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Operator: Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu’s Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Today’s conference call is being recorded. [Operator Instructions] 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.

Pu Huang: Thanks, operator. Thank you for joining us to discuss Sohu’s third quarter 2024 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 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 statements 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 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 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 will now turn the call over to Dr. Charles Zhang. Charles, please proceed.

Charles Zhang: Thanks, Huang Pu, and thank you, everyone, for joining our call. In the third quarter of 2024, brand advertising revenue met the high end of our previous guidance while both our online game revenues and our bottom line performance exceeded expectations. For Sohu Media and Sohu Video, in addition to continued product refinements and user experience improvements, we continued to integrate resources and host various unique events and marketing campaigns. With these efforts, we were able to effectively stimulate social interactions among users, strengthen our brand influence and secure more monetization opportunities. As a result — for game, as a result of high-quality content updates and robust game operations, online game business delivered better-than-expected performance.

Before going through each business unit in more detail, let me first give you a quick overview of our financial performance. For the third quarter of 2024, total revenues, $152 million, up 5% year-over-year and down 12% quarter-over-quarter. Brand advertising revenues, $19 million, down 15% year-over-year and 6% quarter-over-quarter. Online game revenues, $128 million, up 9% year-over-year and down 13% quarter-over-quarter. GAAP net loss attributable to Sohu.com Limited was $16 million compared with a net loss of $14 million in the third quarter of last year and a net loss of $38 million in the second quarter of this year. Non-GAAP net loss attributable to Sohu.com Limited was $12 million compared with a net loss of $10 million in the third quarter last year and a net loss of $34 million last quarter, the second quarter of 2024.

Now I’ll go through our key businesses in more detail. First, Sohu Media and Sohu Video. During this quarter, we kept promoting the social distribution features, built up connections between users and meet their increasing needs, further consolidated our brand influence to carry out unique and influential events covering various verticals. In September, we successfully hosted the 2024 autumn convention of Sohu Video influencers, where users, broadcasters and pop stars met in person to share their thoughts and build their social network through our platform. This event greatly enhanced the recognition of the Sohu Video platform among broadcasters and users and significantly improved user engagement and interaction. We also proactively hosted diversified events based on our influential online interest clubs and groups in different areas.

In October, initiated a groundbreaking overseas collaboration with the event, 2024 Dream Concert, in South Korea, where we gathered 100 super, top K-pop contestants, who stood out after 6 months of enhanced competition nationwide. And we led the team to provide them a chance to go to South Korea to dance together with their idols, world well-known idols. This event attracted lots of K-pop fans and generated hot discussions across various social media platforms. Sohu Video has become a leading platform for K-pop fans and enthusiasts in China, drawing a large number of fans and providing them with the stage to realize their dreams. Moreover, we consistently reinforced our leading position in knowledge and science live streaming, our highly regarded physics class, Charles’ Physics Class, which has just celebrated third year anniversary and published its third physics book, has formed a dynamic multi-international dissemination through various forms.

Together with Charles’ Physics Class, we also have Charles’ English Class and other native relative live content that further strengthened our core competitiveness in this field. We continue to innovate our content offerings and combine it to customized brand marketing solutions for advertisers. This helped us gain recognition from a large number of high-value audiences and advertisers, provided us with innovative monetization opportunities. Now let me turn to the online game business. During the third quarter of 2024, Changyou’s online game revenues exceeded our prior guidance as TLBB PC performed better than expected and our PC game revenues increased on a sequential basis. Meanwhile, due to the natural decline of the New Westward Journey, which was launched during the second quarter, mobile games revenue decreased on a sequential basis.

We launched a series of crossover events around the around the Chinese Valentine’s Festival, Qixi Festival, for both regular TLBB PC and TLBB Vintage, featuring [ theme office ] maps and gameplays, which were well received by players. Besides, we also revamped the skill sets of a major client of regular TLBB PC, which effectively drew back former players to the game. For Legacy TLBB Mobile, we upgraded the skill sets of a client based on player feedback and introduced a corresponding new storyline and activities, which players were happy with. Next quarter, we will continue to launch expansion packs and content updates for the TLBB series, New Westward Journey and other titles, to keep players — to update for the TLBB series, to the New Westward Journey and other titles to keep players engaged.

As market competition intensifies, user demand becomes more diversified, we will forge ahead with our top game strategy and remain committed to a user-centric philosophy. We’ll continuously optimize the R&D process, enhance execution and expand our international presence. By doing so, we are confident that we can bring more high-quality games to the market. In terms of the game pipeline, we will maintain our core competitiveness on MMORPGs going forward, which are also — while also exploring possibilities in multiple types of games, including card-based RPGs, sports games and casual games, et cetera. Now I’d like to give an update on the ongoing share purchase program. Sohu today announced that our Board of Directors has authorized to extend the period of the program for an additional 1 year to November 10, 2026.

Previously, it was a 2-year program of 2025. So as of November 7, 2024, this year, Sohu had repurchased 3.4 million ADS for an aggregate cost of approximately $42 million. So the total buyback program is $150 million. So it’s about less than 1/3 of the total. So that’s why we need 3 years, right? With that, I’ll now turn the call over to Joanna. Joanna?

Joanna Lv: Thank you, Charles. I will now walk you through the key financials of our major segments for the third quarter of 2024. All the numbers are on a non-GAAP basis. You may find the reconciliation of non-GAAP to GAAP measures on our IR website. For Sohu Media and Sohu Video, quarterly revenues were $23 million compared with $27 million in the same quarter last year. Quarterly operating loss was $72 million compared with an operating loss of $66 million in the same quarter last year. For Changyou’s online game business and the 17173, quarterly revenues are $129 million compared with $118 million in the same quarter last year. Quarterly operating profit was $62 million compared with operating profit of $52 million in the same quarter last year.

For the fourth quarter of 2024, we expect brand advertising revenues to be between $17 million and $19 million. This implies an annual decrease of 6% to 16% and a sequential decrease of 9% to a sequential increase of 2%. Online game revenues to be between $97 million and $107 million. This implies annual decrease of 7% to 15% and a sequential decrease of 16% to 24%. Non-GAAP net loss attributable to Sohu.com Limited to be between $26 million and $36 million and the GAAP net loss attributable to Sohu.com Limited to be between $30 million and $40 million. This forecast reflects Sohu 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: [Operator Instructions] We will now take our first question from the line of Alicia Yap from Citigroup.

Alicis a Yap: I have a few questions. First is that in terms of the advertising outlook, have you seen any improvement in terms of the ad budget spend by advertiser entering fourth quarter? Do you think overall advertiser sentiment has improved slightly heading into the remaining of the year? And then given your guidance actually implying year-over-year decline is narrowing for your ad revenue guidance, is that what you are seeing is an improving trend and also possible if you could also resume positive growth as we enter 2025? Second question is on your gaming guidance versus your reported revenue. So in 3Q, you guided very conservatively and then yet you delivered a massive beat in third quarter, like $128 million. And then you guided 4Q again very conservative.

So just what are the main reasons for you to guide conservatively? Which game performance that you have not factored into the guidance for 4Q? And then last question is it seems like it takes a little bit slow to execute your buyback, given the trading liquidity. Just wondering if management could think of any better way to enhance the return to shareholder. Or would you consider to speed up? Is there any way you consider to speed up the buyback in more shares in the shorter-term period?

Charles Zhang: In terms of advertising, the economy is — well, it’s steady but gradually losing, right, a little bit growth rate, right?

Joanna Lv: The GDP growth has slowed down.

Charles Zhang: Yes. So the advertising market is still soft, not a strong, robust advertising market. But in Q3, we achieved a higher end of the forecast because our unique offline and online marketing events designed very unique and very unprecedented kind of events that provided some opportunity for advertisers to spend money on our projects, on the events and because overall, the advertising amount is not that large. So it’s — so we did better than we thought because not that much related to the macroeconomic situation because it’s a very small percentage of the total. I think there’s — recently, there’s some kind of a stimulus package on the policy side and the effects, we’ll see that and then the market will recover probably sometime in the next year.

Unknown Executive: [Foreign Language]

Dewen Chen: [Foreign Language]

Unknown Executive: [Interpreted] The reason for the revenue beat in the third quarter is mainly because the new content and new servers that we launched during the quarter for both TLBB Vintage and regular TLBB PC. Their performance are better than are expected.

Dewen Chen: [Foreign Language]

Unknown Executive: [Interpreted] The reason we guided quite conservatively for the fourth quarter is because the strategy for TLBB PC during the fourth quarter is mainly to maintain the user stability to offer them more benefits instead of increasing the revenue. So it looks a bit conservative.

Charles Zhang: Yes, the buyback program. Yes, it’s because of the daily limit, right, daily volume limit. We don’t want to impact or shake the price up too much. So there’s a limitation of the number of shares we can buy. That’s why 2 years is not enough. We probably can finish — can buy $50 million a year probably. That’s why we need to extend to 2026.

Operator: Do you have any follow-up question, Alicia?

Alicis a Yap: No, thank you, that’s it.

Operator: [Operator Instructions] Our next question comes from the line of Thomas Chong from Jefferies.

Thomas Chong: [Interpreted] I have two questions. First, how should we expect the 2025 online games outlook? And my second question is that how should we expect the operating margin trend in the next few years?

Charles Zhang: [Foreign Language] Your question is about the Changyou’s game or the industry, the game industry in 2025?

Thomas Chong: About Changyou.

Dewen Chen: [Foreign Language]

Unknown Executive: [Interpreted] For 2025, our goal is to maintain the stability of our older games, and we will strive to make them grow. We have around 10 games under development now with some of them having obtained a license approval, including one game called NBA Absolute Superstar, [Foreign Language], and the other one called Hero: Three Kingdoms, [Foreign Language]. We will start the testing recently. And besides, we also have a new version of the TLBB PC game that we’re going to have a monetization test recently. Okay, we will have start the test for a new version of our TLBB PC game.

Operator: Thank you. We have now reached the end of the question-and-answer session. Thank you all very much for your questions. And with that, we conclude our conference call today. Thank you for your participation. You may now disconnect.

Charles Zhang: Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]