Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's third quarter 2021 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 would now like to turn the conference over to your host for today's conference call, Pu Huang, Investor Relations Director of Sohu. Please go ahead.
Thanks, operator. Thank you for joining us today to discuss Sohu's third quarter 2021 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 today are Changyou CEO, 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 unique 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 statement.
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.
Please also be reminded that Sohu's results of operations and the disposal gain recognized in this quarter have been classified as discontinued operations. The results that we talk about are related to continuing operations only. With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed.
Thanks, Pu Huang, and thank you to everyone for joining our call. For the third quarter of 2021, facing spot outbreaks of the COVID-19 pandemic and uncertainties in the macroeconomic environment, we continued to focus on refining our technology and developing products.
Overall, we've delivered better than expected top line and bottom line performance thanks to the solid performance of our online game business. For Sohu Media, we kept improving our products while constantly expanding premium content and stimulating social media distributions, which further consolidated our influence as a mainstream media platform. For Sohu Video, we continue to focus on our twin-engine strategy.
We applied our advanced live broadcasting technology into various events and scenarios as an effective tool for generating even more video content. For Changyou, our online games performed well during the quarter, with revenue exceeding the high end of our prior guidance.
Now let me go into details about each of these businesses in a moment, but first, a quick overview of financial performance. For the third quarter of 2021, total revenues $216 million, up 37% year-over-year and 6% quarter-over-quarter. Brand advertising revenues were $34 million, down 18% year-over-year and 8% quarter-over-quarter.
Online game revenues $167 million, up 65% year-over-year and 10% quarter-over-quarter. GAAP net income from continuing operations attributable to Sohu.com Limited was $12 million compared with a net loss of $15 million in the third quarter of 2020, and net income of $22 million in the second quarter of 2021.
Non-GAAP net income from continuing operations attributable to Sohu.com Limited, $17 million, compared with a net loss of $7 million in the third quarter of last year, and net income of $25 million in the second quarter of this year. Now I'll go through some of the key businesses.
First, Sohu Media Portal and Sohu Video. For Sohu Media Portal, we constantly work on upgrading our products and refining our technology. During the quarter, we further enhanced the audio function of our news app and significantly improved the overall audio video user experience.
These audio functions largely improved the content distribution efficiency and further, you know, demonstrated its differentiation advantage of the news app. For Sohu Video, we continue to execute the twin engine strategy.
We kept working on developing long-form original drama and series, and reality shows to enrich our content library and also the short video content. Our advanced live broadcasting technology has been comprehensively integrated into our product mix, and widely adopted in various scenarios, including content marketing campaigns, as well as hot important social news and major events.
The technology also play an important role in our daily live reality show and support the creation of our premium content. Next, turning to Changyou. For the third quarter of 2021, Changyou performed well and its revenue exceeded the high end of our prior guidance.
The licensed card game Little Raccoon: Heroes was doing good after its launch in August, while games such as TLBB PC and Legacy TLBB Mobile managed to hold on to users and perform better than expected, as they continue to age. For PC games, we launched new expansion packs and holiday events for Qixi and other festivals for both regular TLBB PC and TLBB Vintage.
We also further optimized TLBB Vintage based on player feedback. For Legacy TLBB Mobile, we launched an expansion pack featuring a new dungeon and storyline, which is well received by players.
Next quarter, we'll roll out new content for TLBB PC, Legacy TLBB Mobile, Little Raccoon: Heroes, and other games to sustain their vitality. In terms of new game pipeline, we're developing and fine-tuning several key games, which we'll introduce to players later.
We'll continue to execute our top game strategy, promote innovation and roll out higher-quality mobile games, including MMORPGs and other diversified products. Before I pass the call to Joanna to go through our financial results in detail, we're pleased to announce that on November 13th this year, our board of directors authorized a share repurchase program of up to $100 million over a one-year period.
The repurchase program underscores our continued confidence in our long-term growth prospects, as well as ongoing commitment to increase shareholder value. With that, I'll now turn to Joanna for the financials.
Thank you, Charles. I will walk you through the key financials of our major segments for third quarter of 2021. All of the numbers that I will mention are all on a non-GAAP basis. You may find a reconciliation of non-GAAP to GAAP measures on our IR website. For Sohu Media Portal, quarterly revenues were $70 million, down 32% year-over-year and 23% quarter-over-quarter.
The quarterly operating loss was $37 million compared with an operating loss of $23 million in the same quarter last year. For Sohu Video, quarterly revenues were $23 million, flat year-over-year and up 1% quarter-over-over. The quarterly operating loss was $10 million compared with an operating loss of $12 million in the same quarter last year.
For Changyou, quarterly revenues of $117.3 million, up 63% year-over-year and 10% quarter-over-quarter. Changyou posted an operating profit of $79 million compared with $33 million in the same quarter last year. For the fourth quarter of 2021, we expect brand advertising revenues to be between $28 million and $31 million.
This implies annual decrease of 26%-33% and a sequential decrease of 8%-17%. Online game revenues to be between $140 million and $150 million. This implies annual decrease of 23%-29% and a sequential decrease of 10%-16%. Non-GAAP net loss attributable to Sohu.com Limited to be between nil and $10 million.
GAAP net loss attributable to Sohu.com Limited to be between $3 million and $6 million. This forecast reflects our current and preliminary review, which is subject to substantial uncertainty. This concludes our prepared remarks. Operator, we would now like to open the call to questions.
Certainly. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced.
If you wish to cancel your request, you can press the pound or hash key. Please note there might be a slight pause as the questions are being collated. We have a question coming from the line of Alicia Yap from Citigroup. Please go ahead.
Hi. Thank you. Good evening, Charles and management. Thanks for taking my questions. I have a few questions regarding the advertising. First of all, can you elaborate a little bit more the weakness of these online ad revenue that we saw in Q3? How much of that was due to the soft macro that leads to the ad budget cut?
Just wondering, is there any impact from the recent regulations on the celebrity or even the crackdown of the fan base economy that could impact your video ads revenue? Related to that, for the third quarter, can you remind us which vertical, industry vertical that actually have suffer in terms of their ad budget is coming in lower than expected? Which vertical actually outperforms your expectation?
As we got to the fourth quarter, online ad revenue guidance, is that reflecting the continued macro weakness or is there any, you know, specific ad industry vertical that will be actually suffer more from the weakness? Thank you.
For both the third quarter and fourth quarter, it's more of the vertical industry like the real estate. We had some exposure to the real estate industry, that, you know, some of the companies, yeah, have.
Then there's, secondly, yes, there is also some factor of a macroeconomic situation. Yeah. In terms of regulatory and time-based, those kind of things, this is very, very little impact on the ad revenue.
Okay. The same thing for fourth quarter because of the real estate, so that's why the guidance came in soft.
Yes, the fourth quarter, I think the impact, the real estate impact will be less, right?
Mm-hmm.
We are basically reorganizing our sales team efforts to, you know, expand our ad base and to have some a new kind of customers to fill in to.
I see.
Yeah.
Maybe can you remind us a little bit your maybe first top three or, you know, whatever, top five category before, which is like, let's say, a year ago, what is the top three ad category? Then for this year, Q3, given some vertical impact.
Yeah.
What are the top three?
top three definitely, the auto is number one.
Mm-hmm.
FMCG
FMCG.
Number 2.
Mm-hmm.
Real estate number three, right?
Mm-hmm.
The impact really on the real estate. Also there are some you know the pandemic you know because where our you know brand advertising depend a lot on the you know content marketing and the event-driven advertising.
Because of the pandemic, some of those major key events we couldn't do it and we cannot do it. That has some impact. Yeah. That top three, yeah. Also there's also you know some kind of impact because of the shortage of chips. Some of those auto companies their marketing plan or you know changed, right?
Mm-hmm.
Due to lack of chips and lower production rollout or marketing, you know, the activities.
Mm-hmm. I see. Okay. That's very helpful. Thanks, Charles. If I have a last one, if I may, the gaming guidance that you have for fourth quarter on the sequential decline, is that because the performance of this Little Raccoon: Heroes you are expecting them to drop off the performance in fourth quarter? Any expansion pack plan for TLBB in the fourth quarter? Thank you.
Yeah. Dewen Chen can answer that.
Uh,
Yes. The decline of next quarter revenue was mainly due to Little Raccoon: Heroes decline. For other TLBB games, we will update for expansion packs regularly.
Okay. All right. Thank you so much.
Thank you.
We have the next question. This is coming from Thomas Chong from Jefferies. Please go ahead.
Hi. Good evening. Thanks, management, for taking my questions. I have a question with regard to the online games regulatory environment. Can management comment about how the sector is trending and any color with regard to gaming approvals?
Then my second question is about Metaverse. How should we think about this new industry trend and our thoughts about our long-term spending or investment into this area? Thank you.
Gaming.
Okay. For the game version, we currently do not have any further news. Because Changyou's key game, Sea of Dawn, has already obtained the version number earlier. Another key game, TLBB PC, does not have any plans to go online in the near future. Overall, the version number has not had a particularly large impact on Changyou.
We don't have further comments on the approval issues, but for Sea of Dawn, one of our key titles, we have got the license approval last year. For New TLBB, because recently we won't launch it, so it's not a big concern for Changyou.
For Metaverse, we have recruited some enthusiastic employees in the company, and we are also studying and researching. We now have a very small team doing some experiments, because we feel that we may have to do it ourselves to, you know, understand it better. For Metaverse, we actually have built up a small team to do more research and try some new things based on the new opportunities brought by the Metaverse concept.
Thank you.
Thank you.
Thank you. Thank you.
Once again, ladies and gentlemen, it is star followed by one on your telephone keypad if you wish to ask a question. We have the next question. Right. Kindly note that we collect the questions. The next one comes from the line of Eddie Leung from Bank of America. Please go ahead.
Good evening, Charles and everyone. Just a quick follow-up on the advertising weakness. We understand that there is a demand issue because some of the advertisers. Could you also talk a little bit about potential impact you have seen from the data front, including Apple's new privacy policy as well as the new data protection law in China? Thank you.
That is a small impact or no impact. There is some more stricter requirement for the kind of advertising you have, the format that so that you know like the you know like the app front you know loading page the you know the area that require to be you know smaller and not you know trick people into you know click it. Those kind of things. That's not a major impact on the advertising and so.
Got it. Thank you.
The privacy policy and those. Sohu has been very careful and very compliant with, you know. We're not very aggressive, you know, in terms of collecting users' data and taking advantage of users' data to do, you know, marketing and targeting. That's why this kind of policy has least impact on Sohu.
Understood. Thank you, Charles.
Thank you. We have the next question. This is coming from the line of Alex Guo from Morgan Stanley. Please go ahead.
Sure. Thank you, management, for taking my question. One follow-up on—like we have seen Sohu Media Portal quarterly loss widening, whereas like for the Sohu Video quarterly loss, like, we're still like having a pretty good cost discipline. Just wanna get a sense of like how about like the investment plan onwards for the Sohu Media Portal and video business. Thank you.
The loss for Sohu Video is, you know, increased because the advertising side has more exposure to real estate industry, while the Sohu Video advertising are, you know, mostly about, you know, FMCG advertisers. Also Sohu Video's, you know, half, you know, of the revenue coming from the subscription of, you know, dramas, right? The paid subscriptions.
That's why it has. Also we do especially, we are, yeah, increasing marketing kind of a little bit in third quarter and in the future, we'll invest more, you know, into user acquisition. Spending on Sohu Video, Sohu Media first. That should explain why the media loss is, you know, larger.
Got it. Thanks a lot.
Thank you. We have the next question. This is coming from the line of Alicia Yap from Citigroup. Please go ahead.
Hi. Thanks for taking my follow-up questions. I just have one question on the use of cash. In addition to the buyback that you announced, would you also consider a one-time special dividend given the amount of the cash that now you have? Thank you.
Use of cash, first of all, I think that aside, you know, besides the buyback, we'll basically use it for user acquisition. Because over the last few years, especially last two or three years, we've been innovate on our products, like our better content and the better product features with our, you know, media portal and Sohu news app and also the Sohu Video innovations.
In order to basically to prove it, you know, prove the viability, those innovations or those product features in the right direction and prove the traction of it, you have to have more users needed to prove it.
That's why we've been underspending in the last few years, tried you know to reach profitability. Spending not on user acquisition. With this new capital, we'll spend more money you know to get more users to you know to test if our you know basically our last two years' product innovation whether it's you know viable or not.
You may ask that when is the breakeven point, right? Before we breakeven, I think we need to have some kind of user explosion or user base build up. Major user base build up for platforms like media and video to reach breakeven. Before that point, we need to spend some money on user acquisition.
We're going to spend some money on artificial intelligence R&D. Like the news apps feature, the audio feature is a direct application of AI technology. We need to invest more in R&D so that our product innovation will have a strong, you know, technology base support.
Just follow up on your user acquisition. Would that mainly be you're going to push more into lower-tier cities, or any kind of demographic that you are focusing on?
Yes. I think especially our Sohu News app will, you know, target more younger generation, younger age demographic. Because Sohu News users have been in the past more a kind of a more middle-aged and with high income and those kind of thing, you know. They care about the major, you know, breaking news or international news and those kinds. We want to acquire more younger users into some towards third or fourth tier cities. Yes.
Okay. Very helpful. Thanks, Charles.
Okay.
Once again, ladies and gentlemen, it is Charles followed by one on your telephone keypad if you wish to ask a question. We have a question coming from the line of Vlad Dian from Palisades Capital. Please go ahead.
Hi, this is Connie from Palisades Capital. Thank you for taking my question. Congratulations again on getting our closing Sohu sale and unlocking value. We understand the company has announced with the buyback and also Charles just explained on the potential use of cash for user acquisition and AI R&D.
First question would be, after the closing of the Sohu sale, Sohu has a very significant firepower. Are there any other potential future investment area that Sohu have in mind? Will you consider M&A or other investment strategy? It'll be great to hear a bit more to elaborate that.
So far we don't have a plan for mergers and acquisitions. Mostly we'll really fight our battle in the battlefield that we have been doing, where we underspent, and now we're going to spend some money.
As time goes, we'll probably look at some. You know, we will probably look at some smaller investments in early-stage companies and technologies for the purpose of strategic investment and to defend our. You know, basically to, you know, for technology for them. Yeah. But no major
Thank you.
M&A thinking yet or yeah.
Understood. In terms of, technology investment or small size company as venture capital investment.
Yeah.
Any specific, like technology or sector, Sohu would be particularly interested in?
Yeah, as I said, probably artificial intelligence is the area that we're, you know, we had a Sogou before, and there's some really nice technologies. Now we sold Sogou, so we don't have a, you know, we need to build our own tech center to really, you know, build the tech firepower to drive our product innovation.
I think in the artificial intelligence, AI area, like the audio feature and also, you know, the digital image, those really are using a lot of, you know, AI deep learning technology to build those. I think this for a Media Portal for media and for news and for media and for communication company. Our innovation are mostly on in terms of you know human to machine interface and you know this kind of AI application in this area. Yeah.
Thank you very much. My last question would relate it more to Changyou business. We know that Changyou has great IP attracting loyal gamer base and also has a very good cash generating abilities.
We're just wondering if you have any capital market strategy for Changyou in the future, considering that we have multiple listing market exchange in China mainland, also in Hong Kong, very attractive for this type of business. Just wondering if there's something that in line with your corporate strategy in the future.
Yes, if it is an attractive option, we will, we'll seek that path. It depends on regulatory requirements for, let's say, for domestic listing. It's kind of, you know, regulatory. Right now it's still not possible. In other markets, if it is attractive, you know, we can, we will consider that.
Thank you very much, Charles.
Okay. You're welcome.
Thank you. We have no further questions at this moment. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect now.