially from those containing any forward-looking statements. For more information about potential risks and uncertainties, please refer to the [indiscernible] filings with the Securities and Exchange Commission, including the most recent portfolio. With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed.

Thanks, [indiscernible], and thank you, everyone, for joining our call. In the first quarter of 2026, our marketing services revenue, online game revenue and bottom line performance all exceeded our previous guidance. For the social media platform, we will continue to focus on promoting a healthy and vibrant evidence here on our platform with the series of differentiated events. At the same time, we kept refining our products to cater to users' needs, leveraging our unique events and brand influence, we were able to explore new monetization opportunities. For online games, we delivered another solid quarter, driven by a wealth of high-quality content and targeted operational refinements that resonated with our different [indiscernible] player base. 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 2026, total revenues were $141 million, up 4% year-over-year and down 1% quarter-over-quarter. Marketing Services revenues down 8% year-over-year and 26% quarter-over-quarter. [indiscernible] game revenues were $125 million up 6% year-over-year and 3% quarter-over-quarter. GAAP net loss attributable to Sohu.com Limited was $4 million compared with a net income of $182 million in the first quarter of 2025 and a net income of $223 million in the fourth quarter of 2025. Non-GAAP net loss attributable to Sohu.com Limited was $4 million loss and [ $4 ] million -- loss, net loss in compared with a net loss of $60 million in the first quarter of 2025 and a net income of $261 million in the fourth quarter of 2025. Now I'll go through our key dietary more detail. First, so media platform. In the fourth quarter of 2026, we continue to integrate resources in depth and upgrade our products with [indiscernible]. The offers various practical and indices functions to optimize the legal experience, enhance viewer engagement and further promote determination of content. At the same time, we kept focusing on promoting a vigorous govern sphere in our community and fostering the prosperous platform ecosystem. Benefiting from unique off-line events, we held -- we provided either with plenty of interaction opportunities, improve the social engagement and generating abandoned premium content that was widely spread over the Internet. In March, for example, in March, we successfully held the [indiscernible] Marathon in Hong Kong and offline center of our [indiscernible] class in Hong Kong, we see that marathon attracted active participation by celebrities and broadcasters nationwide, greatly promoting total interactions on our platform. Meanwhile, the in the cloud made at a Hong Kong University of [indiscernible] bringing index physics knowledge in the -- to the public, both events were well received by audiences thereby, creating a strong synergist our flagship IP and further expanding our brand influence. In April, we hosted the 2026 spring convention of Sohu Video influencers on a, which has been held by annually for past 3 years. We invited celebrities and gather influencers from dealers fuel, including vertical power with young users such as [indiscernible] in professional fuel such as science and health. The convention created a trend for broadcasters to interact in person promoting content generation and designation during genuine social connections. During the quarter, we also launched the 2026 Sohu [indiscernible] Festival competition throughout the year and also the 2023 camp in mobile competition also a year on event further consolidate our influence and appeal in these areas, we continue to combine off-line events with online interactions and to upgrade our profile and the standard of our competition. With these efforts [indiscernible] garnered by spread attention and attractive problems into a guest with shared interest to participate and interact on our platform. We continue to leverage our unique content and live broadcasting technology while exploring new business opportunities to provide targeted marketing solution for advertisers through our innovative and customized events and campaigns such as the [ Business Cloud IP ], it's a derivative coming in influence. In fact, traffic with the platform given to analog monetization potential. Next, turning to our online game business. In the quarter, our online game business performed well with revenues exceeding our prior guidance. In our PC game business we roll out various quality events around the tender and [indiscernible] as well as the promotion events for the regulatory [indiscernible], which helped sustain stable player engagement. From holiday event, we also introduced a new full client for [indiscernible] best. It's posted clear in [indiscernible]. Meanwhile, we'll continue to update and refine [ TLBB ] return to secure its long-term by tenants. Turning to our mobile side, the mobile game business, we launched an expansion pack for Legacy [ TLBB ] mobile to celebrate the Chinese year along with the diverse online offline events, earning for this gain stayed largely stable on a sequential basis. Next quarter, we will continue to launch expansion tax and content updates for the [ TLBB ] services and other titter key players engaged. Looking ahead, we will remain committed to our top game strategy. On the product development front, we will stay being anchored in a user-centric approach and here to adhere to a systematic R&D processes while driving the implementation of new technologies to enhance efficiency and product success rate. Regarding our pipeline, we seek to further unlock the potential of our [ TLBB IT ]. Meanwhile, as we maintain our competitive edge in the MMRO RPGs, we will continue to diversify our portfolio with multiple types of games and expand our product offerings with global appeal. Now I'd like to provide an update on the ongoing share repurchase program. As of May 13, 2026, Sohu has repurchased 8.7 million [ ABS ] from aggregated cost of approximately $160 million. With that, I'll turn now the call to our CFO, Joanna. Joanna?

Thank you, Charles. I will now walk you through the key financials of our major segments for the first quarter of 2026. All the numbers on a non-GAAP basis. You may find a reconciliation of non-GAAP to GAAP measures on our IR website. Social media platform. Quarterly revenues were $16 million compared with $70 million in the same quarter last year. Quarterly operating loss was $70 million flat with the same quarter last year. For [ Changyou], quarterly revenues, $125 million compared with $18 million in the same quarter last year. Quarterly operating profit, $66 million compared with operating profit of $55 million in the same quarter last year. For the second quarter of 2026, we expect Marketing services revenue to be between $30 million and $40 million. This implies annual decrease of 10% to 17% and a sequential increase of 4% to 11%. Online game revenues to be between $104 million and $114 million. This implies a decrease of 2% to an annual increase of 8% and a sequential decrease of 8% to 17%. And both on [indiscernible] and GAAP net loss attributable to Sohu.com Limited to be between $50 million and $25 million. This forecast reflects focus 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 Instructions]. We will now take our first question. And our first question comes from the line of Thomas Chong at Jefferies.

I have a couple of questions. I think first is on our marketing services on our advertising revenue. Can management comment about how we should think about the advertising outlook in the second half and full year. And in particular, we are going to soon to have well [indiscernible]. Would this be a big positive to our advertising revenue in Q2 and Q3? And my second question is about the gaming business. Can you comment about the quarter-to-date performance so far, we are seeing in Q2. You see more likely to hit the low end or the high end of the revenue guidance? And my third question is about the earnings outlook. Given our solid performance in Q1, and we are expecting the losses to widen sequentially in Q2. I'm just wondering, is this a conservative assumption? And should we use as a benchmark to project Q3 and Q4 bottom line?

Okay, Thomas. So the first question about marketing services revenue, right? Q2 forecast, as Joanna said, it's going to be [indiscernible], but sequential growth compared with the Q1. First of all, the overall economy situation is kind of in the downturn in economic situation. And the advertisers are -- tend to be cautious in spending we are able to maintain some growth because we have our unique and differentiated marketing solutions events, especially we can take advantage of our growing to the network and also influencers and also some IPs like in my own [indiscernible] and the off-line events like the [indiscernible] competition and [indiscernible]. We have is quite unique tailor-made or customized marketing spend based on what is available like our own platform and also its activities. So you're -- so your next question is about the overall year outlook or from the Q2. I think we'll be siting right -- last year about the -- again, right, the game or the first quarter is good. And then for the sake time, you want to that second part last is at the low end or half end, right?

[Interpreted] So far, the performance of the second quarter is largely in line with our expectation. And the level of revenue will largely depend on the performance of the content and activities were planned to roll out for our [ TLBB ] series game to see whether they can satisfy users' needs. So far, we believe it is in line with our expectations. Also, as we plan to roll out fewer promotional and revenue booking activities in the second quarter, so we expect our gaming revenue to experience a natural decline.

So the game TLB return that was in Q1 did have impact by Q3 revenue decline in the year-over-year ones. [indiscernible]. So you have a third question, Thomas? [indiscernible] all over?

Yes. On the bottom line, because of Q1, we are better than expected. But Q2, we are seeing sequential widening of the losses. So I just want to see if Q2 is a benchmark for Q3 and Q4. Thank you, Charles.

I think this year, Q2 on Q3 will be similar to last year because on the marketing services side on the platform, side, we basically about the same. We're still working on our total network and make sure that we have a larger user base so that we can have an uptake. But now still we are maintaining a stable and advertising growth. So the Q2 results or the earnings so compared with Q1 mainly because of gaming revenue cover, right? It's much less than Q1 as we just described.

We will now take our next question from the line of Alicia Yap, Citi.

I have 2 follow-ups on the earlier question. So I guess the -- you mentioned on, I think, the second quarter, obviously, the guidance. -- it is a bit weaker than I expected in terms of the sequential trend that typically we would see from the 1Q to 2Q, even though sequentially is growth. But then I think the year-over-year decline seems to be worse than the first quarter year-over-year decline. I'm just wondering is the macro getting even weaker than what you have previously expected, let's say, compared to 5 months ago in the beginning of the year. So yes, any color you can share with overall, the macro outlook? Is that worse than what you had previously expected? And then on the operating loss, I just wanted to make sure I did not hear it wrong. For this 1Q, the marketing ad business is the operating loss was $17 million. I just wanted to double check on that because I think our revenue is only like $14 million or $15 million, but then we are losing $17 million. So it seems like the expense is double of the revenue. I just wanted to make sure I heard it correctly. And then if so, then where will the money got spent? Is it mostly on the product development? Or is it on the user acquisition?

So first, let's just answer your last question about the -- well, you have a question about the loss, the margin expanding in Q1. Is that what number you're talking about? Which --

Is it $17 million, the op loss for the ad business?

$17 million over what? We don't have a [ 7 million ] operating loss.

Operating loss. Media platform, the operating losses in Q1 [ $70 million ]. Yes.

Yes. Is there I mean it's similar, right? So [indiscernible], yes.

Flat with the same quarter in the last quarter.

Similar previous quarters. Okay. So question was fair.

Yes, yes.

We didn't spend more money just as we did before the previous quarters. Mostly through -- I think well, we don't -- it's either on pet acquisition or product development -- so it's altogether because we are giving -- actually, we have 3 social network products. One is video square meter. We [indiscernible] and also have so new app and also turn that into a [indiscernible]. So -- and also for each of the products, especially for the [indiscernible], we have -- yes, we do spend some money on the user acquisition and also the team, the cost and also product lane. So it's similar to previous quarters. It's -- until we do a really -- until we have a really successful product that, I would say, explore into much larger scale. Now we -- and also considering the macroeconomic situation. So the advertising dollars will not be able to cover the cost that we are -- incurred revenue is acquisition, at $270 million per quarter.

Okay. Okay. And then on the revenue, the guidance, is that worse than you expected?

That's because the macro funds compared to last year, right? It's work than last year. Because those are also [indiscernible] companies there because of the year competition, the low margin so we are more cautious in spending less and we have to come up with a really unique events or optimists like -- so like, for example, I have to myself, I will to apply the [indiscernible] to try to expand to -- I would say give lecture about their products, the engines and on the car, why the current the better. So it's and also sometimes outline the users, our user bank forces to the forum forever -- but we have to have differentiated our unique opportunities to have a marketing solution offer to them so that we attend compared with a few years ago. A few years ago there, just with -- it's an easy decision to spend to advertise, but now very big.

I see. Just lastly, to follow up. Can you share with us? I know you mentioned auto is one of the industry vertical probably cutting back the ad futures. Any other vertical that you're actually seeing is also facing more cautious ad budgets?

It's possible all companies basically. Because just the Chinese consumers are spending less consumers are spending less. That's why those companies are not making money or need to have a good amount being good money. That's why they are actually used the reduction rather than as -- there are also a [ FMCG ] and across the board, both the --

Maybe just lastly, in terms of the first quarter on your advertising revenue contribution by industry vertical, if you can rank them by the contribution percentage?

19%. Auto industry, 19% IT services like home appliances and electronics and that's 19%. And I have a [indiscernible].

I see. Okay. I think --

There is some good signs in the IT sector because the traditional home appliances. Now because of the IT AI, they are all turning into AI product with intelligence. So that's -- we have seen a lot for new kind of products that tend to market to the market that's [indiscernible]. Like, for example, I went to the [indiscernible] and you see a lot of new the traditional home products, home applying electronics in China [indiscernible], turning really a lot of that's an opportunity.

I see. I see. And then -- so that is -- you are seeing decent budget. And then in terms of in the second quarter, should we also rank maybe you're seeing more update from the IT and then maybe [ FMCG ] also okay, but then are weaker in auto? Is that fair to assume that in the second quarter?

Yes. In the second quarter, the auto right, the -- yes. I hope with a few competition, yes, there -- and also the electric vehicle is a [indiscernible] -- more penetration of active the market is the market share. And yes, I'm going to say I'm similar, right? So also the industry is gradually, right? And now they're all trying to export more to the European market or to the lease. So domestically, the consumption in power problem. People are not spending money. Too saturated right? Because people are paying their mortgage, that's why they don't have money to spend, right? They're all paying the housing price mortgages. That's a major [indiscernible] of most -- the biggest problem is the cinema people all have debt and have to pay back their pay their mortgage. So they have time -- don't have the money to spend on other things.

[Operator Instructions]. I'm showing no further questions. And with that, we conclude our conference call for today. Thank you for your participation. You may now disconnect your lines.