Ladies and gentlemen, thank you for joining Sohu's Third Quarter 2022 Earnings Conference Call. 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 call, Huang Pu, Investor Relations Director of Sohu. Please go ahead.

Thanks, operator. Thank you for joining us to discuss Sohu's third quarter 2022 results. On the call are Chairman and Chief Executive Officer, Dr. Charles Zhang; CFO, Joanna Lv; and 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 statement in connection with today's conference call. Except for the historical information contained herein, the measures discussed on this 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 containing these 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 hand the call over to Dr. Charles Zhang. Charles, please proceed.

Thank you, Huang. And thank you, everyone, for joining our call. In the third quarter of 2022, we've faced severe headwinds from the COVID-19 pandemic and uncertainties in the macroeconomic environment. Despite these, we maintained our focus on refining our products, improving operating efficiency, and enhancing monetization capabilities. Thanks to strict budget control and the solid performance of our online game business, our bottom-line performance for the quarter was well above expectations. For Sohu Media Portal, we enhanced user experience through continuous improvements in products and technology. For Sohu Video, we continued to execute our Twin Engine strategy, developing science and knowledge-based live broadcasting with our advanced live broadcasting technology and compelling content and events. Leveraging the differentiated advantages of the Sohu product matrix, we continue to explore ways to improve monetization for both Sohu Media Portal and Sohu Video. Online Games performed well during the quarter with revenues exceeding our prior guidance. I'll go into details about each of these businesses in a moment, but first, a quick overview of our financial performance. For the third quarter of 2022, total revenue was $185 million, down 14% year-over-year and 5% quarter-over-quarter. Brand advertising revenue was $26 million, down 24% year-over-year and up 3% quarter-over-quarter. Online game revenues were $149 million, down 11% year-over-year and 5% quarter-over-quarter. GAAP net loss attributable to Sohu.com Limited was $22 million compared with a net income of $12 million in the third quarter of 2021 and net income of $9 million in the second quarter of 2022. Non-GAAP net loss attributable to Sohu.com Limited was $17 million compared with a net income of $17 million in the third quarter of 2021 and net income of $12 million in the second quarter of 2022. Now I'll go through some of our key businesses. First, Media Portal and Sohu Video. For Sohu Video Portal, we consistently focused on product refinement and optimizing our algorithms. We are continuously enhancing user experience and have kept users tightly engaged by facilitating large amounts of reliable real-time news and premium content. We're also working actively to integrate new features in our products to enrich users' working experiences. Working within this strategy, we were able to further consolidate and strengthen our position as a mainstream media platform. For Sohu Video, we continued to execute our Twin Engine strategy, leveraging our advanced live broadcasting technology and premium content. We actively promoted the generation and social distribution of our high-quality content. We strengthened our reputation as a credible, leading science and knowledge-based live broadcasting platform. During the quarter, with the launch of a series of unique and influential science-related and nature-related broadcasting, for example, my Physics Class, we have not only drawn wide attention from millions of audiences but also attracted many leading professional broadcasters in various scientific fields to our platform. In long-form content, besides producing original dramas and reality shows, we also acquired cost-effective TD programs to complement our content library. Despite the ongoing negative impact of COVID-19 and the uncertainties imposed on the market, we continue to explore new monetization opportunities to capture advertising budgets. We extended applications in areas of advanced live broadcasting technology and integrated them into various high-quality content marketing activities. During the quarter, we successfully hosted the top end of the campaign and the 14th Sohu News Marathon. These unique content marketing activities continued to make breakthroughs and spread widely across social media platforms, demonstrating the value of the media. Through such events, we were able to meet the demand of a wide range of advertisers and attract their advertising budget dollars. Next, turning to the online game business. During the third quarter of 2022, online game revenues performed well. In our business line for PC game, we rolled out a new group PvE dungeon for TLBB PC, which was well received by players. With TLBB Vintage, we introduced new weekly goals to keep the game fresh for players. With mobile games, we introduced summer-themed events for Legacy TLBB Mobile and adjusted the relative skill strength of some characters. Next quarter, to keep players engaged, we will roll out new content for TLBB PC, Legacy TLBB Mobile, and other games. Against the backdrop of an ever-changing environment, we will stick to our top game strategy by promoting the development of professional talent as well as innovation in content and technology, rolling out more high-quality mobile games. In terms of the game pipeline, while maintaining our core competitiveness in FFO, RPGs, we will also invest in games of multiple types, including car RPGs, sports, and idle games. Now I'll turn the call to Joanna, our CFO, who will walk you through our financial results. Joanna?

Thank you, Charles. I will now walk you through the key financials of our major segments for the third quarter of 2022. All the numbers are on a non-GAAP basis; you may find a reconciliation of non-GAAP to GAAP measures on our IR website. For Sohu Media Portal, quarterly revenues were $50 million, down 11% year-over-year and 6% quarter-over-quarter. The quarterly operating loss was $38 million, compared with an operating loss of $37 million in the same quarter last year. For Sohu Video, quarterly revenues were $60 million, down 29% year-over-year and up 4% quarter-over-quarter. The quarterly operating loss was $31 million, compared with an operating loss of $10 million in the same quarter last year. For Changyou's online game business, quarterly revenues were $150 million, down 11% year-over-year and 6% quarter-over-quarter. The quarterly operating profit was $58 million, compared with an operating profit of $79 million in the same quarter last year. For the fourth quarter of 2022, we expect brand advertising revenues to be between $25 million and $28 million. This implies an annual decrease of 17% to 26% and a sequential decrease of 3% to a sequential increase of 9%. Online game revenues are expected to be between $118 million and $128 million, implying an annual decrease of 11% to 18% and a sequential decrease of 14% to 21%. Non-GAAP net loss attributable to Sohu.com Limited is expected to be between $10 million and $20 million, and GAAP net loss attributable to Sohu.com Limited to be between $30 million and $23 million. This forecast reflects our 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.

First question is from the line of Thomas Chong of Jefferies.

Hi, good evening, management. Thanks for taking my questions. Given that we have seen the macro headwinds and the outbreak of the pandemic, I just wanted to get some color from Charles on how we should think about the advertising trends across the different categories, like auto, FMCG, properties, etc., and also how we should think about the advertising outlook in 2023? And my second question is about the gaming business. Given that we haven't seen any notable releases in October and so far in November, how should we think about the gaming approval trend in China and on Changyou, how should we think about our new games in the pipeline for next year?

Okay. So the general advertising market is kind of sluggish. The trend, at least for Q3 and onwards, is somewhat downward. But among them, I think auto is doing fine; auto is doing relatively better. Real estate is really struggling. The Internet services in Q3 is not as good as Q2, because in Q2 we had the 618 shopping festival, right? So Q3 is a low season, and FMCG seems to be doing better in Q3. That's a relative ranking of sectors. Your next question is about gaming, right?

We have a couple of projects that are waiting for the license approval, but we have no further news about that. So we are just waiting. Currently, in our game pipeline, we have more than 10 games, and half of them are fit for the global market while the rest are for the domestic market.

I mean, this advertising downward trend; we are actually a little bit better off due to our unique marketing activities and events through which we were able to draw some advertisers.

Our next question comes from the line of Eddie Leung of Bank of America.

Hey, thanks. Can I have a follow-up on the near-term advertising trend? Could you describe what you have seen in September, October, and early November? The reason we ask is we all know there have been more lockdowns in the recent 12 months, so just wondering how you have seen the trend evolving in the past couple of months? So that's my first question. And then secondly, on the use of cash, we continue to see a very strong cash balance. So wondering if we should expect any more share buyback program or even a dividend?

Yes, I believe the lockdown negatively affected our advertising revenue because we primarily depend on brand advertising. Large companies were unable to carry out their planned marketing events, which impacted their spending on our platform. However, we are holding up reasonably well due to online events like the Physics classes and other science and nature-related live streams. These events do not require in-person gatherings, allowing us to recover some of the advertising dollars.

And use of cash?

Use of cash, yes. Because of the economic uncertainties, we held back on our spending. We have completed our $100 million buyback already, right? So for any further buyback, we are hesitating, as we want to wait and see how the economic landscape changes. We also have many initiatives to improve our products and develop our user base, so we have ample opportunities to invest our resources in the long term.

Next, we have a question from Alicia Yap from Citi.

Hi, thanks. Good evening, Charles and management. Thanks for taking my question. I do have a couple of questions. First is on the fourth quarter online gaming revenue guidance. It seems quite a big sequential decline. Can management elaborate a little bit on the reasons for the soft gaming guidance? I thought if I heard it correctly, Charles mentioned there will be some expansion updates for TLBB PC and all that. Just wondering about the discrepancy between the game content update versus the guidance. Secondly, also related to the gaming. Just in general, if management can share your view, has gaming industry monetization been affected by the latest macro weakness? Have you seen or do you think the COVID lockdown or the soft macro have negatively impacted the gaming revenues and the gamers' time spent on gaming?

Yes. To answer your last question, yes, there are conflicting factors. One is that people will have more time at home and will spend more time playing games. But due to the macroeconomic situation, people have less disposable income, so they are not willing to spend as much as before. Thus, the overall effect on monetization is actually negative now.

That revenue decline was primarily due to the natural decline of some of our other games in the TLBB franchise as well as the sales decline, and partly due to the negative impact of the exchange rate.

I see. Thank you. Can I have one follow-up on the brand advertising? If management can comment regarding the guidance that you provided for 4Q as well as your thoughts into 2023. Are you more confident or less confident about the recovery pace of ad sentiment into next year?

Well, we are confident because our platform and user base are growing. Also, our live broadcasting and unique marketing events are very distinctive. Other companies do not have these kinds of offerings. So we are confident, but it really depends on the overall economic situation and the future COVID-19 policies. So if the economy performs well, we are very confident that we will perform better than the average. But it all depends on the COVID policy and the lockdowns.

I see. Lastly, regarding the share buyback, you mentioned wanting to be cautious with spending due to macroeconomic weakness. If the economy improves and your gaming business thrives along with a recovery in advertising, but your share price remains at its current level, would you then consider a more aggressive buyback? Is that what you mean?

Well, we will not exclude that possibility.

Okay. All right. Thank you, Charles. Thank you, management. Thank you for the question. That concludes today's conference call. Thank you for your participation. You may now disconnect.