Sohu.com Limited (SOHU) Q1 2026 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and good day. Thank you for joining Sohu's First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I'd 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.

Thank you, operator. Thank you for joining us to discuss Sohu's Fourth Quarter 2026 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 CEO Dewen Chen; 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 may contain forward-looking statements. These statements are based on current plans, estimates, project and projections. Therefore, you should not place any reliance on them. Forward looking statements involve risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those containing in any forward-looking statements. For more information about potential risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission, including the most recent report on Form 20-F. With that, I will now turn the call over to Dr. Zhang Charles. Charles, please proceed.

Thanks, Huang, and thank you, everyone, for joining our call. In the first quarter of 2026, our marketing services revenue, online game revenue and bottom line performance all exceeded our previous guidance. For the Sohu Media platform, we will continue to focus on promoting a healthy and vibrant atmosphere on our platform with a series of differentiated events. At the same time, we kept refining our products to cater to users' needs, leveraging our unique events and brand influence, we were able to explore new monetization opportunities. For online games, we delivered another solid quarter, driven by a wealth of high-quality content and targeted operational refinements that resonated with our diverse [indiscernible] player base. Before going through each business unit in more detail, let me first give you a quick overview of our financial performance. For the first quarter of 2026, total revenues were $141 million, up 4% year-over-year and down 1% quarter-over-quarter. Marketing Services revenues were $13 million, down 8% year-over-year and 26% quarter-over-quarter. Online game revenues were $125 million up 6% year-over-year and 3% quarter-over-quarter. GAAP net loss attributable to Sohu.com Limited was $4 million compared with a net income of $182 million in the first quarter of 2025 and a net income of $223 million in the fourth quarter of 2025. Non-GAAP net loss attributable to Sohu.com Limited was $4 million loss and $4 million -- loss, net loss in compared with a net loss of $16 million in the first quarter of 2025 and a net income of $261 million in the fourth quarter of 2025. Now I'll go through our key businesses in more detail. First, Sohu media platform. In the fourth quarter of 2026, we continue to integrate resources in depth and upgrade our products with cutting-edge technologies. We offer users [indiscernible] various practical and user [indiscernible] functions to optimize the user experience, enhance user engagement and further promote dissemination of content. At the same time, we kept focusing on promoting a vigorous atmosphere in our community and fostering a prosperous platform ecosystem. Benefiting from unique off-line events we held, we provided users with plenty of interaction opportunities, improve the social engagement and generating abundant premium content that was widely spread over the Internet. In March, for example, in March, we successfully held the 18th Sohu News Marathon in Hong Kong and offline seminar of our physics class in Hong Kong. This season's marathon attracted active participation by celebrities and broadcasters nationwide, greatly promoting total interactions on our platform. Meanwhile, the Charles' Physics Class [indiscernible] debut at the Hong Kong University of Science and Technology, bringing in-depth physics knowledge to the public. Both events were well received by audiences. Thereby, creating a strong synergy between our flagship IPs and further expanding our brand influence. In April, we hosted the 2026 Spring Convention of Sohu Video Influencers [indiscernible], which has been held biannually for the past 3 years. We invited celebrities and gathered influencers from various fields, including verticals popular with young users such as K-pop and Hanfu verticals in professional field such as science and health. The convention created a chance for broadcasters to interact in person, promoting content generation and dissemination and doing genuine social connections. During the quarter, we also launched the 2026 Sohu K-Pop Dancing Festival competition throughout the year and also the 2026 Hanfu Chinese Costume Model Competition, also a year-long event to further consolidate our influence and appeal in these areas. We continue to combine off-line events with online interactions and to update our profile and the standard of our competition. With these efforts, we garnered widespread attention and attractive some[indiscernible] guest with shared interest to participate and interact on our platform. We continue to leverage our unique content and live broadcasting technology while exploring new business opportunities to provide targeted marketing solution for advertisers through our innovative and customized events and campaigns such as the Cloud IP, it's a deriving traffic to the platform given to unlock monetization potential. Next, turning to our online game business. During the quarter, our online game business performed well with revenues exceeding our prior guidance. In our PC game business, we rolled out various holiday events around the Chinese New Year and Valentine's Day as well as the promotion events for the regular TLBB PC, which helped sustain stable player engagement. Apart from holiday events, we also introduced a new [ full client ] for TLBB luggage which boosted player enthusiasm. Meanwhile, we continue to update and refine TLBB return to secure its long-term by tenants. Turning to our mobile side the mobile game business, we launched an expansion pack for Legacy TLBB mobile to celebrate the Chinese year along with the diverse online offline events, earning for this gain stayed largely stable on a sequential basis. Next quarter, we will continue to launch expansion tax and content updates for the TLBB services and other titles to further keep players engaged. Looking ahead, we will remain committed to our top game strategy. On the product development front, we will stay being anchored in a user-centric approach and here to adhere to a systematic R&D processes while driving the implementation of new technologies to enhance efficiency and product success rate. Regarding our pipeline, we seek to further unlock the potential of our TLBB IP. Meanwhile, as we maintain our competitive edge in the MMRO RPGs, we will continue to diversify our portfolio with multiple types of games and expand our product offerings with global appeal. Now I'd like to provide an update on the ongoing share repurchase program. As of May 13, 2026, Sohu has repurchased 8.7 million ADS from aggregated cost of approximately $160 million. With that, I'll turn now the call to our CFO, Joanna. Joanna?

Thank you, Charles. I will now walk you through the key financials of our major segments for the first quarter of 2026. All the numbers on a non-GAAP basis. You may find a reconciliation of non-GAAP to GAAP measures on our IR website. Social media platform. Quarterly revenues were $16 million compared with $70 million in the same quarter last two year. Quarterly operating loss was $70 million flat with the same quarter last year. For Changyou, quarterly revenues, $125 million compared with $180 million in the same quarter last year. Quarterly operating profit, $66 million compared with operating profit of $55 million in the same quarter last year. For the second quarter of 2026, we expect Marketing services revenue to be between $30 million and $40 million. This implies annual decrease of 10% to 17% and a sequential increase of 4% to 11%. Online game revenues to be between $104 million and $114 million. This implies annual decrease of 2% to an annual increase of 8% and a sequential decrease of 8% to 17%. Both non-GAAP and GAAP net loss attributable to Sohu.com Limited to be between $50 million and $25 million. This forecast reflects focus management's 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.

[Operator Instructions]. We will now take our first question. And our first question comes from the line of Thomas Chong at Jefferies.

I have a couple of questions. I think first is on our marketing services on our advertising revenue. Can management comment about how we should think about the advertising outlook in the second half and full year. And in particular, we are going to soon to have well [indiscernible]. Would this be a big positive to our advertising revenue in Q2 and Q3? And my second question is about the gaming business. Can you comment about the quarter-to-date performance so far, we are seeing in Q2. You see more likely to hit the low end or the high end of the revenue guidance? And my third question is about the earnings outlook. Given our solid performance in Q1, and we are expecting the losses to widen sequentially in Q2. I'm just wondering, is this a conservative assumption? And should we use Q2 as a benchmark to project Q3 and Q4 bottom line?

Okay, Thomas. So the first question about marketing services revenue, right? Q2 forecast, as Joanna said, is going to be [ $13 million ] right? [ $13 million ] [ 7% ] sequential growth compared with the Q1. First of all, the overall economy situation is kind of in the downturn, economic situation and advertisers tend to be cautious in spending. We were -- we are able to maintain some growth because we have our unique and differentiated marketing solutions and events, especially we can take advantage of our growing network and also influencers and also some IPs like my own physics class IP and the offline events like the [indiscernible] competition [indiscernible]. We have quite unique tailor-made or customized marketing spend based on available like our own platform and also its activities. So your next question is about the overall year outlook or from the Q2. I think it will be similar [indiscernible]. About the -- game, right, the game so the first quarter is good. And then for the sake time, do you want to that second part last is at the low end or half end, right?

[Interpreted] So far, the performance of the second quarter is largely in line with our expectation. And the level of revenue will largely depend on the performance of the content and activities we plan to roll out for our TLBB series games to see whether they can satisfy users' needs. So far, we believe it is in line with our expectation. Also, as we plan to roll out fewer promotional and revenue boosting activities in the second quarter, so we expect our gaming revenue to experience a natural decline.

So the game TLBB return that was in Q1 did have impact, but Q3 revenue decline in the year-over-year [indiscernible]. So you have a third question, Thomas? [indiscernible]?

Yes. On the bottom line because Q1, we are better than expected. But Q2, we are seeing sequential widening of the losses. So just want to see if Q2 is a benchmark for Q3 and Q4?

I think this year, Q2 and Q3 will be similar to last year because on the marketing service side, on the platform side, we are basically about the same. We're still working on our total network and make sure that we have a larger user base so that we can have an uptick. But now still we are maintaining a stable and advertising growth. So the Q2 results or the earnings drop compared with Q1, mainly because of gaming revenue, right, is much less than Q1, I just described.

We will now take our next question from the line of Alicia Yap, Citi.

I have 2 follow-ups on the earlier questions. So I guess you mentioned on, I think, the second quarter, obviously the guidance. it is a bit weaker than I expected in terms of the sequential trend that typically we would see from the 1Q to 2Q, even though sequentially is growth. But then I think the year-over-year decline seems to be worse than the first quarter year-over-year decline. I'm just wondering, is the macro getting even weaker than what you had previously expected, let's say, compared to 5 months ago in the beginning of the year. So yes, any color you can share with overall the macro outlook? Is that worse than what you had previously expected? And then on the operating loss. I just wanted to make sure I did not hear it wrong. For this 1Q, the marketing ad business is the operating loss was $70 million. I just wanted to double check on that because I think our revenue is only like $14 million or $15 million, but then we are losing $70 million. So it seems like the expense is about double of the revenue. So I just wanted to make sure I heard it correctly. And then if so, then where will the money got spent? Is it mostly on the product development? Or is it on the user acquisition?

So first, let's answer your last question about the -- what you have a question about the loss, the marketing spend in Q1. What number you're talking about...

Is it $70 million, the op loss for ad business?

$70 million of what? We don't have a $70 million?

Operating loss.

Operating loss? $70 million operating loss in Q1?

On social media platform, the operating losses in Q1 $70 million.

Yes. Is there I mean it's similar, right, to the previous?

Flat with the same quarter in the last quarter.

Yes, it's similar to previous quarters...

Yes.

We didn't spend more money just as we did before the previous quarters. Mostly through -- I think well, we don't -- it's either on user acquisition or on product development. So it's altogether because we are building -- actually, we have 3 social network products. One is Sohu Video [indiscernible]. We also have [indiscernible] and also have Sohu News app and also turn that into a [indiscernible]. So -- and also for each of the products, especially for the Sohu Video -- we do spend some money on the user acquisition and also the team cost and also product development. So it's similar to previous quarters. It's until we really -- until we have a really successful product that, I would say, explore into a much larger scale. Now the -- and also considering the macroeconomic situation, [indiscernible] dollars will not be able to cover the cost that we are incurred on product and user acquisition similar [ $10 million ] per quarter.

Okay. Okay. And then on the revenue, the guidance, is that worse than you expected?

That's because the macro funds compared to last year, right? It's worse than last year because the [indiscernible] companies there because of the year competition and the low margin so we are more cautious in spending less. And we have to come up with really unique events or opportunities -- so like, for example, I have to -- myself, I have to apply this [indiscernible] IP to try to explain to give lecture about the products, the engines and also why the current is better. So it's -- and also sometimes organize our users and influencers to borrowers whatever. But we have to have differentiated unique opportunities to have a marketing solution offered to them so that we compare with a few years ago, few years ago, they are just -- it's an easy decision to spend to advertise, but now it's very difficult.

I see. I see. Just lastly to follow up. Can you share with us, I know you mentioned auto is one of the industry vertical probably cutting back the ad budgets. Any other vertical that you're actually seeing is also facing more cautious ad budgets?

It's across the board, all companies basically. Because just the Chinese consumers are spending less, consumers are spending less. That's why those companies are not making money or making good money. That's why they are actually reduced their ad reduction [indiscernible] dollars. In auto or IT and FMCG and across the board, both...

Maybe just lastly, in terms of the first quarter on your advertising revenue contribution by industry vertical, if you can rank them by the contribution percentage?

19% -- auto industry 19%, IT services like home appliances and electronics and that's 19% and FMCG 14%. There are some good sign in the IT sector because the traditional home appliances now because of the IT AI, they are all turning into AI product with intelligence. So that's -- we have seen a lot of new kind of products that tend to market to the market that's like for example, I went to the Shanghai AWE, and see a lot of new traditional home products, home appliance electronics with Chinese [indiscernible], turning really a lot of that's an opportunity.

I see. I see. And then -- so that is you are seeing decent budget. And then in terms of the second quarter, should we also rank maybe you are seeing more upbeat from the IT and then maybe FMCG also okay, but then weaker in auto. Is that fair to assume that on the second quarter?

Yes. The second quarter, the auto a fierce competition, yes, -- and also the electric vehicle is higher -- more penetration of electric vehicle into the market share. And I would say similar, right? The auto industry is gradually, right? And now they're all trying to export more to the European market or to the Middle East, right? So domestically, the consumption consuming power is really a problem. People are not spending money. Too saturated, right? Because people are paying their mortgage, that's why they don't have money to spend, right? They're all paying the high housing price mortgage. That's a major -- that's the most -- the biggest problem with the Chinese economy, but people all have debt and have to pay back -- to pay their mortgage. So they don't have -- they don't have the money to spend on other things.

[Operator Instructions] I am showing no further questions. And with that, we conclude our conference call for today. Thank you for your participation. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]