Sohu.com (SOHU) Q1 2025 Earnings Call May 19, 2025 07:30 AM ET Company Participants Pu Huang - Director, IRCharles Zhang - Founder, Chairman & CEOJoanna Lv - CFOThomas Chong - Managing DirectorNone - Executive Conference Call Participants Alicia Yap - Analyst Operator Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After management's prepared re ...

Financial Performance and Key Metrics - In Q1 2025, total revenues were $136 million, down 3% year-over-year and up 1% quarter-over-quarter [7] - Marketing services revenues were $14 million, down 15% year-over-year and 27% quarter-over-quarter [7] - Online game revenues were $117 million, flat year-over-year and up 7% quarter-over-quarter [7] - GAAP net income was $182 million compared to a net loss of $25 million in Q1 2024 [8] - Non-GAAP net loss was $16 million compared to a net loss of $22 million in Q1 2024 [8] Business Line Performance - Sohu Media platform revenues were $70 million, compared to $20 million in the same quarter last year, with an operating loss of $70 million [19] - Changyou's quarterly revenues were $180 million, down from $190 million in the same quarter last year, with an operating profit of $55 million [19] Market Data and Key Metrics - For Q2 2025, marketing services revenues are expected to be between $60 million and $70 million, implying a year-over-year decrease of 14% to 19% [20] - Online game revenues are expected to be between $96 million and $106 million, implying a year-over-year decrease of 28% to 35% [20] Company Strategy and Industry Competition - The company is focusing on enhancing its social media platform and leveraging unique IPs for monetization opportunities [6] - The online gaming business is adopting a top game strategy, diversifying its portfolio with various game types, and expanding into global markets [15][16] Management's Comments on Operating Environment and Future Outlook - Management noted that the advertising sentiment is mixed, with the auto sector performing better while luxury goods and alcohol spending is declining [24] - The company expects a similar trend in advertising for the second half of the year, with a focus on accelerating growth through its social network platform [25] - AI is seen as beneficial for the gaming business, improving efficiency in art design and production [29] Other Important Information - The company reversed a tax expense previously recognized, amounting to approximately $199 million, which was an accounting treatment issue rather than a cash flow event [8][42] Q&A Session Summary Question: Recent trend in advertising sentiment and outlook for the second half - Management indicated that the auto sector is performing better, while luxury goods and alcohol spending is declining, with expectations for a similar trend in the second half [24][25] Question: Impact of AI on advertising and online games - Management stated that AI has a marginal impact on the media platform but is beneficial for gaming, improving efficiency in various production aspects [26][29] Question: Details on the tax reversal - The tax reversal was an accounting issue related to uncertainty that has now been resolved, with no actual cash flow involved [42][45] Question: ADR delisting risk and alternative plans - Management noted that the situation is speculative and that they would consider alternatives if necessary, but currently, there are no immediate plans [48][52]

Core Viewpoint - Sohu.com Limited reported strong financial results for the first quarter of 2025, with marketing services and online game revenues exceeding expectations, while also benefiting from a significant tax reversal that contributed to a net income of $182 million [2][3][11]. Financial Performance - Total revenues for Q1 2025 were $136 million, a decrease of 3% year-over-year but an increase of 1% quarter-over-quarter [5]. - Marketing services revenues were $14 million, down 15% year-over-year and 27% quarter-over-quarter [5]. - Online game revenues were $117 million, flat year-over-year and up 7% quarter-over-quarter [5]. - Both GAAP and non-GAAP gross margins were 76%, compared to 77% in Q1 2024 and 73% in Q4 2024 [6]. - GAAP operating expenses were $122 million, down 9% year-over-year and 1% quarter-over-quarter [7]. - GAAP net income attributable to Sohu.com Limited was $182 million, or $6.07 per fully-diluted ADS, compared to a net loss of $25 million in Q1 2024 [11]. Tax Reversal Impact - The company fully reversed a tax expense of approximately $199 million related to a one-time transition tax, resulting in a significant income tax benefit for Q1 2025 [3][9]. Non-GAAP Financial Measures - Non-GAAP net loss attributable to Sohu.com Limited was $16 million, or a net loss of $0.55 per fully-diluted ADS, compared to a net loss of $22 million in Q1 2024 [12]. - Non-GAAP results exclude share-based compensation and the income tax benefit related to the Toll Charge [4][21]. Liquidity and Capital Resources - As of March 31, 2025, the company had cash and cash equivalents, short-term investments, and long-term time deposits totaling approximately $1.2 billion [13]. Business Outlook - For Q2 2025, Sohu estimates marketing services revenues between $16 million and $17 million, indicating an annual decrease of 14% to 19% [27]. - Online game revenues are expected to be between $96 million and $106 million, reflecting an annual decrease of 28% to 35% [27].