Sohu.com(SOHU) - 2022 Q3 - Quarterly Report

Sohu.com Q3 2022 Financial Results Financial Highlights The company reported a year-over-year revenue decline to $185 million and a shift to a GAAP net loss of $22 million Q3 2022 Key Financial Metrics | Metric | Q3 2022 (US$) | YoY Change | QoQ Change | | :--- | :--- | :--- | :--- | | Total Revenues | $185 million | -14% | -5% | | Brand Advertising Revenues | $26 million | -24% | +3% | | Online Game Revenues | $149 million | -11% | -5% | | GAAP Net Loss | $22 million | vs. $12M Income | vs. $9M Income | | Non-GAAP Net Loss | $17 million | vs. $17M Income | vs. $12M Income | Management Commentary Management cited macroeconomic headwinds but noted better-than-expected bottom-line results due to cost controls - The company faced severe headwinds from the COVID-19 pandemic and macroeconomic uncertainties during the quarter[3] - Bottom-line performance was better than expected, attributed to strict budget controls and strong results from the online game business[3] - Strategic focus remains on product improvements and executing the "Twin Engine" strategy for Sohu Video[3] Consolidated Financial Results Consolidated results show declining revenue and gross margin, leading to an operating loss of $18 million Revenues Total revenues fell 14% year-over-year to $185 million, driven by declines in both advertising and online games Revenue Breakdown (Q3 2022) | Revenue Stream | Amount (US$) | YoY Change | QoQ Change | | :--- | :--- | :--- | :--- | | Total Revenues | $185 million | -14% | -5% | | Brand Advertising | $26 million | -24% | +3% | | Online Games | $149 million | -11% | -5% | - The year-over-year decrease in online game revenues was mainly attributed to the natural decline of Little Raccoon: Heroes[4] Gross Margin Overall gross margin decreased to 71%, impacted by a significant drop in brand advertising profitability Gross Margin Analysis | Metric | Q3 2022 | Q3 2021 | Q2 2022 | | :--- | :--- | :--- | :--- | | Overall Gross Margin | 71% | 74% | 73% | | Brand Advertising Gross Margin | 2% | 29% | 4% | | Online Games Gross Margin | 84% | 83% | 84% | Operating Expenses and Profit/Loss Increased marketing spend drove operating expenses up 11% YoY, resulting in a GAAP operating loss of $18 million - GAAP operating expenses increased 11% YoY and 14% QoQ to $150 million, mainly due to higher marketing expenses[7] Operating Profit/(Loss) Comparison | Metric | Q3 2022 (US$) | Q3 2021 (US$) | Q2 2022 (US$) | | :--- | :--- | :--- | :--- | | GAAP Operating Loss | ($18 million) | $25 million (Profit) | $10 million (Profit) | | Non-GAAP Operating Loss | ($17 million) | $28 million (Profit) | $11 million (Profit) | Net Income/Loss and Liquidity The company reported a GAAP net loss of $22 million but maintained a strong liquidity position of $1.39 billion Net Income/(Loss) Comparison | Metric | Q3 2022 (US$) | Q3 2021 (US$) | Q2 2022 (US$) | | :--- | :--- | :--- | :--- | | GAAP Net Loss | ($22 million) | $12 million (Income) | $9 million (Income) | | Non-GAAP Net Loss | ($17 million) | $17 million (Income) | $12 million (Income) | | GAAP Net Loss per ADS | ($0.63) | - | - | - As of September 30, 2022, cash and cash equivalents, short-term investments, and long-term time deposits totaled approximately US$1.39 billion[10] Segment Performance: Changyou The Changyou segment's revenue declined 11% YoY to $150 million due to lower mobile game activity Operating Metrics PC game user metrics grew year-over-year, while mobile game metrics declined sharply despite a sequential increase Changyou Operating Metrics (Q3 2022) | Game Type | Metric | Value | YoY Change | QoQ Change | | :--- | :--- | :--- | :--- | :--- | | PC Games | MAU | 2.1 million | +6% | -6% | | PC Games | APA | 1.0 million | +4% | +3% | | Mobile Games | MAU | 2.5 million | -45% | +25% | | Mobile Games | APA | 0.6 million | -44% | +27% | - The quarter-over-quarter increases in mobile game MAU and APA were primarily driven by the launch of Sea of Dawn[11] Financial Results Changyou's revenue fell 11% YoY, and higher marketing costs led to a 26% drop in GAAP operating profit Changyou Financials (Q3 2022) | Metric | Amount (US$) | YoY Change | QoQ Change | | :--- | :--- | :--- | :--- | | Total Revenues | $150 million | -11% | -6% | | GAAP Operating Profit | $57 million | -26% | -32% | | Non-GAAP Operating Profit | $58 million | -27% | -32% | - The increase in operating expenses was mainly due to a rise in marketing and promotional spending for online games[13] Business Outlook The company projects continued revenue declines and a net loss for the fourth quarter of 2022 Q4 2022 Guidance | Metric | Guidance Range (US$) | Implied YoY Change | | :--- | :--- | :--- | | Brand Advertising Revenues | $25M - $28M | -17% to -26% | | Online Game Revenues | $118M - $128M | -11% to -18% | | Non-GAAP Net Loss | ($10M) - ($20M) | N/A | | GAAP Net Loss | ($13M) - ($23M) | N/A | - This forecast is subject to substantial uncertainty, particularly regarding the potential ongoing impact of the COVID-19 pandemic[15] Appendix This section includes financial statements, non-GAAP reconciliations, and key risk disclosures Financial Statements The statements detail the quarterly net loss and the company's financial position as of September 30, 2022 - The Condensed Consolidated Statement of Operations details the components leading to the Q3 2022 GAAP net loss of $21.6 million[24][25] - The Condensed Consolidated Balance Sheet shows total assets of $1.95 billion and total liabilities of $849.5 million as of September 30, 2022[26] Non-GAAP Reconciliation This section details adjustments for items like share-based compensation to reconcile GAAP and non-GAAP measures - Management uses non-GAAP measures that exclude share-based compensation expense, changes in fair value of certain equity investments, and interest expense from the U.S. TCJA Toll Charge[16] - The reconciliation table shows that for Q3 2022, a GAAP net loss of $21.6 million was adjusted by $4.2 million to arrive at a non-GAAP net loss of $17.4 million[28] Notes and Disclosures This section outlines forward-looking statements and significant business risks, including regulatory uncertainties - The Safe Harbor Statement highlights potential risks including the Chinese economy, regulatory landscape, and the possibility of ADS trading prohibition on Nasdaq under the U.S. Holding Foreign Companies Accountable Act[20]