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Sohu.com Reports Third Quarter 2017 Unaudited Financial Results
Third Quarter Highlights
- Total revenues were
US$516 million up 26% year-over-year and 12% quarter-over-quarter. - Brand advertising revenues were
US$75 million , down 33% year-over-year and 13% quarter-over-quarter. - Sogou1 revenues were
US$257 million , up 55% year-over-year and 22% quarter-over-quarter. - Online game revenues were
US$132 million , up 34% year-over-year and 8% quarter-over-quarter. - GAAP net loss attributable to
Sohu.com Inc. wasUS$104 million , orUS$2.67 loss per fully-diluted share.
Non-GAAP2 net loss attributable toSohu.com Inc. wasUS$93 million , orUS$2.38 loss per fully-diluted share.
Dr.
Mr.
1 Sogou operates the search and search-related business and also offers Web and mobile games developed by third-party developers and other products and services to users. In the statements of operations, revenues from Sogou's search and search-related services are recorded as "Search and search-related advertising" revenue, and Sogou's revenues from such third-party games and other products and services offered to users are recorded as "Others" revenue. |
2 Non-GAAP results exclude share-based compensation expense and an impairment loss recognized with respect to available-for-sale securities of an investee that is unrelated to the Company's current business operations. Explanation of the Company's non-GAAP financial measures and related reconciliations to GAAP financial measures are included in the accompanying "Non-GAAP Disclosure" and "Reconciliations of Non-GAAP Results of Operation Measures to the Nearest Comparable GAAP Measures." |
Third Quarter Financial Results
Revenues
Total revenues for the third quarter of 2017 were
Total online advertising revenues, which include revenues from the brand advertising and search and search-related advertising businesses, for the third quarter of 2017 were
Brand advertising revenues for the third quarter of 2017 totaled
Search and search-related advertising revenues for the third quarter of 2017 were
Online game revenues for the third quarter of 2017 were
Gross Margin
Both GAAP and non-GAAP gross margin for the third quarter of 2017 was 49%, compared with 46% in the third quarter of 2016 and 40% in the second quarter of 2017.
Both GAAP and non-GAAP gross margin for the online advertising business for the third quarter of 2017 was 36%, compared with 32% in the third quarter of 2016 and 19% in the second quarter of 2017.
Both GAAP and non-GAAP gross margin for the brand advertising business in the third quarter of 2017 was -1%, compared with 8% in the third quarter of 2016 and -45% in the second quarter of 2017. The year-over-year decrease was mainly due to decreased video ad revenues. In the second quarter of 2017, the Company recognized impairment charges of approximately
Both GAAP and non-GAAP gross margin for the search and search-related advertising business in the third quarter of 2017 was 49%, compared with 49% in the third quarter of 2016 and 48% in the second quarter of 2017.
Both GAAP and non-GAAP gross margin for online games in the third quarter of 2017 was 87%, compared with 76% in the third quarter of 2016 and 91% in the second quarter of 2017. The year-over-year increase in gross margin was due to the impact of the Legacy TLBB mobile game, which Changyou launched the game in the second quarter of 2017. Changyou recognizes revenue from Legacy TLBB on a net basis after revenue-sharing with the third-party licensee operator.
Operating Expenses
For the third quarter of 2017, GAAP operating expenses totaled
Operating Loss
GAAP operating loss for the third quarter of 2017 was
Non-GAAP operating loss for the third quarter of 2017 was
Income Tax Expense
Both GAAP and non-GAAP income tax expense was
Net Loss
Before deducting the share of net income pertaining to non-controlling interest, GAAP net loss for the third quarter of 2017 was
GAAP net loss attributable to
Liquidity
As of
Business Outlook
As Sogou has filed a registration statement on Form F-1 with the
- Total revenue to be between
US$145 million andUS$155 million , including online game revenue ofUS$110 million toUS$120 million ; - Non-GAAP net income attributable to
Chanyou.com Limited to be betweenUS$35 million andUS$40 million , and non-GAAP income per fully-diluted ADS to be betweenUS$0.66 andUS$0.76 . Share based compensation to be aroundUS$2 million , assuming no new grants of share-based awards and that the market price of Changyou's ADSs is unchanged. Taking into account the elimination of the impact of these share-based awards, GAAP net income attributable toChangyou.com to be betweenUS$33 million andUS$38 million , and GAAP income per fully-diluted ADS to be betweenUS$0.63 andUS$0.72 .
For the fourth quarter 2017 guidance, the Company has adopted a presumed exchange rate of
Non-GAAP Disclosure
To supplement the unaudited consolidated financial statements presented in accordance with accounting principles generally accepted in
Sohu's management believes excluding the share-based compensation expense and impairment loss recognized with respect to available-for-sale securities of an investee that is unrelated to the Company's current business operations, non-cash tax benefits from excess tax deductions related to share-based awards, income/expense from the adjustment of contingent consideration previously recorded for acquisitions and dividend and deemed dividend to non-controlling preferred shareholders from its non-GAAP financial measure is useful for itself and investors. Further, the impact of share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards, income/expense from the adjustment of contingent consideration previously recorded for acquisitions, and dividend and deemed dividend to non-controlling preferred shareholders cannot be anticipated by management and business line leaders and these expenses were not built into the annual budgets and quarterly forecasts, which have been the basis for information Sohu provides to analysts and investors as guidance for future operating performance. As the impact of share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards, income/expense from the adjustment of contingent consideration previously recorded for acquisitions, and dividend and deemed dividend to non-controlling preferred shareholders does not involve subsequent cash outflow or is reflected in the cash flows at the equity transaction level, Sohu does not factor this impact in when evaluating and approving expenditures or when determining the allocation of its resources to its business segments. As a result, in general, the monthly financial results for internal reporting and any performance measures for commissions and bonuses are based on non-GAAP financial measures that exclude the share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards, income/expense from the adjustment of contingent consideration previously recorded for acquisitions, and dividend and deemed dividend to non-controlling preferred shareholders.
The non-GAAP financial measures are provided to enhance investors' overall understanding of Sohu's current financial performance and prospects for the future. A limitation of using non-GAAP gross profit, operating profit, net income, net income attributable to
Notes to Financial Information
Financial information in this press release other than the information indicated as being non-GAAP is derived from Sohu's unaudited interim financial statements prepared in accordance with GAAP.
Safe Harbor Statement
This announcement contains forward-looking statements. It is currently expected that the Business Outlook will not be updated until release of Sohu's next quarterly earnings announcement; however, Sohu reserves right to update its Business Outlook at any time for any reason. Statements that are not historical facts, including statements about Sohu's beliefs and expectations, 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. Potential risks and uncertainties include, but are not limited to, instability in global financial and credit markets and its
potential impact on the Chinese economy; exchange rate fluctuations, including their potential impact on the Chinese economy and on Sohu's reported US dollar results; recent slow-downs in the growth of the Chinese economy; the uncertain regulatory landscape in
Conference Call and Webcast
Sohu's management team will host a conference call at
The dial-in details for the live conference call are:
US Toll-Free: |
+1-866-519-4004 |
International: |
+65-6713-5090 |
|
+852-3018-6771 |
|
+86-800-819-0121 / +86-400-620-8038 |
Passcode: |
SOHU |
Please dial in 10 minutes before the call is scheduled to begin and provide the passcode to join the call.
A telephone replay of the call will be available after the conclusion of the conference call at
International: |
+1-646-254-3697 |
Passcode: |
98350015 |
The live Webcast and archive of the conference call will be available on the Investor Relations section of Sohu's Website at http://investors.sohu.com/.
About
Sohu corporate services consist of online brand advertising on its matrix of websites as well as bid listing and home page on its in-house developed search directory and engine. Sohu also provides multiple news and information service on mobile platforms, including Sohu News App and mobile news portal m.sohu.com. Sohu's online game subsidiary,
For investor and media inquiries, please contact:
In
Mr. | |
| |
Tel: |
+86 (10) 6272-6593 |
E-mail: |
In
Ms. | |
Christensen | |
Tel: |
+1 (480) 614-3004 |
E-mail: |
| ||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS) | ||||||
Three Months Ended | ||||||
|
|
Sep. 30, 2016 | ||||
Revenues: |
||||||
Online advertising |
||||||
Brand advertising |
$ |
74,832 |
$ |
86,071 |
$ |
110,871 |
Search and search-related advertising |
225,363 |
186,747 |
150,667 | |||
Subtotal |
300,195 |
272,818 |
261,538 | |||
Online games |
132,427 |
122,398 |
98,553 | |||
Others |
83,439 |
65,952 |
50,491 | |||
Total revenues |
516,061 |
461,168 |
410,582 | |||
Cost of revenues: |
||||||
Online advertising |
||||||
Brand advertising (includes stock-based |
75,733 |
124,730 |
102,137 | |||
Search and search-related advertising (includes |
115,422 |
96,692 |
76,457 | |||
Subtotal |
191,155 |
221,422 |
178,594 | |||
Online games (includes stock-based compensation |
17,560 |
11,613 |
23,719 | |||
Others |
53,679 |
45,159 |
20,571 | |||
Total cost of revenues |
262,394 |
278,194 |
222,884 | |||
Gross profit |
253,667 |
182,974 |
187,698 | |||
Operating expenses: |
||||||
Product development (includes stock-based |
105,162 |
100,146 |
90,007 | |||
Sales and marketing (includes stock-based |
111,935 |
94,845 |
110,584 | |||
General and administrative (includes stock-based |
31,038 |
27,657 |
38,670 | |||
|
86,882 |
- |
- | |||
Total operating expenses |
335,017 |
222,648 |
239,261 | |||
Operating loss |
(81,350) |
(39,674) |
(51,563) | |||
Other income/(loss) |
(5,068) |
3,306 |
3,678 | |||
Interest income |
6,497 |
5,813 |
6,327 | |||
Interest expense |
(1,141) |
(205) |
(209) | |||
Exchange difference |
(5,032) |
(4,528) |
702 | |||
Loss before income tax expense |
(86,094) |
(35,288) |
(41,065) | |||
Income tax expense |
15,927 |
12,764 |
974 | |||
Net loss |
(102,021) |
(48,052) |
(42,039) | |||
Less: Net income attributable to the noncontrolling |
1,939 |
40,131 |
32,775 | |||
Net loss attributable to |
(103,960) |
(88,183) |
(74,814) | |||
Basic net loss per share attributable to |
$ |
(2.67) |
$ |
(2.27) |
$ |
(1.93) |
Shares used in computing basic net loss per share |
38,877 |
38,855 |
38,728 | |||
Diluted net loss per share attributable to |
$ |
(2.67) |
$ |
(2.28) |
$ |
(1.94) |
Shares used in computing diluted net loss |
38,877 |
38,855 |
38,728 |
| ||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||
(UNAUDITED, IN THOUSANDS) | ||||
As of |
As of | |||
ASSETS |
||||
Current assets: |
||||
Cash and cash equivalents |
$ |
1,040,564 |
$ |
1,050,957 |
Restricted time deposits |
1,501 |
- | ||
Short-term investments |
304,264 |
247,926 | ||
Accounts receivable, net |
280,372 |
189,167 | ||
Prepaid and other current assets |
228,206 |
260,133 | ||
Assets held for sale (a) |
- |
103,079 | ||
Total current assets |
1,854,907 |
1,851,262 | ||
Long-term investments |
86,585 |
74,273 | ||
Fixed assets, net |
529,734 |
503,631 | ||
|
70,957 |
68,290 | ||
Intangible assets, net |
31,463 |
32,131 | ||
Restricted time deposits |
270 |
269 | ||
Prepaid non-current assets |
4,205 |
4,734 | ||
Other assets |
27,162 |
29,100 | ||
Total assets |
$ |
2,605,283 |
$ |
2,563,690 |
LIABILITIES |
||||
Current liabilities: |
||||
Accounts payable |
$ |
270,939 |
$ |
193,209 |
Accrued liabilities |
342,555 |
324,876 | ||
Receipts in advance and deferred revenue |
131,723 |
118,951 | ||
Accrued salary and benefits |
72,635 |
92,475 | ||
Taxes payable |
73,118 |
40,014 | ||
Short-term bank loan |
61,027 |
- | ||
Other short-term liabilities |
146,115 |
159,315 | ||
Liabilities held for sale (a) |
- |
3,902 | ||
Total current liabilities |
$ |
1,098,112 |
$ |
932,742 |
Long-term accounts payable |
778 |
744 | ||
Long-term tax payable |
30,901 |
32,625 | ||
Deferred tax liabilities |
45,860 |
39,784 | ||
Total long-term liabilities |
$ |
77,539 |
$ |
73,153 |
Total liabilities |
$ |
1,175,651 |
$ |
1,005,895 |
SHAREHOLDERS' EQUITY: |
||||
|
779,777 |
993,580 | ||
Noncontrolling Interest |
649,855 |
564,215 | ||
Total shareholders' equity |
$ |
1,429,632 |
$ |
1,557,795 |
Total liabilities and shareholders' equity |
$ |
2,605,283 |
$ |
2,563,690 |
Note: |
(a) In the third quarter of 2016, the Changyou's management had an intention to divest Changyou's interest in MoboTap. Therefore, the assets and liabilities of MoboTap were recognized as assets-held-for-sale and liabilities-held-for-sale, respectively, in Changyou's financial statements for the third and fourth quarters of 2016. In the first quarter of 2017, due to the suspension of negotiations with the potential buyers of MoboTap, Changyou's management determined that the disposal was unlikely to be completed within one year. As a result, the assets-held-for-sale and liabilities-held-for-sale related to MoboTap have been reclassified as assets and liabilities in the Changyou's balance sheet since |
| ||||||||||||||||||
RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATION MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES | ||||||||||||||||||
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS) | ||||||||||||||||||
Three Months Ended |
Three Months Ended |
Three Months Ended | ||||||||||||||||
GAAP |
Non-GAAP |
Non-GAAP |
GAAP |
Non-GAAP |
Non-GAAP |
GAAP |
Non-GAAP |
Non-GAAP | ||||||||||
278 |
(a) |
182 |
(a) |
265 |
(a) |
|||||||||||||
Brand advertising gross profit |
$ |
(901) |
$ |
278 |
$ |
(623) |
$ |
(38,659) |
$ |
182 |
$ |
(38,477) |
$ |
8,734 |
$ |
265 |
$ |
8,999 |
Brand advertising gross |
-1% |
-1% |
-45% |
-45% |
8% |
8% | ||||||||||||
- |
(a) |
2 |
(a) |
4 |
(a) |
|||||||||||||
Search and search-related |
$ |
109,941 |
$ |
- |
$ |
109,941 |
$ |
90,055 |
$ |
2 |
$ |
90,057 |
$ |
74,210 |
$ |
4 |
$ |
74,214 |
Search and search-related |
49% |
49% |
48% |
48% |
49% |
49% | ||||||||||||
278 |
(a) |
184 |
(a) |
269 |
(a) |
|||||||||||||
Online advertising gross profit |
$ |
109,040 |
$ |
278 |
$ |
109,318 |
$ |
51,396 |
$ |
184 |
$ |
51,580 |
$ |
82,944 |
$ |
269 |
$ |
83,213 |
Online advertising gross |
36% |
36% |
19% |
19% |
32% |
32% | ||||||||||||
4 |
(a) |
44 |
(a) |
26 |
(a) |
|||||||||||||
Online games gross profit |
$ |
114,867 |
$ |
4 |
$ |
114,871 |
$ |
110,785 |
$ |
44 |
$ |
110,829 |
$ |
74,834 |
$ |
26 |
$ |
74,860 |
Online games gross margin |
87% |
87% |
91% |
91% |
76% |
76% | ||||||||||||
Others gross profit |
$ |
29,760 |
$ |
- |
(a) $ |
29,760 |
$ |
20,793 |
$ |
- |
(a) $ |
20,793 |
$ |
29,920 |
$ |
- |
(a)$ |
29,920 |
Others gross margin |
36% |
36% |
32% |
32% |
59% |
59% | ||||||||||||
282 |
(a) |
228 |
(a) |
295 |
(a) |
|||||||||||||
Gross profit |
$ |
253,667 |
$ |
282 |
$ |
253,949 |
$ |
182,974 |
$ |
228 |
$ |
183,202 |
$ |
187,698 |
$ |
295 |
$ |
187,993 |
Gross margin |
49% |
49% |
40% |
40% |
46% |
46% | ||||||||||||
Operating expenses |
$ |
335,017 |
$ |
(6,273) |
(a) $ |
328,744 |
$ |
222,648 |
$ |
(12,452) |
(a) $ |
210,196 |
$ |
239,261 |
$ |
(12,875) |
(a)$ |
226,386 |
6,555 |
(a) |
12,680 |
(a) |
13,170 |
(a) |
|||||||||||||
Operating loss |
$ |
(81,350) |
$ |
6,555 |
$ |
(74,795) |
$ |
(39,674) |
$ |
12,680 |
$ |
(26,994) |
$ |
(51,563) |
$ |
13,170 |
$ |
(38,393) |
Operating margin |
-16% |
-14% |
-9% |
-6% |
-13% |
-9% | ||||||||||||
Income tax expense |
$ |
15,927 |
$ |
- |
(a)$ |
15,927 |
$ |
12,764 |
$ |
- |
(a)$ |
12,764 |
$ |
974 |
$ |
- |
(a)$ |
974 |
12,309 |
(a) |
12,680 |
(a) |
13,147 |
(a) |
|||||||||||||
Net (loss) /income before |
$ |
(102,021) |
$ |
12,309 |
$ |
(89,712) |
$ |
(48,052) |
$ |
12,680 |
$ |
(35,372) |
$ |
(42,039) |
$ |
13,147 |
$ |
(28,892) |
6,555 |
(a) |
12,680 |
(a) |
13,147 |
(a) |
|||||||||||||
(1,017) |
(b) |
4,254 |
(b) |
(2,806) |
(b) |
|||||||||||||
5,754 |
(c) |
- |
(c) |
- |
(c) |
|||||||||||||
Net loss attributable to |
$ |
(103,960) |
$ |
11,292 |
$ |
(92,668) |
$ |
(88,698) |
$ |
16,934 |
$ |
(71,764) |
$ |
(75,286) |
$ |
10,341 |
$ |
(64,945) |
Diluted net loss per share |
$ |
(2.67) |
$ |
(2.38) |
$ |
(2.28) |
$ |
(1.85) |
$ |
(1.94) |
$ |
(1.68) | ||||||
Shares used in computing |
38,877 |
38,877 |
38,855 |
38,855 |
38,728 |
38,728 |
Note: |
(a) To eliminate the impact of share-based awards as measured using the fair value method. |
(b) To adjust Sohu's economic interests in Changyou and Sogou attributable to the above non-GAAP adjustments. |
(c) To adjust impairment loss of available-for-sale securities of an investee that is unrelated to the Company's current business operations. |
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