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

Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining Sohu's third quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be question and answer session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I'd like to turn the conference over to your host for today's conference called, Huang Pu, Investor Relations Director of Sohu. Please go ahead. Thanks, Wushuang. Thank you for joining us to discuss Sohu's third quarter, September 26th results. On the call are Chairman and Chief Executive Officer Dr. Charles Zhang, CF General Liu, and Vice President of Finance James Deng. Also with us are Chang Youssef, and CF Yao Binghua. Before Martin begins his prepared remarks, I would like to remind you of the 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 forelooking statements. These statements are based on current plans, estimates, and projections. Therefore, you should not place any reliance on them. Forelooking statements involve key risks and uncertainties. We caution you that a number of important factors could cause X results differ materially from those containing any following statements. For more information about the potential risks and incentives, please refer to the company's findings with the Securities and Exchange Commission, including the most recent annual report on Form 20F. With that, I will now turn the call over to Dr. Charles Zhang. Please proceed. Thanks, Huangfu, and thank you for everyone for joining our call. In the third quarter of 2026, our marketing services revenues hit the high end of our guidance. Well, both our online game revenues and our bottom line performance were in line with our expectations. For the so-called social media platform, we continue to strengthen its social features through numerous iconic events, fostering genuine connections among users and boosting active user interactions across multiple verticals. We also kept leveraging our integrated product matrix with innovative and customized marketing solutions to unlock monetization potentials for our customers, for our clients. For our online games, we continue to introduce fresh content to sustain player interest while offering tailored gameplay experiences to meet evolving player needs. Before going through each business unit in more detail, first I'll give you a quick overview of our financial performance. Please be advised that these release relate to continuing operations only. For the third quarter, 2026, total revenues were $133 million, down 26% year over year and 2% quarter over quarter. Marketing services revenues were $15 million, up 10% year-over-year and down 2% over quarter-over quarter. Online game revenues, $114 million, down 30% year over year and 2% quarter- over quarter. Gap net loss attributable to Solve.com Limited, $15 million, compared with the net income of $9 million in the third quarter of 2025 and net income of $20,000 in the second quarter of this year. Non-gap and net loss attributeable to Solv.com limited was also $15,000, compared with the met income of nine million dollars in the 3rd quarter of last year and a net income of $500,000 in the second part of this year. Now I'll go through our key businesses in more detail. First, Sohu social media platform. We continue to refine our products and technologies to enhance user experience across various scenarios, promote the generation and distribution of premium content, and to strengthen the Sohu features of our platform. we hosted diverse online and offline events which effectively sparked by vibrant interactions among users across multiple verticals and further supported the striving development of the social ecosystem of our platform for example in september 2026 autumn convention of social media influencers took place in beijing with genuine social networking at its core we invited celebrities and broadcasters in diverse verticals ranging from popular interests to professional fields. We provided them with opportunities to share ideas and build social connections which greatly enhanced interaction engagement in our platform. The convention was well received by broadcasers and users and it continued to expand our brand influence further to promote and deepen also authentic social connections among our users also in this quarter we continued with the 2026 dancing central festival when real without that and 2026 model of competition with higher professional standards and a broader international outlook both compare competitions to large numbers of issues worldwide to participate and interact both online and offline earning widespread recognition they have become significant events that not only consistently generate premium content but also stimulate social connections and vitality non-platform in addition to banking and hubble we proactively expanded into other online interest communities and foster a vibrant and dynamic atmosphere on our platform moreover in In October, we launched the so-called video American TV Series Month, during which we presented audiences with a wide selection of classic TV dramas, films, and variety shows. At the end of October, we hosted its highlight event, the Halloween American TV series cosplay party, bringing online and offline participants and exclusive carnivals that combine in a rich lineup of our premium content covering years, topics with lively social interactions. Earlier this November, Charles' physics class marked its fifth anniversary since its launch in 2021. It had broadcast around 300 live sessions and conducted nearly 40 offline seminars featuring in-depth explanations of physics principles and advanced discussions with most prominent physicists. Together with Charles' English class, these two IPs have consistently disseminated professional knowledge and news events to the public, bringing them closer to science and cutting-edge developments. We have attracted a large number of professional broadcasters to encourage them to contribute and connect on our platform, further strengthening our unique competitive advantage in knowledge and science-related live broadcasting. Benefiting from our long-standing brand influence and profound understanding of the market, we were able to precisely identify the advertisers' needs with customized marketing solutions and help them to expand their brand influence. Leveraging our distinctive and differentiated IPs, we gained higher recognition from advertisers and secured more advertising dollars. Next, turning to our online game business. During the quarter, our online games business performed well, with revenues in line with our prior guidance. In our PC game business, we launched a Qixi Festival themed content and gameplay for regular TLBB PC and TLBB Vintage. We also introduced game content for a regular TOBB PC, designed to deliver a more streamlined, low-pressure gameplay experience, which effectively improved the player engagement. In addition, we rolled out crossover content for TOBB Return. During the excitement among users, players, moving on to our mobile game business, we launched new expansion packs in the festival events for legacy TLVB mobile, helping maintain stable player engagement. Next quarter, we will continue to release expansion packs and content updates for the TLV series and other titles to keep players engaged. Looking ahead, we'll remain committed to our top game strategy. On the product development front, we continue to optimize our R&D processes. Implement advanced technologies and enhance the R&D capabilities through continuous experimentation and validation, striving to bring more high-quality games to players. Regarding our pipeline, we seek to further unlock the potential of our TLBD IP. Meanwhile, as we can maintain our competitive edge in MMORPGs, we will keep diversifying our portfolio with multiple game journals and expanding our product offering with global appeal. Now, I'd like to provide an update on the ongoing share purchase repurchase program as of November 5th, 2026, this year, SOHO has repurchased 10.1 million ADS shares for an aggregate cost of approximately $134 million. With that, I will now turn the call over to, for example, Jenna. Thank you, Charles. I will then work you through the key financials of our major segments. For third quarter of 2026, all numbers on a non-GAAP basis. You may find a reconciliation of non-GAP to GAAP measures on our website. For social media platforms, quarterly revenues were $19 million compared with $70 million in the same quarter last year. Quarterly operating loss was $74 million compared with the operating loss $71 million in the same quarter last year. For Chang'e, quarterly revenue $150 million compared with $163 million in a same quarter. Last year quarterly operating profit was $59 million compared to with the operation profit $88 million in same quarter, last year For the fourth quarter of 2026, we expect marketing service revenues to be between $30 million and $40 million. This implies annual decrease of 18% to 24% and a sequential decrease of 6% to 13%. Game Revenues to be between $111 million and $121 million. This implies annual decrease of 8% to an annual increase of 1% and a sequential decrease of 3% to a sequential increase of of 6%. Both non-GAAP and GAAP net loss, attributable to Soho.com Limited, to be between $70 million and $27 million. This forecast reflects Soho's management's current and preliminary view, which is subject to substantial uncertainty. This concludes our prepared remarks. Operator, would now like to open the call to questions. Thank you. We will now begin the question and answer session. To ask a question now, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. A moment for our first question. And our first questions comes from the line of Thomas Chong at Jefferies. Please go ahead, Thomas. Your line is open. Hi, good evening. Thanks, management, for taking my questions. I have three questions. The first question is about the marketing services. We are actually seeing brand advertising revenue in Q3 is in line with guidance. When we look into the Q4 brand advertising revenue guidance, it represents a softness on sequential and also softwares on a year-on-year basis. Are we actually seeing the advertising sentiment getting worse so far according to date? And how should we think about the 2027 outlook? So that's on the advertising side. And then my other question is on the gaming side. How should we thinking about the impact coming from AI, short drama, to gaming sector and Changyong. And my final question is about the shared buyback. How should we think about the share buyback going forward? If I remember correctly, the buyback program will be ended very soon. So, we have any new plans on that front? Thank you. Okay, Thomas. So, your three questions, I will answer the first one and the third one, and then tell those people to know and we'll answer the second one. So, the first is about the advertising, right? So, in Q3, the advertising and marketing services are in line. While in Q4, it seems kind of soft, right. It doesn't, it does not mean that there's any trend of the marketing, you know, It remains the same or stable, it's just that the, some of these projects just happen to concentrate, you know, in Q3 instead of Q4. So in Q4 some of the projects were less, less projects in Q form. You know, as we are, you know, our, we have this market, marketing services that depend on the kind of events and the projects. So, it's just, and also in Q4 there's the, this year, the W11, W11 events seems not as robust as this year the e-commerce side so yeah that's kind of so in Q4 advertising is kind of soft or weak and then about 2027 so since we have some a relatively small base of the item or the banking service numbers, you know, it's not that significant. So, whether in 2027 we'll gain growth or, you know, really depend on whether, you know, the, depend on the success of, you know, of our social network that we've been which is recently announced that we are really working on this social network so if we have a you know a rapid growth of our social network user base we will expect at a time and the market services to grow faster um the third question about buyback we've been uh we we finished with that 150 million buyback uh program we finished we've been about 134 million dollars right and it's still 60 million dollars left we'll continue to finish that and and uh until when we finish soon we'll have our new and we'll think more now we have you still don't have to have the new product, new program to buy back yet. All right. Okay, technology, I'm getting questions from the gentleman. Okay. 首先AI短劇和游戏确实存在竞争关系,因为本质上它们都在争夺用户的休闲时间。 There is some level of competition between short dramas and the gaming, because by nature they are all aiming at the entertainment of users' time. We can feel the trend from the user research that we have done in recent years. And to deal with that, we've made a lot of adjustments and new versions of our games. The main focus is to make them lighter weight and to reduce the time burden of the users. which turned out to be effective. 第二点,AI短距和游戏还是会有不同, 因为它给用户提供的体验是有不同的。 There is still a difference between AI drama and gaming because they offer users different experiences. AI短短给用客提依的是被动的和单人的体现。 AI dramas offers the users passive and single-person, the experience within only a single person. While gaming offers players interactive and multiplayer experiences. So we believe there is some level of competition, but AI drama will not take place gaming. Thank you. Thank you Thank you All right All right Thank you We will move to our next question and our next question comes from the line of Alicia Yap at Citigroup. Please go ahead Alicia, your line is open. Hi, good evening. Thanks for taking my questions. I have a couple of the follow-up. First is that can you elaborate a little bit in terms of the impact of the short drama to the beginning? Do you think this is just the beginning of potentially more impact that could be coming? Second is that how do you, you know, describe in terms of, you know, the competitions or the impact, the negative impact that you are seeing from the gamers? Is it more as the time spent or is it more that the gamers now becoming less interest on playing games but they're just more attracted to because the content on the short dramas are more interested or it's just more the casual users are being attracted away. So if any more details about how you have been observing on this impact would be helpful. And then second is that I wanted to follow up on the advertising. Can you remind us a little bit why, you know, doing 4Q and the single stage, but so who is not a beneficiary? and also if you could also give us the breakdowns on the third quarter in terms of the vertical that contribute to your advertising revenue in the third quarters in terms off the ranking. Thank you. So it's kind of still about the impact of the AI, right? Short form, AI short form. I think just now management mentioned short drama has some impact, so we just wanted to know a little bit more detail about what you have observed for your gamers. is a transient or long-term is that what you're asking i'm not very clear is that uh is what charles just mentioned is the question you asked alicia oh um no so i think uh both uh both but two is uh short-term and long-time for example 现在我们看到的具体影响到 主要是比较casual的用户呢 还是说这种比辆core的用复也是受到影哌 第二呢就是说如果长期点看 您觉得这个是刚刚开始的一个影哉 后续的游戏会有更严重的影哺呢 还是你觉得其实要影�祥的程度 已经差不多了,可能就是那种casual玩家会过去,然后比较忠诚的这种老用户其实还是会留在玩游戏的,就想问一下就是一些短期跟长期啊。 应该是休闲还是重度玩家的影响对于休闩还是重部产生影哌,我确实不知道,但是从我的感觉来说应该 I think it's a long-term impact, but I think the severity of it should be almost the same. Because the average daily market of AI short-term users is a little more than two hours. I don't think it can go any further. The other thing I would like to say is that the short-term experience of the user is different from that of the game. So I think it will affect and take up the user's time, but no one can replace anyone. It is a long-term, maybe shared state. I'll translate the answers. As for whether it impacts the casual or the hardcore games, Well, to be honest, we are not sure. But intuitively, I think the AI dramas impact them both. And it will be a long-term impact. But we believe the impact won't be much harder because for now, the average daily time that users for AI drama spend is almost two hours a day. More than two. More than three hours a week. More than four hours a month. So, we don't think there's still much space for that to grow. Meanwhile, we believe, as we just said before, AI drama and gaming provide with players, provide with users different experiences. They impact each other, and AI dramas will take the time of a user's gaming time, but they cannot take place of each other. So, in the longer term, we'll believe they will coexist, yeah. Alisha, I have a question for you. In the United States, is AI a mainstream technology? What is the situation in the United states? Do you know that in the U.S. it has not yet become mainstream? I think in the US, it is not mainstream, 但是很多不是玩游戏的人其实是在看短剧的 就是那种可能时间比较多的人 不像在国内这么主流 其实increasingly也是会变成主流 感觉上只是说现在渗透率可能没有很高 但是我觉得有看的人 其实他花的时间还是蛮长的 对,孙头你不是很大 我不觉得会在美国成为主流 好吧,那挑一步 All right, your question about the second, the atom piping about the category, right? Yes, yes We see, actually we see, you know, an increase of the auto industry now in Q3 have 42% of the total and FMCG decreased a little bit to 17% and IT 12% and the as I explained earlier that the Q4 is soft because because the basic model you see the you know kind of swing right up and down is it depends on some number of projects you have one product you know some projects uh uh marketing projects uh move from q4 to q3 across the date you know the deadline uh then then you have a better q3 than q4 right so it's so it happened to be that there's a lot of projects that happened in q3 and then uh that's That's why Q3 has been better and Q4 is soft. But also it's saying that actually we changed the name to so-called the marketing services revenue because the country with the self-media and the social media and the landscape of Chinese Internet, the traditional advertising campaign is becoming less and less while people with this slow economy and people are very cautious, they always want to maximize their dollars and maximize the marketing effect of their dollars a month. So they actually favor this involvement of our advertising and marketing solutions from a more comprehensive, multidimensional, I would call it, solutions like projects with offline events, with live streaming, with KOL, with discussion forum, and also the viral uh spread or a certain you know situation on the internet so it's kind of more creative marketing than the previous heart for advertising so that's actually that's what we're doing the better or best so that that's why we can you know maintain basically uh still a lower small base but still stable or sometimes even uh some growth of advertising and i hope i think as our our social network uh if we are successful or we are continuing to it would be it would be successful to build up our a social media network and and again again with the rapid growth of user base we expect this kind of marketing services will uh you know will be be more popular, training higher. Okay, all right, thank you. Thanks, Charles. Thank you. I am 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.