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Sohu.com Reports Second Quarter 2018 Unaudited Financial Results
Second Quarter Highlights
- Total revenues[1] were
US$486 million [2], up 5% year-over-year and 7% quarter-over-quarter. - Brand advertising revenues were
US$62 million , down 29% year-over-year and up 9% quarter-over-quarter. - Search and search related advertising revenues[3] were
US$270 million , up 45% year-over-year and 23% quarter-over-quarter. - Online game revenues were
US$94 million , down 23% year-over-year and 11% quarter-over-quarter.
Dr.
[1] The Company has adopted ASU No. 2014-09, ''Revenue from Contracts with Customers" beginning January 1, 2018. The only major impact of the standard is that revenues and expenses related to advertising barter transactions will be recognized beginning January 1, 2018. The impact for the second quarter of 2018 was approximately US$6 million for both revenues and cost of revenues and expenses, most of which were generated from Sogou. |
[2] On a constant currency (non-GAAP) basis, if the exchange rate in the second quarter of 2018 had been the same as it was in the second quarter of 2017, or RMB6.86=US$1.00, US$ total revenues in the second quarter of 2018 would have been US$452 million, or US$34 million less than GAAP total revenues, and down 2% year-over-year. |
[3] Search and Search related advertising revenues exclude intra-Group transactions. |
Second Quarter Financial Results
Revenues
Total revenues for the second quarter of 2018 were
Total online advertising revenues, which include revenues from the brand advertising and search and search-related advertising businesses, for the second quarter of 2018 were
Brand advertising revenues for the second quarter of 2018 totaled
Search and search-related advertising revenues for the second quarter of 2018 were
Online game revenues for the second quarter of 2018 were
Gross Margin
Both GAAP and non-GAAP[4] gross margin for the second quarter of 2018 was 44%, compared with 40% in the second quarter of 2017 and 43% in the first quarter of 2018.
Both GAAP and non-GAAP gross margin for the online advertising business for the second quarter of 2018 was 35%, compared with 19% in the second quarter of 2017 and 29% in the first quarter of 2018.
GAAP gross margin for the brand advertising business in the second quarter of 2018 was 23%, compared with negative 45% in the second quarter of 2017 and 10% in the first quarter of 2018. Non-GAAP gross margin for the brand advertising business was 23%, compared with negative 45% in the second quarter of 2017 and 9% in the first quarter of 2018. The year-over-year increase was mainly due to decreased video content cost and the Company's having recognized impairment charges of approximately
Both GAAP and non-GAAP gross margin for the search and search-related advertising business in the second quarter of 2018 was 38%, compared with 48% in the second quarter of 2017 and 34% in the first quarter of 2018. The year-over-year decrease primarily resulted from traffic acquisition cost outgrowing revenues. The quarter-over-quarter increase was due to normal seasonal fluctuation.
Both GAAP and non-GAAP gross margin for online games business in the second quarter of 2018 was 85%, compared with 91% in the second quarter of 2017 and 84% in the first quarter of 2018. The year-over-year decrease in gross margin was mainly due to a decline in revenue from Legacy TLBB Mobile, which has a high gross margin, as revenue is recognized on a net basis after revenue-sharing with the third-party licensee operator.
[4] Non-GAAP results exclude share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards, changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, income/expense from the adjustment of contingent consideration previously recorded for acquisitions, dividends and deemed dividends to non-controlling preferred shareholders of Sogou, and a one-time income tax expense, offset by a one-time reduction in liability for deferred U.S. income tax, as a result of the U.S. Tax Reform. 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." |
Operating Expenses
For the second quarter of 2018, GAAP operating expenses totaled
Operating Loss
GAAP operating loss for the second quarter of 2018 was
Non-GAAP operating loss for the second quarter of 2018 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 second quarter of 2018 was
GAAP net loss attributable to Sohu.com Limited for the second quarter of 2018 was
Liquidity
As of
Recent Developments
In connection with implementing such remedial measures,
Business Outlook
For the third quarter of 2018, Sohu estimates:
- Total revenues to be between
US$445 million and US$470 million . - Brand advertising revenues to be between
US$60 million and US$65 million ; this implies an annual decrease of 13% to 20% and a sequential decrease of 2% to a sequential increase of 6%. Sogou revenues to be betweenUS$275 million and US$285 million ; this implies an annual increase of 7% to 11% and a sequential decrease of 5% to 9%.- Online game revenues to be between
US$80 million and US$90 million ; this implies an annual decrease of 32% to 40% and a sequential decrease of 5% to 15%. - Before deducting the share of non-GAAP net income pertaining to non-controlling interest, non-GAAP net loss to be between US$44 million and
US$54 million . Assuming no new grants of share-based awards and that the market price of our shares is unchanged, we estimate that compensation expense relating to share-based awards will be around US$5 million. Including the impact of these share-based awards, GAAP net loss before non-controlling interest to be between US$49 million andUS$59 million . - Non-GAAP net loss attributable to Sohu.com Limited to be between US$55 million and
US$65 million , and non-GAAP loss per fully-diluted ADS to be betweenUS$1.40 and US$1.65 . Including the impact of the aforementioned share-based awards, and netting off approximately US$2 million of Sohu's economic interests in Changyou andSogou , GAAP net loss attributable to Sohu.com Limited to be between US$58 million andUS$68 million , and GAAP loss per fully-diluted ADS to be between US$1.50 andUS$1.75 .
For the third quarter 2018 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 share-based compensation expense, changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, 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, dividend and deemed dividend to non-controlling preferred shareholders, and net one-time tax expense as a result of the U.S. Tax Reform from its non-GAAP financial measure is useful for itself and investors. Further, the impact of share-based compensation expense and changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, 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, dividend and deemed dividend to non-controlling preferred shareholders, and net one-time tax expense as a result of the U.S. Tax Reform cannot be anticipated by management and business line leaders and these expenses were not built into the annual budgets and quarterly forecasts that 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 and changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, 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 share-based compensation expense and changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, 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, and also excluded the net one-time tax expense as a result of U.S. Tax Reform.
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 Sohu.com Limited and diluted net income attributable to Sohu.com Limited per share, excluding 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, dividend, and deemed dividend to non-controlling preferred shareholders is that the impact of share-based awards and non-cash tax benefits from excess tax deductions related to share-based awards has been and will continue to be a significant recurring expense in Sohu's business for the foreseeable future, income/expense from the adjustment of contingent consideration previously recorded for acquisitions may recur in the future, and dividend and deemed dividend to non-controlling preferred shareholders may recur when Sohu and its affiliates enter into equity transactions. In order to mitigate these limitations Sohu has provided specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables include details on the reconciliation between the GAAP financial measures that are most directly comparable to the non-GAAP financial measures that have been presented.
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 |
Hong Kong: |
+852-3018-6771 |
China Mainland |
+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: |
5495973 |
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.com Limited (NASDAQ: SOHU) is
Sohu's corporate services consist of online brand advertising on Sohu's 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 services on mobile platforms, including Sohu News App and the mobile news portal m.sohu.com. Sohu's online game subsidiary,
For investor and media inquiries, please contact:
In
Mr. Eric Yuan |
|
Sohu.com Limited |
|
Tel: |
+86 (10) 6272-6593 |
E-mail: |
In
Ms. Linda Bergkamp |
|
Christensen |
|
Tel: |
+1 (480) 614-3004 |
E-mail: |
SOHU.COM LIMITED |
||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
||||||
(UNAUDITED, IN THOUSANDS EXCEPT PER ADS AMOUNTS) |
||||||
Three Months Ended |
||||||
Jun. 30, 2018 |
Mar. 31, 2018 |
Jun. 30, 2017 |
||||
Revenues: |
||||||
Online advertising |
||||||
Brand advertising |
$ |
61,511 |
$ |
56,254 |
$ |
86,071 |
Search and search-related advertising |
270,359 |
220,301 |
186,747 |
|||
Subtotal |
331,870 |
276,555 |
272,818 |
|||
Online games |
94,250 |
105,461 |
122,398 |
|||
Others |
59,894 |
72,979 |
65,952 |
|||
Total revenues |
486,014 |
454,995 |
461,168 |
|||
Cost of revenues: |
||||||
Online advertising |
||||||
Brand advertising (includes stock-based compensation |
47,319 |
50,611 |
124,730 |
|||
Search and search-related (includes stock-based |
168,126 |
144,696 |
96,692 |
|||
Subtotal |
215,445 |
195,307 |
221,422 |
|||
Online games (includes stock-based compensation expense of |
14,461 |
17,119 |
11,613 |
|||
Others |
44,346 |
48,407 |
45,159 |
|||
Total cost of revenues |
274,252 |
260,833 |
278,194 |
|||
Gross profit |
211,762 |
194,162 |
182,974 |
|||
Operating expenses: |
||||||
Product development (includes stock-based compensation |
113,843 |
111,543 |
100,146 |
|||
Sales and marketing (includes stock-based compensation |
102,138 |
90,273 |
94,845 |
|||
General and administrative (includes stock-based compensation |
27,982 |
23,836 |
27,657 |
|||
Total operating expenses |
243,963 |
225,652 |
222,648 |
|||
Operating loss |
(32,201) |
(31,490) |
(39,674) |
|||
Other income |
9,991 |
12,281 |
3,306 |
|||
Interest income |
5,156 |
7,808 |
5,813 |
|||
Interest expense |
(3,004) |
(3,081) |
(205) |
|||
Exchange difference |
10,774[5] |
(9,340) |
(4,528) |
|||
Loss before income tax expense |
(9,284) |
(23,822) |
(35,288) |
|||
Income tax expense |
5,891 |
63,379 |
12,764 |
|||
Net loss |
(15,175) |
(87,201) |
(48,052) |
|||
Less: Net income attributable to the noncontrolling interest |
32,463 |
5,617 |
40,131 |
|||
Net loss attributable to Sohu.com Limited |
(47,638) |
(92,818) |
(88,183) |
|||
Basic net loss per ADS attributable to Sohu.com Limited |
$ |
(1.22) |
$ |
(2.39) |
$ |
(2.27) |
ADSs used in computing basic net loss per ADS attributable to |
38,927 |
38,904 |
38,855 |
|||
Diluted net loss per ADS attributable to Sohu.com Limited |
$ |
(1.23) |
$ |
(2.39) |
$ |
(2.28) |
ADSs used in computing diluted net loss per ADS attributable to |
38,927 |
38,904 |
38,855 |
|||
[5] The exchange gain in the second quarter of 2018 is primarily resulted from the depreciation of RMB against USD. |
SOHU.COM LIMITED |
||||
CONDENSED CONSOLIDATED BALANCE SHEETS |
||||
(UNAUDITED, IN THOUSANDS) |
||||
As of Jun. 30, 2018 |
As of Dec. 31, 2017 |
|||
ASSETS |
||||
Current assets: |
||||
Cash and cash equivalents |
$ |
669,081 |
$ |
1,366,115 |
Restricted cash |
4,272 |
1,908 |
||
Short-term investments |
1,324,865 |
818,934 |
||
Accounts receivable, net |
238,553 |
250,468 |
||
Prepaid and other current assets |
224,010 |
192,676 |
||
Total current assets |
2,460,781 |
2,630,101 |
||
Long-term investments |
94,556 |
90,145 |
||
Fixed assets, net |
520,210 |
529,717 |
||
Goodwill |
71,076 |
71,565 |
||
Intangible assets, net |
28,220 |
23,060 |
||
Restricted time deposits |
270 |
271 |
||
Prepaid non-current assets |
3,877 |
4,211 |
||
Other assets |
37,909 |
40,169 |
||
Total assets |
$ |
3,216,899 |
$ |
3,389,239 |
LIABILITIES |
||||
Current liabilities: |
||||
Accounts payable |
$ |
315,076 |
$ |
288,394 |
Accrued liabilities |
329,274 |
343,106 |
||
Receipts in advance and deferred revenue |
135,299 |
127,758 |
||
Accrued salary and benefits |
97,154 |
102,087 |
||
Taxes payable |
88,043 |
96,541 |
||
Short-term bank loans |
104,283 |
61,216 |
||
Other short-term liabilities |
144,280 |
136,300 |
||
Total current liabilities |
$ |
1,213,409 |
$ |
1,155,402 |
Long-term accounts payable |
1,143 |
1,157 |
||
Long-term bank loans |
122,419 |
122,433 |
||
Long-term tax liabilities |
336,089 |
293,010 |
||
Total long-term liabilities |
$ |
459,651 |
$ |
416,600 |
Total liabilities |
$ |
1,673,060 |
$ |
1,572,002 |
SHAREHOLDERS' EQUITY: |
||||
Sohu.com Limited shareholders' equity |
616,464 |
750,634 |
||
Noncontrolling Interest |
927,375 |
1,066,603 |
||
Total shareholders' equity |
$ |
1,543,839 |
$ |
1,817,237 |
Total liabilities and shareholders' equity |
$ |
3,216,899 |
$ |
3,389,239 |
SOHU.COM LIMITED |
||||||||||||||||||
RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATION MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES |
||||||||||||||||||
(UNAUDITED, IN THOUSANDS EXCEPT PER ADS AMOUNTS) |
||||||||||||||||||
Three Months Ended Jun. 30, 2018 |
Three Months Ended Mar. 31, 2018 |
Three Months Ended Jun. 30, 2017 |
||||||||||||||||
GAAP |
Non-GAAP |
Non-GAAP |
GAAP |
Non-GAAP |
Non-GAAP |
GAAP |
Non-GAAP |
Non-GAAP |
||||||||||
(2) |
(a) |
(657) |
(a) |
182 |
(a) |
|||||||||||||
Brand advertising gross profit |
$ |
14,192 |
$ |
(2) |
$ |
14,190 |
$ |
5,643 |
$ |
(657) |
$ |
4,986 |
$ |
(38,659) |
$ |
182 |
$ |
(38,477) |
Brand advertising gross |
23% |
23% |
10% |
9% |
-45% |
-45% |
||||||||||||
263 |
(a) |
219 |
(a) |
2 |
(a) |
|||||||||||||
Search and search-related |
$ |
102,233 |
$ |
263 |
$ |
102,496 |
$ |
75,605 |
$ |
219 |
$ |
75,824 |
$ |
90,055 |
$ |
2 |
$ |
90,057 |
Search and search-related |
38% |
38% |
34% |
34% |
48% |
48% |
||||||||||||
261 |
(a) |
(438) |
(a) |
184 |
(a) |
|||||||||||||
Online advertising gross profit |
$ |
116,425 |
$ |
261 |
$ |
116,686 |
$ |
81,248 |
$ |
(438) |
$ |
80,810 |
$ |
51,396 |
$ |
184 |
$ |
51,580 |
Online advertising gross |
35% |
35% |
29% |
29% |
19% |
19% |
||||||||||||
(23) |
(a) |
(12) |
(a) |
44 |
(a) |
|||||||||||||
Online games gross profit |
$ |
79,789 |
$ |
(23) |
$ |
79,766 |
$ |
88,342 |
$ |
(12) |
$ |
88,330 |
$ |
110,785 |
$ |
44 |
$ |
110,829 |
Online games gross margin |
85% |
85% |
84% |
84% |
91% |
91% |
||||||||||||
Others gross profit |
$ |
15,548 |
$ |
- |
(a) $ |
15,548 |
$ |
24,572 |
$ |
- |
(a) $ |
24,572 |
$ |
20,793 |
$ |
- |
(a) $ |
20,793 |
Others gross margin |
26% |
26% |
34% |
34% |
32% |
32% |
||||||||||||
238 |
(a) |
(450) |
(a) |
228 |
(a) |
|||||||||||||
Gross profit |
$ |
211,762 |
$ |
238 |
$ |
212,000 |
$ |
194,162 |
$ |
(450) |
$ |
193,712 |
$ |
182,974 |
$ |
228 |
$ |
183,202 |
Gross margin |
44% |
44% |
43% |
43% |
40% |
40% |
||||||||||||
Operating expenses |
$ |
243,963 |
$ |
(953) |
(a) $ |
243,010 |
$ |
225,652 |
$ |
1,894 |
(a) $ |
227,546 |
$ |
222,648 |
$ |
(12,452) |
(a) $ |
210,196 |
1,191 |
(a) |
(2,344) |
(a) |
12,680 |
(a) |
|||||||||||||
Operating loss |
$ |
(32,201) |
$ |
1,191 |
$ |
(31,010) |
$ |
(31,490) |
$ |
(2,344) |
$ |
(33,834) |
$ |
(39,674) |
$ |
12,680 |
$ |
(26,994) |
Operating margin |
-7% |
-6% |
-7% |
-7% |
-9% |
-6% |
||||||||||||
Income tax expense |
$ |
(5,891) |
$ |
165 |
$ |
(5,726) |
$ |
(63,379) |
$ |
- |
$ |
(63,379) |
$ |
12,764 |
$ |
- |
(a)$ |
12,764 |
1,191 |
(a) |
(2,344) |
(a) |
12,680 |
(a) |
|||||||||||||
(494) |
(c) |
- |
- |
|||||||||||||||
Net loss before non- |
$ |
(15,175) |
$ |
697 |
$ |
(14,478) |
$ |
(87,201) |
$ |
(2,344) |
$ |
(89,545) |
$ |
(48,052) |
$ |
12,680 |
$ |
(35,372) |
1,191 |
(a) |
(2,344) |
(a) |
12,680 |
(a) |
|||||||||||||
(1,976) |
(b) |
(2,102) |
(b) |
4,254 |
(b) |
|||||||||||||
(494) |
(c) |
- |
- |
|||||||||||||||
Net loss attributable to |
$ |
(47,965) |
$ |
(1,279) |
(49,244) |
$ |
(92,925) |
$ |
(4,446) |
(97,371) |
$ |
(88,698) |
$ |
16,934 |
$ |
(71,764) |
||
Diluted net loss per ADS |
$ |
(1.23) |
(1.27) |
$ |
(2.39) |
(2.50) |
$ |
(2.28) |
$ |
(1.85) |
||||||||
ADSs used in computing Limited |
38,927 |
38,927 |
38,904 |
38,904 |
38,855 |
38,855 |
||||||||||||
Note: |
||||||||||||||||||
(a) To eliminate the impact of share-based awards as measured using the fair value method. This adjustment does not have an impact on income tax expense. |
||||||||||||||||||
(b) To adjust Sohu's economic interests in Changyou and Sogou attributable to the above non-GAAP adjustments. This adjustment does not have an impact on income tax expense. |
||||||||||||||||||
(c) To adjust for a change in the fair value of the Company's investment in Hylink and the income tax effect. |
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SOURCE Sohu.com Ltd.