Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's Second Quarter 2024 Earnings Conference Call. Today's conference call is being recorded. 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 to discuss Sohu's second quarter 2024 results. On the call are Chairman and the Chief Executive Officer, Dr. Charles Zhang; CFO, Joanna Lv Joni; 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 statement in connection with today's conference call. Except for the 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 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 20-0F. With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed.

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 assumption 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 a 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 of $172 million, up 13% year-over-year and 24% quarter-over-quarter. Brand advertising revenues were $20 million, down 17% year-over-year and a 24% increase quarter-over-quarter. Online game revenues were $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 $80 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, 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. 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 these online and offline events and actively explored opportunities in developing our influential online interest clubs in different verticals. 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 the 2024 Sohu K-pop Dancing Festival. Last year, we had the same event. So, this will be our second annual event this year. In early August, besides K-pop, we also hosted various events related to traditional Chinese culture, costume, and photography. These events have gained notable traction and recognition as younger users with similar interests flocked to our flourishing online interest clubs. Meanwhile, in June, we hosted our traditional flagship event, the 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's app and the Sohu Video app, as well as the 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, and introducing short-form dramas and clips. Our original drama, 'President is President,' and the Olympic variety show, 'Be A Hero,' were 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 advanced live broadcasting technology, and strong capabilities in marketing, we were able to strengthen our differentiated advantages and continue to explore innovative monetization opportunities. For example, we integrated our definitive content into various marketing campaigns, which were highly appreciated by other advertisers, and this helped us capture advertising budgets. Through these derivative events, we not only help audiences simultaneously comprehend the physics knowledge behind, especially related to automotive products, but also promoted branding for advertisers. 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, the online game business performed well with revenues exceeding prior guidance as our TLBB series remained stable, while the newly released 'Westward Journey,' 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 content based on player feedback. With TLBB Vantage, we introduced a team PVP event to satisfy players' demands for combat. For our mobile game business, we launched an expansion pack for Legacy TLBB Mobile for its anniversary, updating its graphics and adding a fun strategic game plan that was well received by players. Next quarter, we will continue to launch expansion packs and content updates for the TLBB series, 'Westward Journey,' and other titles to keep players engaged. As market competition intensifies and 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 in MMORPGs going forward while also seeking to make breakthroughs in multiple types of games, including card-based RPGs, sports games, and casual games, etc. 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 $26 million. With that, I now turn the call to our CFO, Joanna. Joanna, please.

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, and you may find the reconciliation of non-GAAP to GAAP measures on our website. For 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 of $67 million in the same quarter last year. For Changyou's online game business and the 17173.com, quarterly revenues are $148 million compared with $120 million in the same quarter last year. Quarterly operating profit was $32 million compared with an operating profit of $49 million in the same quarter last year. For the third quarter of 2024, we expect brand advertising revenues to be between $70 million and $90 million. This implies an annual decrease of 14% to 23% and a sequential decrease of 4% to 14%. Online game revenues are expected to be between $104 million and $114 million, which implies an annual decrease of 3% to 11% and a sequential decrease of 22% to 29%. Non-GAAP net loss attributable to Sohu.com Limited is expected to be between $30 million and $40 million, and the GAAP net loss attributable to Sohu.com Limited is expected to be between $34 million and $40 million. This forecast reflects 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.

The first question comes from Thomas Chong of Jefferies. Please go ahead.

Hi, good evening, and thanks management for taking my question. My first question is about the brand advertising business. Can management comment on 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 wanted to get some color with regard to sectors like auto, FMCG, Internet services, and the 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 on the sequential decline. Is it mainly due to Westward Journey? How should we think about the TLBB series? And my third question is about our share repurchase program. Given that we have a $150 million share repurchase program, how should we think about the share repurchase in the second half, if any color? Thank you.

Thank you for the question. First of all, the overall macroeconomic situation is not good, showing a downward trend. This has made advertising a challenge, as advertisers are cautious with their spending, often focusing on results-driven expenditures. The outlook isn’t very promising. However, as I mentioned earlier, we've implemented innovative marketing campaigns that have attracted some brand advertising, leading to a 24% increase in spending quarter-over-quarter compared to Q1. In Q2, the auto industry increased its spending compared to Q1. While the long-term outlook for the auto industry seems hopeful, it remains very competitive. The electric vehicle market is expected to expand, but luxury vehicles may decline due to price competition and other factors. In Q2, the auto sector represented 25% of our total advertising expenditure, and there has been a rise in spending from Internet services as well. Q2 is usually strong for e-commerce, and with summer near, consumer goods sectors, such as beverage companies, are raising their marketing budgets. That offers some insight.

The auto industry looks hopeful but remains very competitive. The electric car market is expected to grow, but luxury cars are likely phasing out due to price wars and other factors. In Q2, the auto sector accounted for 25% of our overall advertising spend, while Internet services have seen increased spending as well. Q2 is typically an e-commerce quarter, and with summer approaching, FMCG sectors like beverage companies are increasing their marketing budgets. So, that provides some insight.

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

Regarding the share repurchase, we have spent $26 million out of our $150 million program. We will continue at the same pace in Q3 due to volume limitations each day, which prevents us from purchasing more quickly.

Got it. Thank you, Charles.

Next question comes from the line of Alicia Yap from Citigroup. Please go ahead.

Good evening, Charles and management. Thank you for taking my questions. I have a few inquiries. First, I wanted to follow up on the gaming question. The Q3 guidance indicates a sequential decline, primarily due to Westward Journey. Do you think this game will have the potential to recover in the later quarters, or do you believe it will struggle to return to the 2Q levels after this decline? My second question relates to your sales and marketing expenditure. In Q2, you spent a significant amount on game promotions, which I assume was anticipated. However, the loss guidance for Q3 suggests that expenses will remain high. Could you provide some insight into the trends in gross margin and sales and marketing? Lastly, are there any plans to reduce your operating loss in the upcoming quarter? Thank you.

Probably less hope for it to recover back to the second quarter level? And then the second question is on your sales and marketing spend. Obviously, in the second quarter, due to the game promotion, you spent a very large amount, which I think is if you guided. But then for the third quarter, the loss guidance also seems to imply that the expense side remains quite high. So, can you elaborate a little bit on the trends in gross margin and sales and marketing? Lastly, any plans to narrow your operating loss in the coming quarter? Thank you.

We believe there is a chance for Westward Journey to rebound because it is a licensed game. We have realigned its improvement and development direction with our third-party developer and agreed upon focusing on the user's experience. We conducted extensive user research, and if those measures are effective, we believe there is potential for recovery.

We believe there is a chance for Westward Journey to rebound because it is a licensed game. We have realigned its improvement and development direction with our third-party developer and agreed upon focusing on the user's experience. We conducted extensive user research, and if those measures are effective, we believe there is potential for recovery.

The retention rate before 30 days is excellent; however, the main issue arises after 30 days in content realization. As a result, we have postponed our overseas release plan for the game. We hope to improve and modify the game to address these issues before releasing it overseas.

We conducted extensive user research, and if those measures are effective, we believe there is potential for recovery. The retention rate before 30 days is excellent; however, the main issue arises after 30 days in content realization. As a result, we have postponed our overseas release plan for the game. We hope to improve and modify the game to address these issues before releasing it overseas.

The gross margin for online games is expected to recover in the third quarter because the marketing expenditures and revenue sharing payments will decrease as well.

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

In terms of the overall Sohu business? A lot depends on gaming, right? If the games do not rebound in Q3, then our spending will not decrease significantly. So, while gross margin is definitely expected to improve for the gaming segment, for Sohu, we are still in a competitive landscape. We need to build our user base and turn the media side of the business into a profitable one. Therefore, we plan to invest in product development and user acquisition.

I see. Maybe just slip in one last one regarding the cash decision. Given there is a 20% daily limit restriction, are there any other thoughts on shareholder return policies?

No, not at this time. The buyback remains our primary method for shareholder return. We are very confident and hopeful that we will successfully build our user base and turn Sohu into a highly profitable company, which would be the best reward for our shareholders.

Thank you, Charles.

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.

Thank you. Bye-bye.