Sohu executives interpret the second quarter financial report: live broadcast has become an important part of Sohu’s marketing business

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Sina science and technology news Beijing time on August 10 evening news, Sohu released as of June 30, 2020 second quarter financial report. Changyou will be privatized on April 17, 2020, and the net income / loss of Changyou will belong to Sohu. According to the financial report data, Sohu’s total revenue in the second quarter was 421 million US dollars, a year-on-year decrease of 9% and a month on month decrease of 3%; the operating loss of Sohu was US $16 million, while that of the second quarter of 2019 was $7 million, and that of the first quarter of 2020 was $20 million.
After the release of the financial report, the board chairman and CEO of Sohu, Zhang Chaoyang, CFO LV Yanfeng, Vice Finance General Manager Deng Xiufeng, Changyou CEO Chen Dewen, Changyou CFO chief financial officer Wang Yaobin, Sogou CEO Wang Xiaochuan and CFO Zhou Yi held a conference call to interpret the key points of the financial report and answer the analyst’s questions.
The following is the main content of the Q & a session of analysts in this teleconference:
Eddie Leung, analyst of Bank of America Merrill Lynch: the first question is about the live broadcast. The management mentioned the synergistic effect of online celebrities in the live broadcasting business. Is there anything that can be shared with you in terms of operation and financial data? What is the outlook for the third quarter? The second question is about games. I know that with the gradual alleviation of the epidemic situation and the gradual resumption of work, the overall situation of the game industry is weakening. Is the current situation stable? How can the company predict the business trend in the third quarter after the summer vacation in the traditional peak season?
Zhang Chaoyang: at present, there are dozens of online celebrities doing live broadcast every day. Among them, 10 to 20 anchors will promote products and bring goods. We call it “value live broadcast”. These anchors come from the medical industry, cosmetics industry, or have a deep understanding of lifestyle. We also have many of the most popular anchors. I have to run three or four live broadcasts every month. During the live broadcast, many celebrities will be invited to share their lifestyle and products. Our live studio also provides links to e-commerce platforms such as Jingdong and Taobao, and users can click and add shopping cart directly. Our advertising fees are based on the number of transactions, and at the same time provide discounts for users to purchase these products. On the one hand, the transaction volume is more important to improve the popularity of live broadcast, and then promote advertisers to increase their investment budget on our platform. This is the core content of cooperation.
Eddie Leung: so it can be understood that Sohu doesn’t get much revenue from live e-commerce, mainly from advertisers, right?
Zhang Chaoyang: the anchor e-commerce still has revenue, and advertisers will give us a very large discount. Users like to visit the live broadcast frequently. The reason why they buy products is that our price is the best. The merchants on the e-commerce platform are also willing to provide us with very large discounts. The price difference can be regarded as our revenue. Of course, I mean that the proportion of e-commerce revenue is small, and the most important is advertising revenue. Live broadcasting has also become a very important part of Sohu’s marketing business. For example, if an automobile manufacturer spends 3 million yuan to advertise in Sohu, our contract will stipulate that one million yuan will be spent in live advertising, because our live broadcasting business is very innovative and has a wide range of dissemination in the industry. On the issue of games, compared with the first quarter, many people spend less time at home in the second quarter. Moreover, due to the poor overall economic situation, disposable income will decrease. There may be two reasons.
Chen Dewin: during the epidemic, different companies and different games were affected differently. Changyou is mainly a serious game, and the payment income mainly depends on the large amount of payment, so the epidemic situation in the first quarter is beneficial to us. But from the second quarter, the whole economy began to suffer. Large payments will also be affected, so we can see that in the second quarter, the cumulative number of active paying users decreased. We think the third quarter will be relatively stable, because the epidemic has been stable in China for some time.
Zhang Chaoyang: the situation has gradually stabilized, but the profit has declined, because of the increase in marketing costs?
Chen Dewen: Oh, I mean the whole industry, not Changyou company.
Jeffery analyst Thomas Chong: I have a question about the outlook of the brand advertising business in the third quarter. According to the company’s forecast, I have calculated the month on month growth of the company’s brand advertising revenue in the third quarter, which is between – 3% and 10%. Could you ask the company’s management to explain under what circumstances the company’s brand advertising revenue will decline by 3% month on month? And under what circumstances will there be more than 10% month on month growth? What is the growth of brand advertising for different categories of goods? In addition, does the tension between China and the United States affect the growth of the company’s international brand advertising business?
Zhang Chaoyang: on the second question, we have no international advertisers.
Thomas Chong: what about the advertising of international brand products?
Zhang Chaoyang: we see that in the fast-selling products, the advertising of these international brand products has increased. On the first question, we expect a growth range, depending on the epidemic situation and the economic situation. The company will continue to innovate products and services and increase the number of advertisers, but the economic outlook is very uncertain. The growth of advertising business of each product category is similar to the previous situation. The major contribution is still automobile, followed by e-commerce, fast-selling products, Internet services, financial services and real estate.
Alicia Yap, Citibank analyst: after the company recently integrated the sales team of Sohu Video and Sohu portal in the advertising system, can we look forward to the development of Sohu portal in the future? What development goals does the company set for this part of the business? In addition, regarding the company’s video content strategy, considering that the company will receive more cash, will the company increase the production of video content again? Or will we consider reducing the loss of video business?

Zhang Chaoyang: we have a clear development strategy for Sohu News app and Sohu Video app. Of course, our mobile Sohu website and PC website will also contribute to the business. However, we are still focusing on these two apps. The innovation focus of Sohu News app is two kinds of information transmission mechanism. One is to continue to provide high-quality content, including editing content, original content and partner content. In terms of the combination of editing content delivery and machine delivery, we will continue to improve the algorithm ability, let users see more relevant content, and increase the proportion of video content in the information flow. The second information delivery mechanism is content distribution on social media platform, which is based on attention account. These two kinds of information transmission channels will continue to drive the growth of users of Sohu News app in the future. In terms of Sohu Video business, long video content is mainly TV series, short video content is mainly user uploaded content, in addition, there are user live content playback, this part of content has advantages and disadvantages, these content can also be achieved through the two information transmission and distribution mode mentioned above, such as editing content or the attention stream of social platform, we also hope that through the user’s Posting and forwarding realize the transmission and distribution of information. As for the cooperation between Sohu News and Sohu Video, we do not allow live broadcast in Sohu News app. In principle, live broadcast is only conducted in Sohu Video app, so as to promote the growth of Sohu Video app users. Previously, most of the content broadcast by Sohu Video app was TV series and American TV series. At present, it has become a very important live broadcast platform and a platform for broadcasting sudden video news. Users of Sohu News app can click into Sohu Video app and watch their favorite content. We hope to switch the content of different apps with the user as the main axis. Of course, there are also users transferred from mobile Sohu and PC portal.
Alicia Yap: that means companies won’t invest in long video content, right?
Zhang Chaoyang: in the past two years, the company has produced a lot of small and beautiful TV series, and some of them have become popular. If we have more sufficient funds, we will not invest in the way that we did in 2016 and 2017, including the purchase of a large number of expensive content. However, we are likely to increase the density, frequency and quantity of TV series content in each quarter. For example, in 2019, or the first half of the year, we only launched three TV dramas. According to the current rhythm, the number in the second half of the year is that Two or three. If we have more funds, the number of online dramas will probably double, and the number of TV dramas online in a year may reach 10 to 12. Our investment growth in this area will not be too big, because the company’s video business growth mainly comes from short video, user uploaded content, user professionally produced content and live broadcast. Any TV series will be an opportunity to increase new users, because our online content is exclusive, attracting users to watch, and the company believes that they will continue to stay on the platform, because Sohu Video has more other content for them to watch and more social attributes for users to mine. (Tian Heng)