On March 9, Beijing time, Sohu released a new quarterly financial report. That night, the US stocks experienced an epic crash, triggering the first-level fuse mechanism. Many Chinese stocks closed down and the weight fell, and Sohu was affected by the financial report. It rose against the trend in early trading, with a maximum increase of nearly 6%.
Before the release of this new financial report, Sohu adjusted its guidance financial forecast for the fourth quarter of 2019 on February 7. Judging from the financial report, Sohu's board chairman and CEO Zhang Chaoyang's previously predicted "expected profit" has come true. In terms of full-year losses, Sohu ’s non-GAAP net loss to Sohu in 2019 was US $ 93 million. From the data point of view, Sohu's loss reduction effect is still very obvious, laying a foundation for its continued profitability in the future.
Due to the macroeconomic impact last year, many Internet companies' revenues were more or less affected. Sohu ’s revenue growth in the fourth quarter of 2019 is still not easy, especially in this quarter. Profit is likely to be an important turning point. In this new financial report, what positive signals did Sohu release? Looking ahead to 2020, what kind of expectations can Sohu bring to investors?
Revenue growth year-on-year exceeded market expectations for Q4 net profit of US $ 7 million
The financial report shows that Sohu's total revenue in the fourth quarter was 490 million U.S. dollars, an increase of 5% year-on-year, exceeding market expectations of 477 million U.S. dollars; under non-GAAP, Sohu Group's loss in 2019 decreased by 55% year-on-year; After the impact of investment impairments not related to the core business, the non-GAAP net profit attributable to Sohu was US $ 7 million.
From the point of view of the amount of loss, Sohu's loss in 2019 has been greatly reduced, which shows that Sohu's cost-saving measures and stable business performance in many aspects have led to further improvements in operations. During the quarter, Sohu ’s US GAAP operating expenses were $ 211 million, a 15% decrease from the same period in 2018 and a 4% decrease from the previous quarter. Non-GAAP operating expenses were $ 204 million, down 17% from the same period in 2018 and 5% from the previous quarter.
Costs and expenses are declining further but Sohu has maintained revenue growth. In this quarter, Sohu brand advertising revenue was 42 million US dollars; search and search-related advertising business revenue was 275 million US dollars; online gaming revenue was 132 million US dollars, an increase of 40% from the same period in 2018 and an increase of 22% from the previous quarter.
Among the three major businesses, the year-on-year growth of the game business is still more eye-catching, mainly due to Changyou's stable performance in revenue. In the Q4 quarter, Changyou's total revenue was US $ 135 million, an increase of 35% year-on-year. Compared with other game manufacturers, Changyou's year-on-year growth rate is still very good in the game industry.
In 2020, the gaming business is likely to bring higher returns to Sohu. As an evergreen tree in the gaming industry, Changyou holds many popular game titles in the market, and again maintains a good revenue growth, or it stems from its accumulated strength in the gaming industry for many years.
In 2019, Sohu achieved a total revenue of 1.85 billion US dollars, an increase of 2% over 2018, and the overall performance is not easy. In the Internet industry, Sohu's ability to achieve such performance also shows that its major businesses are still competitive in different fields.
In addition to the good revenue growth, a major highlight of Sohu ’s quarterly earnings report is: “effective loss reduction and profitability”, which is a great breakthrough for Sohu. According to Sohu ’s previously disclosed quarterly financial data, we can see from the data that Sohu ’s deficit reduction is declining quarter by quarter.
From the perspective of Sohu's own media and video business, the loss amount is USD 75 million in 2018Q4, USD 72 million in 2019Q1, USD 68 million in 2019Q2, USD 53 million in 2019Q3, and USD 46 million in 2019Q4. The loss was reduced by USD 80 million in 2018.
From the perspective of Sohu Group (including Sogou and Changyou), the loss amount was USD 51 million in 2018Q4, USD 52 million in 2019Q1, USD 32 million in 2019Q2, USD 17 million in 2019Q3, and USD 7 million in profit in Q4.
From these two sets of data, on the basis of effective loss reduction, Sohu also achieved profit for the first time this quarter. If there is no impact of this epidemic, Sohu still has a high probability to keep Sohu (media and video) continuously reducing losses, and the profits of Sogou and Changyou will continue to increase. Sohu will be expected to enter a continuous profit period.
In the online media communication meeting, Zhang Chaoyang bluntly said that Sohu's performance in 2019 can be scored 80 points, which is 20 points more than in 2018. What are the 20 points higher? From loss to profit, what effective measures has Sohu taken?
Ending sixteen quarters of losses, Sohu station turned around the watershed
Sohu, which achieved a profit of US $ 7 million in this quarter, has also ended its 16 consecutive quarters of losses. Sohu, which has turned the watershed to make a profit, has put a relatively successful end to its 2019. It is not easy for an enterprise to achieve revenue growth in performance, and to better control cost and reduce losses effectively, it also tests the operating ability of a company. Sohu this time is really commendable to achieve effective loss reduction and profitability. Then it did business in the last year. What effective actions have been taken?
1. Return to the media to enlarge the value of advertisements, reduce costs and shrink losses
Last year, Sohu's big move was to return to the media. On the one hand, the Sohu news client will continue to strengthen machine recommendation and distribution, on the other hand, Sohu officially returns to media attributes. For media platforms, the generation of content is very important, and activities are an important source of content generation. Last year, Sohu organized a series of activities online and offline, such as Sohu News Marathon, Huyou National School Grass Contest, Huyou National School Flower Contest, 5G Summit, Finance Summit, AI Summit, UAV Contest, etc. Influential content.
In terms of content production and distribution, Sohu ’s average daily article volume reaches 220,000, and the number of accounts reaches 710,000. Sohu insists on ensuring the amount of articles on the platform while continuously optimizing algorithms to provide each user with "thousands of people". Personalized recommendation content attracts users to gather and maintain participation, which is why the per capita usage time of the Sohu News client increased by approximately 50% year-on-year in the fourth quarter.
The emphasis on these content brands has also enabled Sohu's media value to gradually gain recognition from more advertisers, who have seen the considerable effect of advertising. This is why under the influence of the economic downturn last year, Sohu can still achieve contrarian growth. While maintaining the growth of the brand advertising business, Sohu is also more reasonable in spending on channels, operations, marketing and other costs. In maintaining the growth of the user base, continuous product innovation, and exploring better content reports, it is realized in the media business Better revenue growth and even profitability are approaching.
2. Video platforms have launched a combination of long and short video, Sohu video leveraged the "dual engine strategy"
In the video industry, video platforms have gradually begun to move towards the development of long and short videos. In the past, there was iQiyi, and now Sohu is also a rare platform that adheres to this route. Through the two-way layout of long and short videos, this platform allows the platform to acquire user groups in different sub-sectors and further enhance the user's stickiness on the platform. Under the dual-engine strategy, Sohu Video continues to output high-quality home-made episodes and a long video content engine of home-made variety shows, while gradually increasing the short video content that users participate in and co-create, with a large number of knowledgeable people and big V entering And start broadcasting, Sohu Video is forming a unique high-value platform.
In the field of long video, Sohu Video's adherence to the small and beautiful strategy is also bringing higher returns for it. Sohu Video subdivides the crowd from sweet love, suspense investigation law, and comedy, etc., and attracts more users by subject matter content, and retains these users to become loyal users of Sohu Video. Sohu ’s push of home-made dramas not only can better control costs, but also promotes the growth of Sohu ’s video advertising and paying users, and can also generate huge income for the platform through the distribution of home-made content, and the source of income is more diversified.
At the time of the epidemic, the live broadcast on Sohu's video also ushered in a round of user growth, and content in the subdivided fields such as knowledgeable people, mothers and infants, psychology, and health have been watched by many users. Sohu has a certain foundation to explore live broadcasts and short videos through the fan economy, and accumulate a certain number of active users. Based on these users, they can develop live broadcasts and short videos to achieve better internal conversion. Previously, the Huyou National School Flower Contest and the Huyou National School Grass Contest let them see the potential of the fan economy. The launch of live broadcasts and short videos may be able to catch young people, catch fans, catch circles, and grasp digitalization. Seize the new trend.
3. The game industry is lacking in precision and quantity, insisting on "good games" and actively seizing the game market
At the end of last year, Gamma Data released the "2019 China Game Industry Annual Report" data showing that in 2019, the overall growth rate of China's game market and overseas market export revenue increased again, with revenue exceeding 310 billion yuan, an increase of 10.6%. Innovation is the biggest feature of the gaming industry in 2019. Since 2018, the game market rules have been rectified and refined products have become a consensus in the game industry. In 2019, the benefits brought by innovation and refined products are being initially demonstrated in the domestic and global markets. Although the growth rate of the domestic game industry is not bad, not every game company can get a market dividend, and it is the key to have excellent game works in hand.
Changyou's performance in 2019 is relatively stable. The total revenue of Changyou in 2019 was US $ 455 million, a year-on-year increase of 9%. In the game industry, it is increasingly difficult for game companies to achieve revenue growth. Why can Changyou achieve better year-on-year growth? This is mainly due to Changyou's development goals around "good games", and inseparable research and development as the focus of mobile game development.
In 2019, Changyou has obtained a total of 10 version numbers and 3 games have been launched. Among them, the classic version of Tianlong Mobile Games has a relatively stable overall performance in 2019. In the fourth quarter, Changyou ’s mobile games totaled an average of 3.7 million monthly active users, up 28% year-on-year and 6% quarter-on-quarter. The total number of active paying users in the quarter was 1.1 million, a year-on-year increase of 57%, which was flat month-on-month. The year-on-year increase was mainly due to the contribution of the Tianlong Honor Mobile Games launched in the third quarter of 2019.
Changyou is very stable in the subdivided field of martial arts games. The main game Tianlong Babu still has a good influence in the market. In addition to the good performance of Tianlong Duanyou and the classic version of Tianlong Mobile Games, Changyou is also actively developing casual and strategic games to accumulate a diversified game product portfolio. With the accumulation and accumulation of Changyou in the game industry over the years, Business growth will continue for a long time.
4. AI technology has become the standard search engine Sogou multi-angle attempt to commercialize the scene
As Sohu's technical trump card, Sogou's development in recent years is remarkable. According to the financial report, Sogou's Q4 revenue was US $ 301 million, an increase of 1% year-on-year. Total revenue in 2019 was US $ 1.17 billion, an increase of 4% year-on-year. The overall performance was better than market expectations. In order to further establish a competitive advantage and consolidate its revenue growth strength, Sogou Search has continued to lead the industry in its growth rate through differentiated content service ecology and AI intelligent service innovation.
In the current relatively solidified search industry, Sogou has implemented alternative curve overtaking through the input method recommendation service, and the business of this segment is growing very fast. In 2019, Sogou ’s revenue was US $ 1.17 billion. What is commendable is that it has continued to invest in AI while maintaining business growth. Its AI dictation service has developed to the initial scale, and it has released several AI hardware products such as its own dictation pen The market response was very good.
Sogou's emphasis on technology not only makes its products highly competitive, but more importantly, the rewards brought by technology are working. With the support of AI capabilities, Sogou input method is constantly innovating for a variety of user usage scenarios, greatly improving the user input experience. In terms of AI hardware, Sogou, with its technical advantages in the field of voice AI, has launched the AI recorder C1 and C1 Pro in the recorder industry, which has become the mainstream e-commerce platform sales champion in a short time.
In terms of revenue, it can continue to maintain a good year-on-year growth. Not only does Sogou maintain the second position in the market in the search field, but it can also have more scenarios to explore commercial monetization opportunities. At the same time, it is also expected to bring more stable revenue and profit returns to Sohu. Under the technical blessing, it will allow Sogou's commercial growth potential to gain more recognition.
Adhere to the "Shouzheng surprising" is expected to continue to make profits Sohu 2020 may make investors "change"
The financial report of the Chinese stock market is at the time of the epidemic. To support anti-epidemic and anti-epidemic work, Sohu and Sogou immediately invested 20 million yuan to purchase medical materials to provide protection for the frontline medical staff. Affected by the epidemic, many domestic Chinese stock companies have lowered their year-on-year growth for the next quarter's financial report. Like other platforms, Sohu ’s video and advertising business has also been affected to a certain extent, but Sohu ’s long video viewing fee income has grown, and online games have also grown well, bringing more positive consumption.
Regarding the outlook for 2020, Zhang Huoyang, chairman and CEO of Sohu, said, "In 2020, we will continue the good momentum in 2019, run faster in product innovation and user group pull, and continue to adhere to the strategy of" being upright and surprising. " In the short term, the epidemic was only a matter of time. In the long run, Sohu's performance in 2020 is still worthy of external expectations.
Sohu is moving towards stable operation and is expected to usher in huge returns. Looking back at Sohu's overall development in 2019, while successfully conserving its strength, its own situation has continued to improve in the face of industry development adversity. Once the overall market warms up, Sohu has the courage and capital to bravely charge. Although the amount of profit in this single quarter is not very high, it has become a landmark event of Sohu, which means that Sohu's adherence to the "Shengzheng surprising" strategy allows it to see the dawn of continuous profitability, and the return of income is just around the corner.
From the perspective of valuation and profitability, Sohu's share price in 2020 is expected to open up space. During the earnings conference call, Sohu CEO Zhang Chaoyang also disclosed some positive information. During the epidemic, Sohu ’s long video and TV dramas have seen growth, and user subscription business revenue has increased; in addition, because users stay at home, PC gaming / endgame time has increased. From this point of view, Sohu still has decent market competitiveness in the video and gaming fields. On the basis of maintaining stable growth of the main business and effective loss reduction, Sohu is approaching the path of continuous profitability, which may also attract more Investors continue to hold the key points of Sohu.
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