Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. 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 today to discuss Sohu's fourth quarter 2020 results. On the call are Chairman and Chief Executive Officer, Dr. Charles Zhang; CFO, Joanna Lu; and Vice President of Finance, James Deng. Also with us today 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 statement in connection with today's conference call. Except for the historical information contained herein, the measures discussed on this conference 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 risk 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. Please also be reminded that Sogou's results of operations have been excluded from our results from continuing operations; our respective adjustments to the historical statements have been made in order to provide a consistent basis of comparison. Unless indicated otherwise, the results that we talk about are related to continuing operations only. With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed.

Thanks, Huang Pu, and thank you to everyone for joining our call. For the fourth quarter of 2020 and for the whole year of 2020, we faced significant challenges with the outbreak of the coronavirus pandemic and an uncertain macroeconomic environment. However, with our continuing efforts to innovate products and technology, improve monetization efficiency, and strictly control our budgets, we're able to return to profitability as we recorded net income of USD 53 million this quarter, which greatly exceeded our previous guidance. For the whole year of 2020, excluding an additional accrual of reporting income tax made by Changyou in the second quarter, we also achieved a profit of $51 million. So for Sohu Media Portal and Video, we continue to focus on generating and distributing real-time and reliable news and premium content, and strengthened our competitiveness and credibility as a mainstream media platform. We consistently upgraded our live broadcasting technology, integrated it into the Sohu product matrix, and applied it widely to various content marketing events, which further enhanced the overall value of the Sohu Media Portal and Video. Benefiting from our continuous efforts, our brand advertising revenues reached the high end of the previous guidance for Q4. And for Changyou, thanks to the solid performance of some special servers for TLBB PC that were launched during the quarter, the online games business performed well as revenue exceeded the high end of our guidance by a lot. For the fourth quarter of 2020, total revenues were $253 million, up 34% year-over-year and 60% quarter-over-quarter. Brand advertising revenue was $42 million, flat year-over-year and up 2% quarter-over-quarter. Online game revenues were $196 million, up 49% year-over-year and 94% quarter-over-quarter. GAAP net income from continuing operations attributable to Sohu.com Limited was $47 million compared with a net loss of $29 million in the fourth quarter of 2019 and a net loss of $15 million in the third quarter of 2020. Non-GAAP net income from continuing operations attributable to Sohu.com Limited was $153 million for Q4 compared with a net loss of $6 million in the fourth quarter of 2019 and a net loss of $7 million in the third quarter of 2020. For the whole year of 2020, total revenues were $750 million, up 11% compared with 2019. Brand advertising revenue was $147 million, down 16% compared with '19. Online game revenues were $537 million, up 22% compared with 2019. Excluding the impact of additional accrual of reporting income tax recognized by Changyou in the second quarter of 2020, GAAP net income attributable to Sohu.com Limited was $33 million compared with a net loss of $157 million in 2019. Excluding the impact of the additional growth of the withholding income tax I've mentioned, non-GAAP net income from continuing operations attributable to Sohu.com Limited was $51 million for 2020 compared with a net loss of $128 million in 2019. Now let me go through some of our key businesses. First, Media Portal and Sohu Video. For Sohu Media Portal, in the face of the COVID-19 pandemic and the challenging macroeconomic environment, we continue to innovate our products, upgrade our technology, and keep refining our content distribution features by stimulating content generation and user interaction. We were able to further enhance our credibility by reflecting the attitude and the core values of Sohu. For Sohu Video, in 2020, we continue to execute our team engine strategy. For long-format content, we successfully rolled out new original idol romance content, Well-Intended Love, and My Dear Lady, which were both well received by audiences. Thanks to the high-quality content and the better operating efficiency, our subscription revenue increased significantly during 2020. Despite delays in shooting new dramas as a result of the outbreak of COVID-19, we currently have several original dramas in our pipeline that will be steadily rolled out in 2021. Most of them were filmed in the later part of 2020. For short-form content, the other part of our 2020 strategy, we accelerated the deployment of valuable live broadcasting areas such as medical health. We're glad to see the live streaming technology advancements that we have achieved. We deeply integrated our unique live broadcasting technologies such as the multi-person microphone relay feature with our products on the platform and widely expanded the live broadcasting landscape. We proactively applied this advanced technology across various creative activities, including large content marketing events, valuable live broadcasting, and live e-commerce backhaul, enabling users to interact with each other in real time, whenever they are. During this past quarter with this live broadcasting technology, we successfully executed high-end deals like Plus 1 Plus 1 and also the e-commerce best selections by celebrities and several traditional flagship events such as the Sohu Fashion Awards and the Sohu Finance Annual Conference. These events not only attracted a lot of attention in real time in terms of content, but also helped to build even more attraction upwards and also attract advertisers. These events greatly reinforced our brand influence and helped to effectively secure high budgets from advertisers. Next, let me turn to Changyou. For the fourth quarter of 2020, we launched some special servers for TLBB PC that use a memorable early version of the game for content. We're calling this TLBB Vintage. And thanks to its exceptional performance, online game revenue exceeded the high end of our guidance. For PC games, TLBB Vintage helped us to draw back many players that we lost over the years who love and still feel nostalgic for the experience from years ago. We built up a lot of excitement around the launch, and the efforts helped to significantly boost in-game spending. Meanwhile, Changyou also upgraded regular TLBB PC by introducing, for the first time, a capital city map in which players from old servers can interact freely, and we're redesigning the cross-server client wall system. For mobile games, Changyou launched a new expansion pack for Legacy TLBB Mobile that featured the addition of new plan and other creative cultural content, which helped keep player engagement stable. Next quarter, Changyou will further optimize TLBB Vintage based on user feedback, and then we'll also unveil a variety of holiday events as well as promotions for the regular TLBB PC and Legacy TLBB Mobile. Currently, several key games are being developed, and we look forward to introducing them to players soon. Looking ahead, Changyou will further execute its core strategy of top games. Changyou's strategic focus will continue to be on MMORPG mobile games, while we're also developing and looking to roll out games across various genres. Now let me turn to Joanna, who will walk you through financial results in detail.

Thank you, Charles. I will walk you through the key financials of our major segments for the fourth quarter and full year of 2020. All of the numbers that I will mention are on a non-GAAP basis. So for Sohu Media Portal, revenues were $24 million, up 7% year-over-year and down 1% quarter-over-quarter. The quarterly operating loss was $28 million compared with an operating loss of $25 million in the same quarter last year. For full year 2020, Sohu Media Portal revenues were $86 million, down 9% compared with 2019. For the full year, net loss was $92 million compared with an operating loss of $130 million in 2019. For Sohu Video, quarterly revenues were $23 million, up 6% year-over-year and 1% quarter-over-quarter. The quarterly operating loss was $11 million compared with an operating loss of $80 million in the same quarter last year. For the full year 2020, Sohu Video revenues were $91 million, flat with 2019. Full year net loss was $73 million, compared with an operating loss of $94 million in 2019. For Changyou, company revenue, including 17173, was $199 million, up 47% year-over-year and 91% quarter-over-quarter. Changyou posted an operating profit of $112 million compared with $50 million in the same quarter last year. For full year 2020, total revenue was $548 million, up 20% compared with 2019. Changyou posted an operating profit of $238 million compared with an operating profit of $169 million in 2019. For the first quarter of 2021, we expect brand advertising revenues to be between $27 million and $32 million, online game revenues to be between $137 million and $147 million, non-GAAP net income from continuing operations attributable to Sohu.com Limited to be between $5 million and $50 million, and GAAP net income from continuing operations attributable to Sohu.com Limited to be between $1 million and $11 million. This forecast reflects Sohu's management's current and preliminary view, which is subject to substantial uncertainty, particularly in view of the potential ongoing impact of the COVID-19 pandemic. Lastly, please be reminded that in the Q&A session, we won't take questions regarding any Sogou business updates or the agreements with Tencent for Sogou's privatization. This concludes our prepared remarks. Operator, we would now like to open the call to questions.

Our first question comes from Eddie Leung from Merrill Lynch.

I'm just curious about your outlook for the first quarter of 2021. Number one, it seems to be a pretty big range, especially on the advertising side. And then number two, when we look at the year-on-year growth on the advertising side of brand advertising, could you talk a little bit about how much is from an industry revamp, industry recovery? And how much is broadly speaking, coming from the assets you have built in the past year, for example, having more rich media including live streaming in your portal as well as the offline events you held for your marketers? So these are my two questions.

Okay. Eddie, this is Charles. Yes, actually, several elements have contributed to the outlook for the first quarter of '21. First of all, a year ago, we had the pandemic outbreak, right? So this year, the effect is less. But both years have the first quarter as a slow quarter because of the Chinese New Year. This 2021 Chinese New Year is actually a little bit later than in 2020. So these are the negative impacts. While the less effect of the pandemic is a positive contribution, and the Chinese New Year brings its own challenges. There is definitely the continuation of our efforts with live broadcasting technology and its application to our various marketing events to create both content and also advertising opportunities, which makes our advertisers more interested or excited about the creative events that we are creating. For example, this month, we are also having this good selection e-commerce event, and around the Chinese New Year, we have live broadcasting programs featuring various guests and celebrities. So these are all contributing factors to the outlook for advertising.

I would like to know if Charles and Joanna can discuss the broad range of the advertising outlook. My question stems from the fact that most of your advertisers are reputable, large brands, which typically means they have a marketing plan and a budget in place. Therefore, the feasibility should generally be solid, unlike with purely performance-based advertising. This year, and particularly this quarter, we're seeing quite a wide range in the outlook, between 5% and 25% year-on-year. I'm curious why this range is larger than usual.

Yes, that's because we have the brand advertising for the most part with our top advertisers. So it's just like big items, right? If you have a small number of advertisers instead of like 10,000 or 5,000, we have like a few hundred, or maybe 100 or 1,000. So each one is spending a large amount. So any change from one advertiser may drive the total revenue up or down. Also, the first quarter is a slow season with Chinese New Year, and decisions made can be kind of changed.

The next question comes from Alicia Yap from Citigroup.

I have two questions. First of all, on online games. I wanted to understand the outperformance for these PC TLBB resources released for this special server. I wonder if the strength has already reversed or if the strength actually continues into the first quarter? And could you share how many old gamers you have successfully brought back? Additionally, can you remind us of the schedule for the PC games? How will that benefit the strength in Q4? Should that also benefit Q1 and Q2? And are there any expansion pack release plans for later this year that you can share? So this is my question on gaming. My second question relates to the overall advertising outlook. I'm not sure if Charles or management have any view so far in terms of the sentiment doubts about the ad budget this year versus last year. For the fourth quarter, could you also remind us which category performed well during the quarter? And which category do you believe will have a stronger recovery in 2021?

Okay, Alicia. Regarding your first question about online gaming and the special servers, it obviously contributed the most in Q4, and the trend continues a little bit, but definitely falls back a bit for Q1. As for the expansion pack, we're planning to launch the first one for TLBB Vintage in the second quarter of 2021.

Alicia, for the TLBB Vintage, we call those special servers. The content is well-received by hardcore players that we lost over the years, like 10 years ago. The total number of returning users is not very big, but they are really engaged. With the consumption level this quarter far beyond our expectations, we expect a natural decline for the TLBB Vintage in the first quarter considering the festival traveling factors, hence the cautious guidance. Actually, there have been two versions pursuing totally different experiences. In the future, we will apply different operating strategies. For the regular PC server, we will continue making more evolutionary expansions like before. But for Vintage, we'll keep the classic content and make strong social updates based on player feedback. The regular TLBB PC focuses more on player-vs-player events. However, for TLBB Vintage, we will emphasize a more casual and social style. We plan to launch the first expansion pack for TLBB Vintage in the second quarter of 2021.

About the advertising outlook. Since the overall macroeconomic situation seems a little bit better than in 2020, but for Sohu, our advertising revenue base is still small. It really depends on how well we execute our strategies. We expect to continue our growth trend in 2020 due to advancements in our live broadcasting technology and its application to various marketing strategies. So we achieved recovery from Q1 as the pandemic subsides and a gradual growth in Q2, Q3, and Q4. I believe that in 2021, we will continue our slow growth with our strategy of live broadcasting and typifying our events. However, this depends on the successful innovation of products like our Super News app and the Sohu Video app. If we can achieve user base growth organically without heavy spending, our revenue may grow faster than in 2020. The categories that performed well are mostly automotive, fast-moving consumer goods, and e-commerce.

The next question comes from Thomas Chong of Jefferies.

My question is about advertising as well, but on the video side. Given that we have been seeing the COVID outbreak, should we expect there might be a delay in terms of the production timeline or the release timeline for this year? On that front, how should we perceive the competition in long-form video advertising versus short-form video advertising? Are we seeing short-form video advertising actually affecting the advertising budget split in our video portal?

Yes. First of all, on the advertising for long-form video. Regarding production, in 2020, the first half saw limited filming due to the pandemic, but in the later part, we filmed and produced several drama episodes. Currently, we have a few shows lined up, which will gradually be launched this year. We aim to have about 10 dramas produced this year, which will mostly drive our subscription business. Advertising will not rely heavily on long-form drama production because most of our subscribers do not see advertisements during those shows; rather, this primarily depends on variety shows, live broadcasts, and short-form content. Sohu Video also follows this strategy; we are actively developing short-form video as a part of our growth strategy. So we expect a gradual growth in our advertising segment, alongside a strong growth in subscription. As for the non-game business, the timeline for breakeven will depend on our ability to innovate effectively. Over the last few years, we managed to cut costs significantly, but we need ongoing product innovations across editorial, distribution, and social media. If we can achieve user growth through these innovations, we could accelerate our revenue and reach a breakeven point sooner.

Our next question comes from the line of Jong Shi of Emerald.

And congratulations for a strong quarter. My question relates to Sogou. I know you're not allowed to comment much on it, but hypothetically, if the deal goes through and you receive a cash allocation, I'm curious about how you might think about future investments in terms of a breakdown. What specific projects do you plan to allocate to, to give investors an idea?

Well, hypothetically, if we have the cash, we could do both. Currently, without cash, we focus on organic growth through product innovation and feature enhancements. With more cash, we could invest in marketing and potentially grow our user base more rapidly through various initiatives. While we had improved operational efficiencies last year to do more with a tighter budget, we also want to explore new areas, including AI-enabled voice and enhanced content delivery.

And still, regarding that hypothetical scenario, has your outlook on potential M&A acquisitions or dividend policies changed in recent months? How do you think about allocations for these kinds of opportunities?

Well, I think we are quite conservative, but we will only evaluate these scenarios when we have the cash.

Okay. And just the last question for me is in terms of innovation projects that you're pursuing. Can you provide insight on the progress? Are you hiring new talent to support these initiatives?

It's more about the current team. We're promoting members who have shown strong capabilities to tackle project tasks. It’s more of an organic growth within the team rather than creating entirely new departments. Our product innovation is focused and meticulous, involving daily work rather than broad strokes. While we are hiring more people, it's about evolving the existing team and enhancing our product line and development.

Thank you for the questions. Ladies and gentlemen, with that, that concludes the conference for today. Thank you for your participation. You may now disconnect your lines.