Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's Second Quarter 2023 Earnings Conference Call. [Operator Instructions]. 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'll now 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 second quarter 2023 results. On the call are Chairman and Chief Executive Officer, Charles Zhang; CFO, Joanna Lv; and Vice President of Finance, James Deng. Also, with us are Changyou’s CEO, Dewen Chen; and CEO, Yaobin Wang. Before management begins their 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 forward-looking statements. These statements are based on current plans, estimates, and projections. Therefore, you should not place undue release 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 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. With that, I'll now turn the call over to Charles Zhang. Charles, please proceed.

Thanks, Huang Pu, and thank you, everyone, for joining our call. In the second quarter of 2023, we delivered stable performance with both revenues and the bottom line meeting our expectations. At Sohu Media, we enhanced the user experience through continuous refinements to our products and technology and by offering users a steady stream of reliable content real-time. In Sohu Video, with consistent execution of our Twin Engine strategy, we expanded our portfolio of long and short-form video content and proactively, improved their distribution. Leveraging our advanced live broadcasting technology and Sohu product metrics, we hosted traditional flagship events and innovative content marketing campaigns, which generated abundant premium content and attracted more users. And this also put us in a position to explore more monetization opportunities and again advertising dollars. Online games remained steady, generating revenues in line with our prior guidance. Now let me first give you a quick overview of the financial performance. For the second quarter of 2023, total revenues, $152 million, down 22% year-over-year and 6% quarter-over-quarter. Brand advertising revenues, $24 million, down 4% year-over-year and up 6% quarter-over-quarter. Online game revenues, $118 million, down 25% year-over-year and 9% quarter-over-quarter. GAAP net loss attributable to Sohu.com Limited was $21 million compared with a net income of $9 million in the second quarter of last year and a net loss of $18 million in the first quarter of 2023. Non-GAAP net loss attributable to Sohu.com Limited was $18 million compared with a net income of $12 million in the second quarter of last year and the net loss of $30 million in the first quarter of this year. Now I'll go through our key businesses in more detail. First, Media Portal and Sohu Video. At Sohu Media Portal, we continue to focus on refining our product and…

Thank you, Charles. I will now walk you through the key financials for our major segments for the second quarter of 2023. 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 $17 million compared with revenue of $20 million in the same quarter last year. The quarterly operating loss was $35 million compared with an operating loss of $44 million in the same quarter last year. For Sohu Video, quarterly revenues were $50 million, compared with revenues of $60 million in the same quarter last year. Quarterly operating loss was $32 million compared with an operating loss of $25 million in the same quarter last year. For Changyou -- for Changyou's online game business and 17173, quarterly revenues $190 million compared with revenue of $159 million in the same quarter last year. Quarterly operating profit was $49 million. compared with an operating profit of $85 million in the same quarter last year. For third quarter of 2023, we expect from advertising revenues to be between $21 million and $24 million. This impacts annual decrease of 7% to 18% and a sequential decrease of [ph] near 0% to 12%; online game business, only game revenues to be between $108 million and $180 million, this implies annual decrease of 21% to 27% and a sequential decrease of near 0% to 9%; non-GAAP net loss attributable to Sohu.com Limited to be between $20 million and $30 million; and GAAP net loss attributable to Sohu.com Limited to be between $23 million and $33 million. Our guidance reflects our current and preliminary view, which is subject to substantial uncertainty. Also, please be noticed that the above guidance excludes projections for the new TLBB Mobile game, which is scheduled to launch in the third quarter of 2023. Given that the game is not yet launched, revenue projections for the game remain uncertain. Therefore, the company believes that it is appropriate to take a conservative approach with the third quarter guidance. This concludes our prepared remarks. Operator, we would now like to open the call for questions.

[Operator Instructions]. Our first question comes from the line of Thomas Chong from Jefferies. Please ask your question, Thomas.

Hi, good evening. Thanks, management for taking my questions. I have a question on the advertising first. When I look into the Q3 guidance, it seems that the low end of the guidance and the high end seems the range is quite high. If I try to exclude the foreign exchange impact by looking into local currency, it seems that there's a chance that we would have a positive sequential growth. So just wanted to ask management about how the advertising sentiment so far, we are seeing in the month of July versus June and how we should think about the advertising trend across different categories like auto, FMCG, and Internet services. Thank you.

So, you said a sequential growth? Is that sequential growth for Q3?

Q3, the guidance, the coming range.

So, in terms of RMB, right? Some kind of growth.

Yes.

So overall, for the second quarter, the advertising revenue is not -- so the whole overall market is not bouncing back as expected. So that's why compared with last year, the Q2 revenue dropped, right, 4%. But we are still holding steady because, in terms of RMB, it's still a 2% growth for Q2. Normally, we have a better Q3 normally, right, in a normal economic situation. But because of the sluggish economy, as I said, the bounce back is not expected. We are forecasting a downward revenue for Q3. And yes, because we're holding up the revenue because of our innovative marketing solutions to our advertisers, as I just said in the script, our live broadcasting, and innovative events. But overall, in terms of the categories, and so the real estate is basically -- it's -- no, it doesn't exist anymore. And so, our top advertisers: auto, 26%; Internet service, 18%; FMCG, 16%. With auto, it's not -- seems not doing well because the automakers are now more hesitant in spending much with big marketing campaigns, not as they did because of the overall economy. And Internet service as well, it's the same thing, same because our people are spending less, even buying less and online. So FMCG seems a little bit -- it's okay, but it's still with a smaller percentage of our overall revenue. So that's the kind of -- that's the overall picture. Did I answer your question, Thomas?

Yes, thank you, Charles, for the details. May I have a quick follow-up about AIGC and industry LLM? I just want to seek management's thoughts about how AIGC can benefit Sohu in the future. And what are our strategies and the spending in this area? Thank you.

We believe that AIGC is a major technological advancement. It's -- and it's very important. It revolutionized the way -- formally, it's a search engine. Now it's a totally different way of delivering information or -- so it's a very important opportunity, especially for media and information providers like Sohu. So, we are not investing in the large model, big data model, large model. We will probably outsource the large amount of -- to use some services -- service providers, third-party providers to us. But -- and then we are redeveloped those applications in our consumer and services like Sohu News and Sohu -- and social network. Like for example, we are now -- before each article, we have a machine-generated…

Abstract.

What? Abstract, Yes, exactly. Abstract. And also, some of our products actually using AIGC. So, we are going to be a heavy user of AIGC, and we're closely monitoring its development and also to turn those developments into the real attractive new applications and turn it into a user -- consumer side products, yes.

Our next question comes from Alicia Yap from Citi. Please go ahead Alicia.

I have three questions. First, I wanted to follow up on the previous -- Thomas questions on the advertising, Charles. So, can you elaborate -- you mentioned it was a little bit sluggish and bouncing back is a little bit weaker than expected. So, do you expect the situation to actually continue into the next few months and also the rest of the year? Internally, is that worse than what you had previously expected? Or is this like worse than everybody has expected? So, this is the first question on advertising, just a follow-up.

I think it's probably throughout the year, not just the quarter. And just like everyone -- actually in Q2, you probably remember last quarter phone call, conference call that we have -- we seem to note after the three years of the COVID lockdown, after -- and we -- everyone expected a stronger bounce back of economy. But then now in the middle of Q3, we are seeing -- we're not seeing that strong bounce back like everyone did -- like everyone is seeing nothing. So pretty sluggish.

I understood. Would you also kind of attribute some of the reason natural events, like the flooding, to maybe kind of like amplify the magnitude? The overall macro sentiment is also getting softer or worse because of some of the natural events that happened as well?

I don't know, the flooding just happened. It's nothing to do with the flooding, but I think the overall macroeconomic situation, the export, the -- people have less disposable income because people -- so not having enough disposable income. People are not buying things or then the -- if you don't have export and people are not buying -- does not have the money to buy things, then those products, there's no sales of those products. Those companies then stop hiring job opportunity, and no job opportunities. So, it's a negative downward. It's a spiral down, right, trend. But I still -- In terms of entire companies and a company like Sohu, I think I'm still not that pessimistic because if our people are not spending -- large item spending like buying cars or buying houses. Then in terms of cash, they probably have more cash to buy little things. So, like the subscription of -- the monthly subscription our video drama membership or just playing games, playing online games, and consuming the social networks. And then so if the auto and some large item advertisers are kind of -- the spending is declining a little bit, then probably some small items FMCG side could come up because China's economy is still large and the population and the consumers -- number of consumers pretty -- is still the largest. So, I'm still kind of optimistic. So that's why we are investing to continue to develop our social network and the information delivery and also social networks so that at this economic downtime, we take advantage of -- we have -- actually, we are more -- we are actually cash-rich and we can spend it to grow our user base. So, it's a good time to grow our use base.

Okay. The second question I wanted to ask is gaming. You just mentioned on the small items. So, I think I understand your guidance hasn't baked in the new TLBB launch. Just anything that you can share in terms of your expectation. Is it something that the game potentially, it could be a title that you guys -- you haven't seen it for a long time that you guys actually are looking very much looking forward for that launch, that you're going to attract back some of the gamers and also potentially brings in the growth for the gaming business again? So, any expectations that you can share would be helpful.

Well, Chen Dewen, you can go and share.

Yes. The game is developed by China research and development team the published by Tencent. And now before its launch is being prepared in a registration phase. So, because Tencent is in charge of the process. So, we just did the monetization test in June and the testing results met with our prior expectations for the testing phase. But for sure, we cannot do any projections for mid-to-long-term gaming and performance. So, to be conservative, we just didn't put it into our guidance.

Okay. And then lastly, Charles, can you also share with us any update the views or thoughts on the cash use and also the shareholder return policy? For example, any thinking about a regular dividend policy or any upcoming new share buyback program? Thank you.

Well, we -- currently, right now, we don't have any plan for dividend or buyback plans. We are still have a huge task of growing our user base. And we've been working on our products for the last few years to refine it and to develop new applications, especially in the social network side, on the Sohu net side. And we -- and our battlefield will enter into the stage of a major user acquisition, yes, stage user acquisition that we'll need the fund to do that. So, the use of cash will be -- continue to be to develop our user base. We don't have any -- currently don't have much other plans to investment.

Okay, thank you, Charles. Thank you, management.

[Operator Instructions]. There are no further questions. So, with that, we conclude today's conference call. Thank you for participating. You may now disconnect.