's CEO Discusses Q2 2012 Results - Earnings Call Transcript Inc. (SOHU)

Q2 2012 Earnings Call

August 6, 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

Alex Ho – Chief Financial Officer, ChangYou


Dick Wei – JPMorgan

Eddie Leung – Bank of America/Merrill Lynch

Philip Wan – Morgan Stanley

Alicia Yap – Barclays Capital

Fei Fang – Goldman Sachs

Jiong Shao – Macquarie Capital Securities

Jialong Shi – CLSA:



Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining Sohu's Second 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 Q&A 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, Tip Fleming from Christensen. Please go ahead, sir.

Tip Fleming

Thank you, operator. Thank you all for joining us today to discuss's second 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, Carol Yu; also with us from Changyou are Chief Executive Officer, Tao Wong; President and Chief Operating Officer, Dewen Chen; and Chief Financial Officer, Alex Ho. Also with our are 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, Chairman and CEO. Charles, please proceed.

Charles Zhang

Thank you. Thanks to everyone for joining our call. We had a solid second quarter with total revenues rising nearly 30% from last year, despite challenges faced in our brand advertising business. As China’s economic growth continued to decelerate and we initiated some operational transitions in our online video business, revenue from brand advertising recorded only a low single-digit year-on-year increase.

But overall, we are pleased with our performance at the group level as our search and online game segments both remained on a solid upward path. For Search, Sogou again posted triple-digit revenue growth on a year-on-year basis. Our online game subsidiary Changyou achieved a record result at both the top and the bottom-line, supported by strong performance with its MMO and web-based game franchises.

We believe the blended results help demonstrate the resilience of our business mix and the benefit of having diversified operations.

Now I would like to share some second quarter financial highlights with you. Total revenues were US$256 million, up 29% year-on-year and 13% quarter-on-quarter exceeding the high end of our guidance by US$6 million. Net brand advertising revenues were US$69 million, up 2% year-on-year and 14% quarter-on-quarter. Sogou revenues were US$30 million, up 123% year-over-year and 34% quarter-over-quarter. Online games revenue reached a quarterly record of US$137 million, up 35% year-on-year and 8% quarter-over-quarter. Non-GAAP diluted EPS were US$0.42.

Now let me discuss our online video business in more detail. We remain optimistic about the online video industry. First, in China online video is already a top Internet application with over 350 million users. We believe brand advertisers will continue to allocate more advertising dollars to this segment.

Second, this was related with the significant decline in the market prices of online video content, which would ease the industry’s content cost pressure.

One of our competitive advantages is our compelling content offering. In the second quarter, Sohu Video continued to focus on giving comprehensive, interactive platform with a rich selection of content for users. On the purchased content side, hit TV series there is (inaudible) reached a record of 355 million video views in the first 30 days of broadcast, setting a new record for single-TV drama on our platform.

On the original content side, our reality show, (inaudible) co-produced with Hunan Satellite TV attracted a significant amount of users’ engagement on our site. The final seven episodes of the show are broadcasted during primetime on Hunan TV. Our high quality programs are clearly enhancing our users’ stickiness, which was evidenced by a number of user and usage statistics, for example, according to comScore, in Q1 2012, the time spent per visitor on Sohu Video increased by about 26% from the previous quarter.

During the second quarter, we also began to get prepared for the 2013 content. We plan to broadcast at least one to two hit movie, hit TV drama each month. We will strengthen our cooperation with professional studios and TV stations for Sohu original production. And last, we will enhance our website functionalities and the ease of use to encourage users to upload and to share their self-produced video clips.

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