Q3 2026 Sohu.com Limited Earnings Conference Call - SOHUCOM LTD

Financial Performance:

• Third quarter 2026 total revenues were $133 million, down 26% year-over-year (YoY) and 2% quarter-over-quarter (QoQ).
• Marketing services revenue reached $15 million (up 10% YoY, down 2% QoQ); Social media platform revenue was $19 million (down from $70 million YoY).
• Online game revenue was $114 million (down 30% YoY, down 2% QoQ).
• The company reported a GAAP net loss of $15 million attributable to Solv.com Limited, compared to a net income of $9 million in Q3 2025.
• Non-GAAP net loss was also $15 million.
• Operating loss for social media platforms widened slightly to $74 million (from $71 million YoY).
• Operating profit for online games declined to $59 million (from $88 million YoY).
• Share repurchase program: As of November 5, 2026, $134 million used to repurchase 10.1 million ADS; $16 million remains of the original $150 million program.

Guidance and Future Outlook:

• Q4 2026 marketing services revenue guidance is $30–$40 million, implying an 18–24% YoY decrease and 6–13% sequential decline.
• Q4 2026 game revenue guidance is $111–$121 million, implying an 8% decrease to 1% increase YoY and a 3% decrease to 6% increase sequentially.
• Q4 2026 non-GAAP and GAAP net loss guidance is between $70 million and $27 million.
• Long-term growth in marketing services is contingent on the successful user base expansion of the newly announced social network.
• Game strategy involves optimizing R&D, leveraging the "TLBB" IP, and diversifying with global MMORPG titles.

Business Segments and Product Lines:

• Social Media: Strengthened social features via events like the Autumn Social Influencer Convention, Dancing Central Festival, and Model Competition; launched "Video American TV Series Month" and Halloween cosplay events; maintained high engagement with IP series "Charles' Physics Class" (300 live sessions, 40 seminars).
• Gaming (PC): Launched Qixi Festival content for TLBB PC/Vintage and streamlined content for TOBB PC; rolled out crossover content for TOBB Return.
• Gaming (Mobile): Released festival expansion packs for Legacy TLVB Mobile to sustain engagement.
• Product Pipeline: Focus on unlocking TLBD IP potential and expanding global product offerings with diverse game genres.

Market and Competitive Landscape:

• Marketing trends show a shift from traditional ads to comprehensive, multidimensional solutions including offline events, live streaming, and KOL collaborations, driven by cautious advertiser spending.
• Auto industry accounts for 42% of Q3 marketing revenue; FMCG dropped to 17%; IT accounted for 12%.
• Management views AI short dramas and gaming as distinct experiences; while they compete for user leisure time, they do not fully replace each other.
• AI short dramas are not yet mainstream in the US market, though time spent per user is high (over 2 hours/day).

Risks and Challenges:

• Advertising sentiment showed sequential softness in Q4 due to project timing shifts from Q3 to Q4 and less robust W11 e-commerce events.
• AI short dramas present a long-term competitive pressure for user attention, potentially affecting casual gamers, though core users are expected to remain.
• Revenue variability in marketing services depends on the number and timing of client projects.
• General economic caution among advertisers requiring creative solutions to justify spend.

Management Commentary and Tone:

• Management expressed confidence in the stability of marketing sentiment despite Q4 softness, attributing the decline to project distribution rather than a market trend shift.
• Tone regarding the social network launch was optimistic, positing it as the key driver for future marketing growth.
• Management remains committed to the "top game" strategy and R&D optimization to maintain competitive edge in MMORPGs.
• On share buybacks, management confirmed plans to complete the remaining $16 million of the current program before evaluating new initiatives.

Analyst Questions and Answers:

• Thomas Chong (Jefferies): Asked about advertising sentiment, AI/short drama impact, and buyback status.
  • Management Response: Q4 softness is due to project timing (Q3 concentration) and weaker W11 events; 2027 growth depends on social network success; buyback will finish the remaining balance before new plans are formulated. Regarding AI/short dramas, they compete for time but offer different experiences (passive/single-player vs. interactive/multiplayer) and will coexist.
• Alicia Yap (Citigroup): Asked about the long-term nature of AI short drama impact and marketing vertical breakdown.
  • Management Response: Impact is expected to be long-term but stable, with limited room for growth in user time spent on short dramas; casual and core gamers are both affected but gaming remains unique. Q3 marketing strength was driven by a concentration of projects (Auto, FMCG, IT), while Q4 is softer due to a lull in project deadlines.

Other Key Points:

• The company is pivoting marketing revenue classification to better reflect the shift from traditional advertising to integrated "social media and social media" solutions.
• Specific events like the "Autumn Convention" and "Halloween American TV Series Cosplay Party" were highlighted as key drivers for user interaction and content generation.
• The "TLBB" IP remains a central pillar for both PC and mobile game development and revenue stability.