Third Quarter Highlights
Dr.
Mr.
[1] For the third quarter of 2016, on yearly basis, depreciation of the RMB against the |
[2] Sogou operates the search and search-related business and offers |
[3] Non-GAAP results exclude 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 of Sogou. 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 2016 were
Total online advertising revenues, which include revenues from the brand advertising and search and search-related businesses, for the third quarter of 2016 were
Brand advertising revenues for the third quarter of 2016 totaled
Search and search-related revenues for the third quarter of 2016 were
Online game revenues for the third quarter of 2016 were
Gross Margin
Both GAAP and non-GAAP gross margin was 46% for the third quarter of 2016, compared with 59% in the third quarter of 2015 and 49% in the second quarter of 2016.
Both GAAP and non-GAAP gross margin for the online advertising business for the third quarter of 2016 was 32%, compared with 49% in the third quarter of 2015 and 39% in the second quarter of 2016.
Both GAAP and non-GAAP gross margin for the brand advertising business in the third quarter of 2016 was 8%, compared with 40% in the third quarter of 2015 and 17% in the second quarter of 2016. The year-over-year decrease was mainly due to decreased video revenues. The quarter-over-quarter decrease was mainly due to an increase in video content costs.
Both GAAP and non-GAAP gross margin for the search and search-related business in the third quarter of 2016 was 49%, compared with 58% in the third quarter of 2015 and 55% in the second quarter of 2016. The decreases were mainly due to higher traffic acquisition cost as a percentage of search and search-related revenues.
Both GAAP and non-GAAP gross margin for online games in the third quarter of 2016 was 76%, compared with 77% in the third quarter of 2015 and 74% in the second quarter of 2016. The quarter-over-quarter increase was due to a smaller revenue contribution from mobile games, which typically require additional revenue-sharing payments.
Operating Expenses
For the third quarter of 2016, GAAP operating expenses totaled
Operating Loss
GAAP operating loss for the third quarter of 2016 was
Non-GAAP operating loss for the third quarter of 2016 was
Other Income
Other income for the third quarter of 2016 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 2016 was
GAAP net loss attributable to
Liquidity
As of
Loan Agreement and Share Pledge Agreement with Changyou
On
Business Outlook
For the fourth quarter of 2016, Sohu estimates:
For the fourth quarter 2016 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, 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: |
92227550 |
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 | ||||||
|
|
| ||||
Revenues: |
||||||
Online advertising |
||||||
Brand advertising |
$ |
110,871 |
$ |
112,887 |
$ |
151,517 |
Search and search-related |
150,667 |
160,152 |
147,938 | |||
Subtotal |
261,538 |
273,039 |
299,455 | |||
Online games |
98,553 |
99,227 |
152,501 | |||
Others |
50,491 |
47,872 |
70,134 | |||
Total revenues |
410,582 |
420,138 |
522,090 | |||
Cost of revenues: |
||||||
Online advertising |
||||||
Brand advertising (includes stock-based |
102,137 |
93,654 |
91,163 | |||
Search and search-related (includes stock-based |
76,457 |
71,998 |
62,365 | |||
Subtotal |
178,594 |
165,652 |
153,528 | |||
Online games (includes stock-based compensation |
23,719 |
25,380 |
34,635 | |||
Others |
20,571 |
21,226 |
25,996 | |||
Total cost of revenues |
222,884 |
212,258 |
214,159 | |||
Gross profit |
187,698 |
207,880 |
307,931 | |||
Operating expenses: |
||||||
Product development (includes stock-based |
90,007 |
88,959 |
92,779 | |||
Sales and marketing (includes stock-based compensation |
110,584 |
117,966 |
98,596 | |||
General and administrative (includes stock-based |
38,670 |
29,650 |
33,330 | |||
|
- |
- |
40,324 | |||
Total operating expenses |
239,261 |
236,575 |
265,029 | |||
Operating (loss) /profit |
(51,563) |
(28,695) |
42,902 | |||
Other income /(expense) |
3,678 |
(24,573) |
70,219 | |||
Net interest income |
6,118 |
5,040 |
5,192 | |||
Exchange difference |
702 |
3,866 |
4,322 | |||
(Loss) /income before income tax expense |
(41,065) |
(44,362) |
122,635 | |||
974 |
2,430 |
29,461 | ||||
Income tax expense | ||||||
Net (loss) /income |
(42,039) |
(46,792) |
93,174 | |||
Less: Net income attributable to the noncontrolling |
32,775 |
16,232 |
42,142 | |||
Deemed dividend to non-controlling Sogou series |
- |
- |
11,911 | |||
(74,814) |
(63,024) |
39,121 | ||||
Net (loss) /income attributable to | ||||||
Basic net (loss) /income per share attributable to |
$ |
(1.93) |
$ |
(1.63) |
$ |
1.01 |
Shares used in computing basic net (loss) /income per share |
38,728 |
38,691 |
38,633 | |||
Diluted net (loss) /income per share attributable to |
$ |
(1.94) |
$ |
(1.64) |
$ |
1.00 |
Shares used in computing diluted net (loss) /income per |
38,728 |
38,691 |
38,665 |
| ||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||
(UNAUDITED, IN THOUSANDS) | ||||
As of |
As of | |||
ASSETS |
||||
Current assets: |
||||
Cash and cash equivalents |
$ |
1,092,085 |
$ |
1,245,205 |
Restricted time deposits (a) |
- |
227,285 | ||
Short-term investments |
264,109 |
174,515 | ||
Accounts receivable, net |
204,748 |
273,617 | ||
Prepaid and other current assets |
274,701 |
158,890 | ||
Assets held for sale (b) |
101,786 |
- | ||
Total current assets |
1,937,429 |
2,079,512 | ||
Long-term investments |
68,861 |
62,093 | ||
Fixed assets, net |
525,899 |
508,692 | ||
|
69,688 |
154,219 | ||
Intangible assets, net |
33,593 |
55,415 | ||
Restricted time deposits (a) |
9,270 |
136,694 | ||
Prepaid non-current assets |
5,167 |
6,254 | ||
Other assets |
25,546 |
39,315 | ||
Total assets |
$ |
2,675,453 |
$ |
3,042,194 |
LIABILITIES |
||||
Current liabilities: |
||||
Accounts payable |
$ |
163,843 |
$ |
129,025 |
Accrued liabilities |
335,046 |
309,657 | ||
Receipts in advance and deferred revenue |
128,943 |
135,385 | ||
Accrued salary and benefits |
84,783 |
99,631 | ||
Taxes payable |
38,764 |
67,480 | ||
Deferred tax liability |
26,247 |
24,884 | ||
Short-term bank loans (a) |
- |
344,500 | ||
Other short-term liabilities |
198,171 |
154,017 | ||
Liabilities held for sale (b) |
3,236 |
- | ||
Total current liabilities |
$ |
979,033 |
$ |
1,264,579 |
Long-term accounts payable |
17,272 |
4,600 | ||
Long-term tax payable |
33,199 |
24,732 | ||
Deferred tax liabilities |
14,037 |
17,531 | ||
Total long-term liabilities |
$ |
64,508 |
$ |
46,863 |
Total liabilities |
$ |
1,043,541 |
$ |
1,311,442 |
SHAREHOLDERS' EQUITY: |
||||
|
1,084,273 |
1,241,022 | ||
Noncontrolling Interest |
547,639 |
489,730 | ||
Total shareholders' equity |
$ |
1,631,912 |
$ |
1,730,752 |
Total liabilities and shareholders' equity |
$ |
2,675,453 |
$ |
3,042,194 |
Note: | ||||
(a) Changyou had repaid all of the remaining bank loans of | ||||
(b) Changyou's management had an intention to divest its interest in MoboTap during the third quarter of 2016. Therefore, the assets and liabilities of MoboTap were recognized as "Assets held for sale" and "Liabilities held for sale," respectively, in the third quarter of 2016. |
| ||||||||||||||||||
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 | ||||||||||
265 |
(a) |
(73) |
(a) |
184 |
(a) |
|||||||||||||
Brand advertising gross profit |
$ |
8,734 |
$ |
265 |
$ |
8,999 |
$ |
19,233 |
$ |
(73) |
$ |
19,160 |
$ |
60,354 |
$ |
184 |
$ |
60,538 |
Brand advertising gross |
8% |
8% |
17% |
17% |
40% |
40% | ||||||||||||
4 |
12 |
(a) |
||||||||||||||||
Search and search-related |
$ |
74,210 |
$ |
4 |
(a) $ |
74,214 |
$ |
88,154 |
$ |
- |
(a) $ |
88,154 |
$ |
85,573 |
$ |
12 |
$ |
85,585 |
Search and search-related |
49% |
49% |
55% |
55% |
58% |
58% | ||||||||||||
269 |
(a) |
(73) |
(a) |
196 |
(a) |
|||||||||||||
Online advertising gross profit |
$ |
82,944 |
$ |
269 |
$ |
83,213 |
$ |
107,387 |
$ |
(73) |
$ |
107,314 |
$ |
145,927 |
$ |
196 |
$ |
146,123 |
Online advertising gross |
32% |
32% |
39% |
39% |
49% |
49% | ||||||||||||
26 |
(a) |
17 |
(a) |
(96) |
(a) |
|||||||||||||
Online games gross profit |
$ |
74,834 |
$ |
26 |
$ |
74,860 |
$ |
73,847 |
$ |
17 |
$ |
73,864 |
$ |
117,866 |
$ |
(96) |
$ |
117,770 |
Online games gross margin |
76% |
76% |
74% |
74% |
77% |
77% | ||||||||||||
Others gross profit |
$ |
29,920 |
$ |
- |
(a) $ |
29,920 |
$ |
26,646 |
$ |
- |
(a) $ |
26,646 |
$ |
44,138 |
$ |
- |
$ |
44,138 |
Others gross margin |
59% |
59% |
56% |
56% |
63% |
63% | ||||||||||||
295 |
(a) |
(56) |
(a) |
100 |
(a) |
|||||||||||||
Gross profit |
$ |
187,698 |
$ |
295 |
$ |
187,993 |
$ |
207,880 |
$ |
(56) |
$ |
207,824 |
$ |
307,931 |
$ |
100 |
$ |
308,031 |
Gross margin |
46% |
46% |
49% |
49% |
59% |
59% | ||||||||||||
13,170 |
(a) |
2,544 |
(a) |
(2,302) |
(a) |
|||||||||||||
Operating (loss) /profit |
$ |
(51,563) |
$ |
13,170 |
$ |
(38,393) |
$ |
(28,695) |
$ |
2,544 |
$ |
(26,151) |
$ |
42,902 |
$ |
(2,302) |
$ |
40,600 |
Operating margin |
-13% |
-9% |
-7% |
-6% |
8% |
8% | ||||||||||||
13,147 |
(a) |
2,550 |
(a) |
(2,302) |
(a) |
|||||||||||||
Net (loss) /income |
$ |
(42,039) |
$ |
13,147 |
$ |
(28,892) |
$ |
(46,792) |
$ |
2,550 |
$ |
(44,242) |
$ |
93,174 |
$ |
(2,302) |
$ |
90,872 |
13,147 |
(a) |
2,550 |
(a) |
725 |
(b) |
|||||||||||||
(2,806) |
(b) |
(2,001) |
(b) |
11,911 |
(c) |
|||||||||||||
Net (loss) /income |
$ |
(75,286) |
$ |
10,341 |
$ |
(64,945) |
$ |
(63,386) |
$ |
549 |
$ |
(62,837) |
$ |
38,796 |
$ |
10,334 |
$ |
49,130 |
Diluted net (loss) /income |
$ |
(1.94) |
$ |
(1.68) |
$ |
(1.64) |
$ |
(1.62) |
$ |
1.00 |
$ |
1.27 | ||||||
Shares used in computing |
38,728 |
38,728 |
38,691 |
38,691 |
38,665 |
38,701 | ||||||||||||
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 under the treasury stock method. | ||||||||||||||||||
(c) Deemed dividend to non-controlling Sogou series A preferred shareholders. |
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