's CEO Discusses Q1 2012 Results - Earnings Call Transcript Inc. (SOHU)

Q1 2012 Earnings Call

April 30, 2012 8:30 am ET


Tip Fleming – Investor Relations, Christensen

Charles Zhang – Chairman and Chief Executive Officer

Belinda Wang – Co-president and Chief Operating Officer

Carol Yu – Co-president and Chief Financial Officer


Dick Wei – JP Morgan

Alicia Yap – Barclays Capital

Eddie Leung – Bank of America/Merrill Lynch

Jialong Shi – CLSA

Catherine Leung – Goldman Sachs

Mark Marostica – Piper Jaffray

Jiong Shao – Macquarie



Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu’s First Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management’s prepared remarks, there will be a question-and-answer session. Today's conference 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, Tip Fleming from Christensen. Please go ahead, sir.

Tip Fleming

Thank you, Operator. Thank you all for joining us today to discuss’s first quarter 2012 results. On the call are Chairman and Chief Executive Officer, Dr. Charles Zhang; Co-President and Chief Operating Officer, Belinda Wang; Co-President and Chief Financial Officer, Carol Yu. Also with us from Changyou are Chief Executive Offiecr, Tao Wang; President and Chief Operating Officer, Dewen Chen; and Chief Financial Officer, Alex Ho; as well we also have CEO of Sogou, Xiaochuan Wang; Vice President of Sohu and CEO of Sohu Video, Ye Deng.

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 in this conference call are 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 statement. For more information about the potential risks and uncertainties, please refer to the company’s filings with the Securities and Exchange Commission, including its registration statement and most recent annual report on Form 10-K.

Now, let me turn the call over to Dr. Charles Zhang, the Chairman and CEO. Charles, please proceed.

Dr. Charles Zhang

Thank you and thanks everyone for joining our call. In the first quarter, our financial results were mixed. Our brand advertising business got off to a slow start mainly due to the early Chinese New Year holiday and the softening macroeconomic conditions in China. Some of our advertising customers were cautious with its spending due to concerns about the slow down in China’s economic growth. As a result, brand advertising revenue grew to slower than that in a normal year.

The good news is that search revenues and our overall Sogou business continued to deliver solid growth. And we are pleased with the better than expected results of Changyou, our online game subsidiary. Changyou’s flagship games, Tian Long Ba Bu and DDTank, continue to rank among the top games in China in the MMO and Web-based game categories, respectively.

Shen Qu, a new Web-based game, was well-received by gamers upon launch, adding to the top-line results. For the remainder of 2012, Changyou has four new games due for launch that feature different genres and graphic styles, and are expected to draw new communities of users while expanding our user base.

Now, I would like to share some first quarter financial highlights with you. Total revenue were US$227 million, up 30% year-over-year and are down 8% quarter-over-quarter. Net brand advertising revenue were US$61 million, up 7% year-over-year and in line with our prior guidance.

Sogou revenues were US$23 million, exceeding our guidance of US$21 million. This was 184% year-over-year and down 1% quarter-over-quarter.

Online games revenue reached a quarterly record of US$127 million, up 34% year-over-year and 3% quarter-over-quarter. Non-GAAP diluted EPS or US$0.61, excluding the high-end of our guidance by US$0.06, (inaudible).

Despite unfavorable operating environment for brand advertising revenues were few committed for our strategy that [stands] around our important segments, in particular, online video.

We clearly understand that Internet business is evolving tremendously in China, the chance for our opportunities and the challenges, which we need to proactively [move] on.

Due to a heavy investment in human capital and the premium content, we are inevitably experiencing temporary pressure financially due to the conditions herein.

However with our total ability to execute, we believe with the investments will enhance our strong position in the market over the long run.

Now, let me discuss our online video business in more detail. In the first quarter, we continue to focus on attracting viewers to Sohu video platform with compelling content and improved (inaudible).

Starting from Chinese New Year, we broadcasted our hit TV drama “Country Love Serenade”, directed by Zhao Benshan a famous comedian in China on an exclusive basis. The hit drama attracted over up to 260 million video views in the first of 30 days of broadcast, a new record for a single TV drama on our video platforms.

Needless to say, we have a pipeline; it’s rather rest of 2012 that continues to be the early of the industry.

For example, in the second quarter, we are due to broadcast the most anticipated TV series in 2012 called (inaudible), which is seen around a medical system in China and a featuring by the utmost top (inaudible) in China. Even before it did air, this TV series is already one of the most talked about topics on the streets.

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