Participants

Huang Pu; Investor Relations Officer; Sohu.com Ltd

Charles Zhang; Chairman of the Board, Chief Executive Officer; Sohu.com Ltd

Joanna Lv; Chief Financial Officer; Sohu.com Ltd

Dewen Chen; Chief Executive Officer - Changyou; Sohu.com Ltd

Thomas Chong; Analyst; Jefferies LLC

Alicia Yap; Analyst; Citigroup Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's second-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 second-quarter-2024 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 the CFO, Yaobin Wang.
Before management begins their prepared remarks, I would like to remind you of the company's Safe Harbor statements in connection with today's conference call. Except for the historical information contained herein, the matters discussed on the 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 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 second quarter of 2024, we hit the high end of our prior guidance in brand advertising revenues, while our online game revenues came in well above expectations. Our bottom line performance was in line with the prior guidance.
For Sohu Media and Sohu Video, leveraged by our increasingly integrated and sophisticated product matrix, we further promoted the generation and consumption of premium content and vigorously boosted social interactions among users. Benefiting from our differentiated events and marketing campaigns, we were able to continually strengthen our brand influence and explore diverse range of monetization opportunities. Online games performed well with revenues exceeding 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 second quarter of 2024, total revenues $172 million, up 13% year over year and 24% quarter over quarter. Brand advertising revenues, USD20 million, down 17% year over year and 24% up quarter over quarter. Online game revenues, $147 million, up 24% year over year and 25% quarter over quarter.
GAAP net loss attributable to Sohu.com Limited was $38 million, compared with a net loss of $21 million in the second quarter of last year and a net loss of $25 million in the last quarter. Non-GAAP net loss attributable to Sohu.com Limited was $34 million, compared with a net loss of $18 million in the second quarter of last year and a net loss of $22 million in the first quarter of this year.
Now, let me go through the key businesses in more detail. First, the Sohu Media and Sohu Video together. We consistently optimized our products, introduced innovative features and further enhanced user experiences. We have built up a close connection among the platform's content creators, and at the same time, they are also users. And these enhancements greatly promoted a continuous generation and distribution of diversified content, improved user engagement and inspired active social interactions.
During the quarter, we focused on stimulating content innovation through various online and offline events and actively explored opportunities in developing our influential online interest clubs in different verticals. For example, the 2024 Sohu Video K-POP Master Class has attracted nationwide attention and recognition from a large number of K-POP fans. We'll follow this up by launching 2024 Sohu K-POP Dancing Festival. Last year, we also did that, so second annual event this year.
In early August, besides K-POP, we have also hosted various events related to the traditional Chinese (spoken in foreign language) costume and photography. These events have gained notable traction and recognition as younger users with same interest flocked to our flourishing online interest clubs. Meanwhile, in June, we hosted our traditional flagship event of 16th Sohu News Marathon in Shenzhen this time.
During the Marathon, entrepreneurs, sports celebrities and pop stars actively shared their ideas and their pictures by broadcasting short video clips on Sohu News app and Sohu Video app, also via social network channel. This has provided us with abundant premium content, stimulating user engagement and social interactions across our platform as well as attracting various advertisers budgets.
Furthermore, we continue to enrich our video content library by acquiring exclusive dramas, rolling out unique original content, introducing short-form dramas, short-form clips -- short-form dramas. Our original drama, Present, is Present, (spoken in foreign language); and Olympic variety show -- topic reality show, Be A Hero, (spoken in foreign language), are both well received by audiences and generated widespread discussions across various social media platforms.
Although advertisers remain relatively cautious in the quarter, thanks to our knowledge-based video platform and events and live broadcasting technology and the strong dissemination ability, we were able to strengthen our differentiated advantages and continue to explore innovative monetization opportunities.
For example, we integrated our definitive [my own child] physics class into various marketing campaigns, which were highly appreciated by advertisers. And this class helped us capture advertising budgets because through these events, we not only help audiences simultaneously comprehend the physics knowledge behind, especially the auto companies, the products, the cars, the physics knowledge behind the product, it also promoted branding for advertisers. So meanwhile, we kept integrating advertisers' needs into our traditional content marketing campaigns to maximize the monetization value we offered.
Next, turning to online game business. During the quarter, online game business performed well with revenues exceeding prior guidance as our TLBB series remained stable, while new Westward Journey, (spoken in foreign language), a licensed card-based RPG that we launched during the quarter, performed well.
In our PC game business, we launched various events for regular TLBB PC to celebrate its anniversary. We also supplemented and optimized its gameplay and the content based on player feedback. With TLBB Vantage, we introduced a team PVP event to satisfy players' demands of combat.
In our mobile games business, we launched an expansion pack for Legacy TLBB Mobile for its anniversary, updating its graphics and adding a fun strategic gameplay, which were well received by players. Next quarter, we will continuously launch expansion packs and content updates for the TLBB series, new Westward Journey and other titles to keep players engaged.
As market competition intensifies, the market demand becomes more diversified. We will forge ahead with our top game strategy, continually optimizing the R&D process, enhancing execution and expanding our international presence. In addition, we will 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 will maintain our core competitiveness on MMORPGs going forward while also seeking to make breakthroughs in multiple types of games, including card-based RPGs, sports games and casual games, et cetera.
Now, I'd like to give an update on the ongoing share repurchase program for Sohu. As of August 1, 2024, Sohu has repurchased 2.3 million ADS for an aggregate cost of approximately USD26 million.
With that, I now turn the call to our CFO, Joanna. Joanna, please.

Joanna Lv

Thank you, Charles. I will now walk you through the key financials of our major segments for the second quarter of 2024. All the numbers are on a non-GAAP basis. You may find the reconciliation of non-GAAP to GAAP measures on our website.
So Sohu Media and Sohu Video, quarterly revenues were $24 million, compared with $32 million in the same quarter last year. Quarterly operating loss was $72 million compared with an operating loss $67 million in the same quarter last year. For Changyou's online game business and the 17173, quarterly revenues are $148 million, compared with $120 million in the same quarter last year. Quarterly operating profit was $32 million, compared with operating profit $49 million in the same quarter last year.
For third quarter of 2024, we expect brand advertising revenues to be between $70 million and $90 million. This impacts annual decrease of 14% to 23% and a sequential decrease of 4% to 14%, online game revenues to be between $104 million and $114 million. This implies annual decrease of 3% to 11% and a sequential decrease of 22% to 29%. Non-GAAP net loss attributable to Sohu.com Limited to be between $30 million and $40 million, and the GAAP net loss attributable to Sohu.com Limited to be between $34 million and $44 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.

Question and Answer Session

Operator

(Operator Instructions) Thomas Chong, Jefferies.

Thomas Chong

My first question is about the brand advertising business. Can management comment about how the macro happenings affect the advertising market quarter to date? Because if I look at the guidance, we are expecting a sequential decline of 4% to 14%. Just want to get some color with regard to sectors like auto, FMCG, Internet service and property sector, how are we seeing the quarter to date so far?
And my second question is about our gaming business. Given that we are expecting our gaming business to decline by about 22% to 29%, I just want to get some color with regard to the sequential decline. Is it mainly due to Westward Journey? How should we think about TLBB series?
And my third question is about our share repurchase program. Given that we have $150 million share repurchase program, how should we think about the share repurchase in the second half, if any color?

Charles Zhang

Okay. Thank you for the question. And let me -- first of all, on advertising, the overall macroeconomic situation is not that good, it's a downward trend. So there's -- advertising is still a challenge, a big challenge because advertisers are very cautious in spending. And some advertisers tend to have the effect. Effect-driven advertising, right? You want to -- the brand side is spending less. So overall, it's not good.
But because of -- as I just said in the script report, that we've been using innovative marketing campaigns. And this platform, innovative platform to -- was able to attract some brand advertising spending so that we achieve a 24% quarter-to-quarter increase over Q1.
And of course, in Q1, the -- in Q2, the auto industry spending is more -- is going to spend more compared with Q1. And in the long run, auto industry is still, it's hopeful, It looks promising, but it's still very competitive. And there's the electric car. The EV, I think, is upcoming an increase, but the luxury cars are really phasing out of the -- probably because of price wars and everything.
So Q2, auto now have 25% of our overall advertising, and then also Internet services. So Q2, the auto spend more. And also, Q2 is an e-commerce quarter, especially, like the (spoken in foreign language) during 18th. And in the summer, the FMCG is coming out because of the hot weather and drink companies, beverage companies are spending. So that's the overall. And yeah. We -- yeah, that's the advertising situation.
About Changyou. So Chen Dewen?

Joanna Lv

(spoken in foreign language)

Dewen Chen

(spoken in foreign language)

Joanna Lv

The sequential decrease of the third-quarter gaming revenue guidance is mainly because Westward Journey, which accounts about half of the decrease. And the natural decline of other older games account the other half.

Charles Zhang

And then, about the share repurchase. We'll be -- we spent $26 million all of the -- we have a program of $150 million for that. So we'll keep the same pace in Q3 because of the limitation of the volume, the total volume, percentage volume, right, each day. That's why we're not able to purchase faster or the same pace in Q3.

Operator

Alicia Yap, Citigroup.

Alicia Yap

A few questions here. One -- number one, I wanted to follow up on the gaming question. So 3Q, the guidance obviously implying there is a sequential reversal or decline, mainly as you mentioned, half of it is driven by Westward Journey. Just wondering, will this game actually have a chance to rebound in the later quarters? Or you actually would expect after the decline, there's probably less hope for that to recover back to the 2Q level?
And then, second question is on your sales and marketing spend. Obviously, 2Q, due to the game promotion, you spent a very big number, which I think is you guided. But then for 3Q, the loss guidance, it also seems to be implying the expenses side seems to be remain quite high. So can you maybe elaborate a little bit among the expense in terms of the gross margin trend, and also the sales and marketing trend? And then just related to that, on the last question, is that any planning or initiatives for you to think about to narrow your operating loss in the coming quarter?

Joanna Lv

(spoken in foreign language)

Dewen Chen

(spoken in foreign language)

Joanna Lv

We think there's possibility for new Westward Journey to rebound because it's a licensed game. And before we have some -- we were divided out the games improvement and its development direction with a third-party developer. And recently, we have agreed upon it and the center will be around the user's experience. And we do -- we did a lot of user research. If those measures are effective, we think it should have a chance to recover. Thank you.

Dewen Chen

(spoken in foreign language)

Joanna Lv

The retention rate before 30 days are excellent, and the main problem lies in the content after 30 days. So we -- actually, we have postponed our overseas plan -- overseas release plan. And we hope we can improve the game, modify the game, solve the problem. And after that, we will release the game in the overseas market.

Charles Zhang

(spoken in foreign language)

Joanna Lv

The gross margin for online game will recover in the third quarter because the marketing expenditure and as well as the revenue sharing payments will decrease as well.

Alicia Yap

Sorry. I wanted to follow up. Any plans or initiatives to narrow the operating loss in the coming quarters?

Charles Zhang

In terms of game or the overall Sohu?

Alicia Yap

Overall business.

Charles Zhang

A lot depend on the gaming, right, spending because that's the large part, right? So if the game does not rebound in Q3, then our spending will not -- has been not that much. So gross margin definitely will improve for the gaming part.
For Sohu, I think we are at -- people often ask us about the -- with our cash, how are we going to spend our cash. Besides repurchasing of the shares, we are actually still in the battlefield, right? So we need to build a user base. And only when we have a sizable user base, that we can turn the Sohu part, the Media part to be turning profitable -- turn profitable. So we need to invest in building the products, developing the products and also acquire new users, and that's where we're going to spend. So I think the -- on the Sohu part, the gross margin will be similar, right, or we'll spend, keep spending.

Alicia Yap

I see. I see. Maybe, just slip in one last one regarding the cash position. I mean, given there is this 20% daily limit restriction, any other thinking about other shareholder return policy that's in your mind?

Charles Zhang

No, not now. Yeah, buyback. Buyback is one of -- is the main one. And then, the best one is we are very confident, we're hopeful that we are going to be successful in building up the user base, and then to turn Sohu into a profitable -- yeah, into a highly profitable company. That's the best reward for our shareholders.

Operator

(Operator Instructions) There are no more questions on the line. I would like to conclude today's conference call. Thank you for your participation. You may now disconnect your lines.