Sohu.com - Earnings Call - Q3 2025

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. 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'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.

Huang Pu (Director of Investor Relations)

Thanks, Director. Thank you for joining us to discuss Sohu's third quarter 2025 results. On the call are Chairman and Chief Executive Officer, Dr. Charles Zhang, CFO Joanna Lv, and Vice President of Finance, James Deng. Also with us are Chairman Yunxi Wu, Dewen Chen, and CFO Yaobin Wang. Before management begins their prepared remarks, I would like to remind you of the company's 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, and therefore, you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a numbe

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 (Chairman and CEO)

Thanks, Huang Pu, and thank you everyone for joining our call. In the third quarter of 2025, our marketing services revenues were in line with our guidance. Both our online game-based revenues and the bottom-line performance benefiting from our continuous efforts in the gaming business were well above our prior expectations. We recorded positive net income this quarter. Now, for the Sohu Media platform, we continue to refine our products and integrate resources to better meet users' needs and enhance their experiences. Meanwhile, leveraging our product matrix and distinctive events, we remain committed to generating and distributing diversified premium content and continuously energizing our platform. Our differentiated advantages and unique IP enabled us to further unlock monetization potential. For online games, both new and established titles delivered outstanding performance, driven by our deep understanding of our needs and proven operational expertise.

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 2025, total revenues: $180 million, up 19% year-over-year and 43% quarter-over-quarter. Marketing services revenues: $14 million, down 27% year-over-year and 13% quarter-over-quarter. Online game revenues: $162 million, up 27% year-over-year and 53% quarter-over-quarter. GAAP net income attributable to Sohu.com Limited: $9 million, compared with a net loss of $16 million in the third quarter of 2024 and a net loss of $20 million in the second quarter of this year. Non-GAAP net income attributable to Sohu.com Limited was $9 million, compared to a net loss of $12 million in the third quarter of last year and a net loss of $20 million in the second quarter of this year. Now, I'll go through our key businesses in more detail.

For Sohu platform, we continue to leverage the cutting-edge technologies to optimize our products and promote deeper integration across our product matrix. These enable us to further adapt to various scenarios to improve operational efficiencies and enhance users' experiences. At the same time, relying on the synergies between various online and offline events, we continue to stimulate the generation and dissemination of premium content and attract more users to our platform. During the quarter, we hosted a variety of events and activities to further build a vigorous social networking platform, providing users with abundant opportunities for online and offline communications. The 2025 Autumn Convention of Sohu Video Influencers effectively promoted deeper communication among broadcasters across different verticals and significantly increased their vitality and retention on our platform.

The ongoing 2025 Sohu K-pop Dancing Festival and also the Hanfu Model Competition, both successfully ignited the passion of young people and further consolidated our influence in these areas. All these activities gained widespread recognition and popularity and continuously infused a large amount of content and traffic into our platform. As a result, we were able to further expand the influence of Sohu and fostered a prosperous platform ecosystem. In addition, we also held special themed activities such as the Halloween American TV Series Party. It not only engaged users with innovative content forms but also became a highlight of our Sohu Video American TV Series month, which brought audiences with classic dramas such as The Western Westworld and also The Mandalorian. Meanwhile, we also launched multiple TV dramas, original drama, and short dramas during the quarter to attract and retain users.

The original drama, The Rebirth, was well received by audiences and attracted more users to our platform. Through our flagship IP, the Charles Physics Class, we continue to strengthen our differentiated competitive advantages while at the same time exploring greater monetization opportunities. With Charles Physics Class, we were able to reach a wider range of audiences through discussions on popular science topics and hot events and brought physics knowledge closer to the general public. It not only helped us generate unique and premium content but also consistently unlocked monetization potentials. Together with the resources of Sohu's product matrix and our marketing capabilities, we actively adapted to changes in the market trend and provided advertisers with customized marketing solutions through a series of innovative campaigns and events, which are highly recognized by both audiences and advertisers.

Next, turning to our online game business, in the third quarter of 2025, we launched a new PC game, TLBB Return. Based on a beloved early version of TLBB PC, the game features reduced grinding and pay-to-win pressure, offering players a lighter gaming experience. It helped us attract back many former players, and its revenue performance has so far exceeded our expectations. For TLBB PC, we also launched game content for TLBB Vintage that recreated the classic design of the game, which evoked a wave of nostalgia among players. Players' enthusiasm and in-game spending were far beyond our expectations. With regular TLBB PC, we offered a new rare gear as rewards for our promotional events and redesigned the cross-server clan war gameplay, which boosted willingness to pay among higher-paying players.

For mobile games, we launched an expansion pack for Legacy TLBB Mobile, which brought an enhancement to the skills of a Wang clan alongside a new storyline and engaging activities. Revenue for this game remained stable on a sequential basis for the TLBB Mobile. Next quarter, we will continue to launch expansion packs and content updates for the TLBB series and other titles to further keep players engaged. Amid an increasingly competitive market, we remain committed to our top game strategy. We follow a user-centric philosophy and adhere to sound methodologies and a systematic R&D process to enhance efficiency and product success rate. As a part of the strategy, we are taking concrete steps to unlock the potential of our TLBB IP.

Meanwhile, building upon our core strengths in MMORPGs, we are working to diversify into new types of games, including card-based RPGs, sports games, and casual games, as well as to expand our offerings for global markets. Now, I'd like to give an update on the ongoing share repurchase program. As of November 13th, 2025, Sohu has repurchased 7.6 million ADS for an aggregate cost of approximately $97 million, so basically two-thirds of the $150 million program. With that, I will now turn the call over to Joanna, please.

Joanna Lv (CFO)

Thank you, Charles. I will now walk you through the key financials of our major segments for the third quarter of 2025. All numbers on a non-GAAP basis. You may find a reconciliation of non-GAAP to GAAP measures on our website. For Sohu Media platform, quarterly revenues were $17 million, compared with $73 million in the same quarter last year. Quarterly operating loss was $71 million, compared with an operating loss of $72 million in the same quarter last year. For Changyou, quarterly revenues were $163 million, compared with $129 million in the same quarter last year. Quarterly operating profit was $88 million, compared with operating profit of $62 million in the same quarter last year. For the fourth quarter of 2025, we expect marketing service revenues to be between $15 million and $16 million.

This implies an annual decrease of 15%-20% and a sequential increase of 10%-18%. Online game revenues to be between $130 million and $123 million. This implies an annual increase of 3%-12% and a sequential decrease of 24%-30%. Both non-GAAP and GAAP net loss attributable to Sohu.com Limited to be between $25 million and $35 million. This forecast reflects Sohu's 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 (participant)

Thank you. We will now begin the question-and answer session. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. We will now take our first question from the line of Thomas Chong at Jefferies. Please go ahead.

Thomas Chong (Analyst)

Hi, good evening. Thanks, Management, for taking my question. My first question is about the online game business. Given our online games perform very strongly in Q3, I'm just wondering how's the quarter-to-date performance so far? In particular, when I look into the guidance, it basically implies a sequential decline. I'm not sure if we are a bit conservative in giving out the Q4 gaming guidance. On the other hand, when I look into our portal business, when I look into the advertising side, we are actually seeing quite a sequential rebound in terms of the advertising revenue. Can Charles, may I ask about how you think about the macro sentiment coming into Q4 as well as the trend for different categories? Based on the current visibilities, how should we think about the brand advertising outlook in 2026, if there's any color on that? Thank you.

Charles Zhang (Chairman and CEO)

The first question is about online game, yeah, whether I'm being conservative in guidance.

我们三季度表现非常强劲，那我们四季度目前为止表现怎么样？然后我们四季度指引是环比下降的，想问我们是不是这个指引给的比较保守？

目前来看，四季度的表现基本符合预期。三季度主要是新游戏，可能包括归来，发行得比较成功。同时，怀旧天龙的星服也做到了历史最好的成绩，所以导致第三季度的业绩比预估要高很多。那第四季度的收入高低主要看新游戏，可能包括归来以及天龙端游，经典版天龙手游在第四季度推出的内容和活动的效果如何。

Joanna Lv (CFO)

The performance of the fourth quarter so far is in line with our expectation. The strong third quarter results is primarily driven by the successful launch of new game TLBB Return. Meanwhile, the new servers of TLBB Vintage also performed very well, achieving historic highs. The actual revenue of the third quarter exceeded our expectations a lot. The performance of the fourth quarter depends mainly on the performance of new game TLBB Return and the performance of the content and the activities that we will launch during the fourth quarter for TLBB PC, Legacy TLBB Mobile. Yes, thank you.

Charles Zhang (Chairman and CEO)

In line, right? Yeah. Okay, I think the Q4 rebound, right? Thomas, you're saying?

Thomas Chong (Analyst)

Yes.The advertising Q4.

Charles Zhang (Chairman and CEO)

Yeah. I think since the whole ad base is not that big, right? So it's kind of not, it's kind of oscillated a little bit. It depends on some pack contract allocated to this quarter because the contract was signed late and then went to the next quarter, right? We do have some, so first of all, the macroeconomic situation is really not that good, and the pressure in the different sectors like auto and IT services. It's continued to kind of deteriorate. As our new, we have kind of an innovative, unique marketing campaign or services that are kind of unique that still were able to attract some of the advertising. We were able to go against the trend and basically stabilize the advertising revenue on a small basis. Because I think in Q4, we have some good events that we're able to create, are able to create such opportunities for them to advertise.

Thomas Chong (Analyst)

I see. Thank you, Charles. May I ask a follow-up question about AI? Can you comment about how AI is integrated within Sohu right now? Are we actually seeing better productivity, cost savings, or better advertising monetization so far? Thank you.

Charles Zhang (Chairman and CEO)

I think AI has more impact, more usage, or improvement of productivity on the gaming business, right? For Sohu, we are not developing a large language model. We are using AI to improve the user experience. Like for our social media platform, the AI can summarize the video's content and give the subtitles. Also, in our new service, news app, there is AI-enhanced search and question answering features. We are basically using AI and different models to improve our existing service of media and social network instead of spending a lot on the hardcore large language model. Yeah, maybe the AI can improve. 就说那个 AI确实大模型确实可以改善游戏的效率，是吧? 对。 主要是在美术生成、编程，以及在方案撰写可以执行。

Joanna Lv (CFO)

The application of AI is mainly applied in art design and the code generation and the game planning creation.

Thomas Chong (Analyst)

Thank you.

Charles Zhang (Chairman and CEO)

Okay.

Operator (participant)

Thank you. We will now take our next question from Alicia Yap at Citi. Please go ahead, Alicia.

Alicia Yap (Analyst)

Hi, yeah, thank you. Good evening, Management. Thanks for taking my questions. I have a couple of follow-ups. First of all, on the gaming, can Management share with us what are the biggest surprises that you learned from the TLBB Return version? Which one is the bigger driver in terms of helping on the outperformance for this quarter? Is that the TLBB Vintage new server, or is that the new games TLBB Return? I understand you give out the fourth quarter guidance. You mentioned this is reflecting the current situation that you are seeing. I wanted to know if the Vintage server that you are seeing the drop-off of the user, or you actually see that the new title TLBB Return is seeing the sequential drop-off or decline on the user and the revenue.

Any colors that you can give us on that for the three-queue and four-queue would be helpful. The second question for Charles on the macro situation. I think you mentioned auto IT services. The ad sentiment seems to be a little bit deteriorating. Are there any industry verticals or industry subsector that you are seeing is actually either improving on the sentiments, or at least the sentiment is about the same as last few quarters? Thank you.

有一些问题是我们那个我们觉得天龙归来表现得比较比我们预期的好的点是什么？然后归来和怀旧哪个对我们三季度收入增长的贡献比较大？然后就是四季度我们现在是指引的是下降，还是增幅在下降，还是进来的用户和收入增加？

Okay. 天龙归来给我们惊喜的第一个原因是用户的付费情况超出了我们的预期。

Joanna Lv (CFO)

The first surprise from TLBB Return is the user spending is beyond our expectation.

因为天龙归来的定位是轻松，每天花的时间很少，然后整个游戏的付费也减了很多。所以我们原来认为天龙归来的用户的付费不会太好，但是没想到用户的付费还是超出了我们的预期。这是第一个。

Because TLBB Return was positioned to be a gameplay is more relaxing, and it requires less time, and the demand for paying spending is also less. Originally we thought the user's paying would not be very good.

第二个原因是天龙归来的用户的留存情况特别好，非常稳定，也比我们想象的要好。

Second, the retention, user retention of TLBB Return is very stable, better than our expectation.

至于归来和怀旧，各个贡献比较大，我们不单独披露具体的那个对单个具体单个游戏的那个收入。

As for the contribution to revenue increase of the quarter, we don't disclose the specific number for individual game.

四季度指引体现来看的话，怀旧和天龙归来的用户都是相对稳定的，但是收入都在下降，主要是因为怀旧第三季度星服做得特别好，所以我们第四季度会稍微的不做那么多的促销活动。那归来第四季度收入下滑是因为它作为新上线的游戏，它比刚刚上线的时候下滑一些是正常的。用户的在上线的刚刚上线的时候付费的意愿是更强烈的。

So far, the user base of both TLBB Return and TLBB Vintage are both very steady, but their revenues are actually trending down because for TLBB Vintage, its performance in the third quarter was very good. In the fourth quarter, we planned to roll out fewer promotional activities. For TLBB Return, as it was newly launched in the third quarter, it really experienced a natural decline compared with the initial launch period because users tend to have stronger willingness to pay when the game was initially launched.

Charles Zhang (Chairman and CEO)

Okay, so your second question is about the ad situation, right? The sectors?

Alicia Yap (Analyst)

Yeah.

Charles Zhang (Chairman and CEO)

I think the overall, you're really kind of advertising market is under pressure. For example, the auto industry, there's the two counter-effective trends. First of all, the competition is fierce because there are just too many car companies, right? They need to stand out, try to have a larger market share. There's the pressure to market and to promote their brands and the sales. On the other hand, because of the too many cars, the profit margin is very low for them. The ad budget for each car company is thinning, getting less.

That's why it's the, so with this situation, we have some kind of unique, like the physics class, or like myself and live streaming, to live streaming visit of their factories and some unique, and also with social network, social media distribution, all kinds of unique advertising instead of the traditional sponsorship of our channels, the portal channels. We're able to get the ad budget. The auto industry is kind of flat, but it's still declining. We are also looking at the other consumer electronics. We are just, and that manufacturer base, China's manufacturer base is very strong, and they have a lot of new products, but they need to also market those products to domestic market.

Still with our innovative offering of live streaming or social media distribution and lectures, physics lectures, and various events, we were able also to get some of those consumer electronics advertisers. That is why we were able to, with this deteriorating market situation, we are still able to get some of the advertising part or section and still at a relatively small space.

Alicia Yap (Analyst)

Okay. Thank you, Charles. Thank you.

Operator (participant)

Thank you. I am showing no further questions. With that, we conclude our conference call today. Thank you for your participation. You may now disconnect your line.