Sohu.com Reports Second Quarter 2020 Unaudited Financial Results
BEIJING, Aug. 10, 2020 /PRNewswire/ -- Sohu.com Limited (NASDAQ: SOHU), China's leading online media, video, search and gaming business group, today reported unaudited financial results for the second quarter ended June 30, 2020.
Second Quarter Highlights([1])
The privatization of Changyou was completed on April 17, 2020. After the effectiveness of the transaction, Changyou's net income/loss was wholly attributable to Sohu.com Limited. For the second quarter of 2020, Changyou recognized an additional accrual of withholding income tax of US$88 million, as Changyou changed its policy for its PRC subsidiaries with respect to distribution of cash dividends after the completion of the privatization.
-- Total revenues were US$421 million([2]), down 9% year-over-year and 3%
quarter-over-quarter.
-- Brand advertising revenues were US$38 million, down 14% year-over-year
and up 48% quarter-over-quarter.
-- Search and search related advertising revenues([3]) were US$241 million,
down 13% year-over-year and up 1% quarter-over-quarter.
-- Online game revenues were US$106 million, up 4% year-over-year and down
21% quarter-over-quarter.
-- GAAP net loss attributable to Sohu.com Limited was US$80 million.
Excluding the impact of the additional accrual of withholding income tax
described above, GAAP net income attributable to Sohu.com Limited was
US$8 million, compared with a net loss of US$35 million in the second
quarter of 2019 and a net loss of US$20 million in the first quarter of
2020.
-- Excluding the impact of the additional accrual of withholding income tax
described above, non-GAAP net income attributable to Sohu.com Limited
was US$11 million. Further excluding the loss generated by Sogou,
non-GAAP net income attributable to Sohu.com Limited was US$12 million,
compared with a net loss of US$41 million in the second quarter of 2019
and a net loss of US$8 million in the first quarter of 2020.
Dr. Charles Zhang, Chairman and CEO of Sohu.com Limited, commented, "In the second quarter of 2020, our brand advertising business performed well, the brand advertising revenue had a decent increase, up 48% quarter-over-quarter. Both the brand advertising revenue and bottom line exceeded our prior guidance. During the quarter, we integrated our Media Portal's brand advantage and influence with Sohu Video's advanced broadcast technologies. These initiatives allowed us to more effectively generate and distribute our high-quality original content, and further enhanced our credibility by reflecting the attitude and values of Sohu. For Changyou, the privatization was completed on April 17, 2020, and after that Changyou's net income/loss was wholly attributable to Sohu.com Limited. During the second quarter of 2020, online game revenues met our prior guidance and declined quarter-over-quarter, mainly due to the resumption of work following the easing of COVID-19 restrictions. For Sogou, it delivered in-line results in the second quarter with Search maintaining a steady share of traffic and Mobile Keyboard further expanding its DAU base."
[1] As Changyou's cinema advertising business
ceased operations during the third quarter of
2019, its results of operations have been
excluded from the Company's results from
continuing operations in the condensed
consolidated statements of operations and are
presented in separate line items as
discontinued operations. Retrospective
adjustments to the historical statements have
been made in order to provide a consistent
basis of comparison. Unless indicated
otherwise, results presented in this release
are related to continuing operations only, and
exclude results from the cinema advertising
business.
[2] On a constant currency (non-GAAP) basis,
if the exchange rate in the second quarter of
2020 had been the same as it was in the second
quarter of 2019, or RMB6.81=US$1.00, US$ total
revenues in the second quarter of 2020 would
have been US$438 million, or US$17 million
more than GAAP total revenues, and down 5%
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 2020 were US$421 million, down 9% year-over-year and 3% quarter-over-quarter.
Total online advertising revenues, which include revenues from the brand advertising and search and search-related advertising businesses, for the second quarter of 2020 were US$279 million, down 13% year-over-year and up 6% quarter-over-quarter.
Brand advertising revenues for the second quarter of 2020 totaled US$38 million, down 14% year-over-year and up 48% quarter-over-quarter. The year-over-year decrease was mainly due to the continuous negative impact on the brand advertising industry from the outbreak of the COVID-19 in the first quarter of 2020. The quarter-over-quarter increase was mainly due to the increased revenues in our portal and video advertising businesses as a result of our continuing efforts to boost our revenues and the easing of the impact of COVID-19.
Search and search-related advertising revenues for the second quarter of 2020 were US$241 million, down 13% year-over-year and up 1% quarter-over-quarter.
Online game revenues for the second quarter of 2020 were US$106 million, up 4% year-over-year and down 21% quarter-over-quarter. The quarter-over-quarter decrease was mainly due to a decrease in player engagement as a result of work resumption during the quarter following the easing of COVID-19 restrictions in China.
Gross Margin
Both GAAP and non-GAAP([4]) gross margin was 41% for the second quarter of 2020, compared with 46% in the second quarter of 2019 and 37% in the first quarter of 2020.
Both GAAP and non-GAAP gross margin for the online advertising business for the second quarter of 2020 was 23%, compared with 33% in the second quarter of 2019 and 10% in the first quarter of 2020.
Both GAAP and non-GAAP gross margin for the brand advertising business in the second quarter of 2020 were 40%, compared with 28% in the second quarter of 2019 and nil in the first quarter of 2020. The year-over-year margin improvement was mainly due to decreased video content cost. The quarter-over-quarter margin improvement was mainly due to increased revenues in the portal and video advertising businesses.
Both GAAP and non-GAAP gross margin for the search and search-related advertising business in the second quarter of 2020 were 21%, compared with 34% in the second quarter of 2019 and 11% in the first quarter of 2020. The year-over-year decrease primarily resulted from an increase in traffic acquisition cost as a percentage of search and search related advertising revenues. The quarter-over-quarter increase was due to a decrease in traffic acquisition cost as a percentage of search and search related advertising revenues due to normalized user traffic following the easing of COVID-19 restrictions in China.
GAAP gross margin for online games in the second quarter of 2020 was 77%, compared with 82% in the second quarter of 2019 and 79% in the first quarter of 2020. Non-GAAP gross margin for online games in the second quarter of 2020 was 78%, compared with 82% in the second quarter of 2019 and 79% in the first quarter of 2020. The year-over-year decrease in gross margin was mainly due to an increase in revenue-sharing payments related to TLBB Honor, which was launched during the third quarter of 2019.
[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; a one-time impairment
charge recognized for an investment
unrelated to the Company's core
businesses; income/expense from the
adjustment of contingent consideration
previously recorded for acquisitions;
dividends and deemed dividends to non-
controlling preferred shareholders of
Sogou; a one-time income tax expense
recognized in the fourth quarter of
2017 as a result of the one-time
transition tax (the "Toll Charge")
imposed by the U.S. Tax Cuts and Jobs
Act signed into law on December 22,
2017 (the "TCJA"); the subsequent re-
evaluation for the fourth quarter of
2018 and adjustment of the tax expense
previously recognized for the Toll
Charge; the resulting recognition of a
previously unrecognized tax benefit and
recording of an uncertain tax position
related to the balance of the Toll
Charge; and interest accrued in
relation to the previously unrecognized
tax benefit. 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 2020, GAAP operating expenses totaled US$194 million, down 13% year-over-year and up 4% quarter-over-quarter. Non-GAAP operating expenses were US$187 million, down 14% year-over-year and up 3% quarter-over-quarter. The year-over-year decrease in operating expenses was mainly due to decreased marketing expenses.
Operating Loss
GAAP operating loss for the second quarter of 2020 was US$23 million, compared with an operating loss of US$11 million in the second quarter of 2019 and an operating loss of US$24 million in the first quarter of 2020.
Non-GAAP operating loss for the second quarter of 2020 was US$16 million, compared with an operating loss of US$7 million in the second quarter of 2019 and an operating loss of US$20 million in the first quarter of 2020.
Income Tax Expense
GAAP income tax expense was US$85 million for the second quarter of 2020, compared with income tax expense of US$4 million in the second quarter of 2019 and income tax expense of US$14 million in the first quarter of 2020. Non-GAAP income tax expense was US$82 million for the second quarter of 2020, compared with income tax expense of US$2 million in the second quarter of 2019 and income tax expense of US$11 million in the first quarter of 2020. For the second quarter of 2020, Changyou recognized an additional accrual of withholding income tax of US$88 million, as Changyou changed its policy for its PRC subsidiaries with respect to distribution of cash dividends after the completion of the privatization of Changyou.
Net Income/(Loss)
GAAP net loss attributable to Sohu.com Limited for the second quarter of 2020 was US$80 million, or a net loss of US$2.04 per fully-diluted ADS. Non-GAAP net loss attributable to Sohu.com Limited for the second quarter of 2020 was US$77 million, or a net loss of US$1.96 per fully-diluted ADS.
Excluding the impact of the additional accrual of withholding income tax described above, GAAP net income attributable to Sohu.com Limited for the second quarter of 2020 was US$8 million, or a net income of US$0.20 per fully-diluted ADS; non-GAAP net income attributable to Sohu.com Limited for the second quarter of 2020 was US$11 million, or a net income of US$0.27 per fully-diluted ADS.
Liquidity
As of June 30, 2020, cash and cash equivalents and short-term investments held by the Sohu Group, minus short-term bank loans, were US$1.35 billion, compared with US$1.51 billion as of December 31, 2019.
Supplementary Information for Changyou Results
Second Quarter 2020 Operational Results
-- For PC games, total average monthly active accounts(([5])) were 1.9
million, a decrease of 5% year-over-year and 10% quarter-over-quarter.
Total quarterly aggregate active paying accounts(([6])) were 0.9
million, flat year-over-year and a decrease of 10% quarter-over-quarter.
The quarter-over-quarter decreases were mainly due to a decrease in
player engagement as a result of the resumption of work during the
quarter following the easing of COVID-19 restrictions in China.
-- For mobile games, total average monthly active accounts were 3.1
million, an increase of 15% year-over-year and a decrease of 9%
quarter-over-quarter. The year-over-year increase was mainly due to the
contribution of TLBB Honor, which was launched during the third quarter
of 2019. Total quarterly aggregate active paying accounts were 0.6
million, flat year-over-year and a decrease of 40% quarter-over-quarter.
The quarter-over-quarter decreases were mainly due to a decrease in
player engagement as a result of the resumption of work during the
quarter following the easing of COVID-19 restrictions in China.
[5] Monthly active accounts
refers to the number of
registered accounts that are
logged in to these games at
least once during the month.
[6] Quarterly aggregate active
paying accounts refers to the
number of accounts from which
game points are utilized at
least once during the quarter.
Second Quarter 2020 Unaudited Financial Results
Total revenues for the second quarter of 2020 were US$109 million, an increase of 3% year-over-year and a decrease of 20% quarter-over-quarter. Online game revenues were US$106 million, an increase of 4% year-over-year and a decrease of 21% quarter-over-quarter. Online advertising revenues were US$3 million, a decrease of 16% year-over-year and an increase of 23% quarter-over-quarter.
GAAP and non-GAAP gross profit for the second quarter of 2020 were both US$85 million, a decrease of 2% year-over-year and 21% quarter-over-quarter.
GAAP operating expenses for the second quarter were US$51 million, an increase of 10% year-over-year and a decrease of 6% quarter-over-quarter. The year-over-year increase in operating expenses was mainly due to an increase in share-based compensation expenses as new share-based awards took effect in the fourth quarter of 2019. The quarter-over-quarter decrease was mainly due to a decrease in marketing and promotional spending for TLBB Honor.
Non-GAAP operating expenses for the second quarter were US$48 million, a decrease of 1% year-over-year and 6% quarter-over-quarter.
GAAP operating profit for the second quarter of 2020 was US$33 million, compared with an operating profit of US$40 million in the second quarter of 2019 and US$52 million in the first quarter of 2020.
Non-GAAP operating profit for the second quarter of 2020 was US$37 million, compared with a non-GAAP operating profit of US$38 million in the second quarter of 2019 and US$56 million in the first quarter of 2020.
Recent Developments
On July 27, 2020, Sohu's subsidiary Sogou announced that its board of directors (the "Sogou Board") received a letter containing a preliminary non-binding proposal (the "Proposal") from Tencent Holdings Limited (including its affiliates, "Tencent") for Tencent to acquire all of the outstanding ordinary shares, including ordinary shares represented by ADSs, of Sogou that are not already owned by Tencent for US$9.00 in cash per ordinary share or ADS (as the same may be amended from time to time, a "Proposed Transaction"). The Proposed Transaction, if completed, would result in Sogou becoming a privately-held, indirect wholly-owned subsidiary of Tencent, and Sogou's ADSs would be delisted from the New York Stock Exchange.
On July 31, 2020, the Sogou Board established a special committee of the Sogou Board, composed solely of independent directors, to consider the Proposal.
Sohu's board of directors has not had an opportunity to review and evaluate the Proposal in detail, or to make a determination as to how to respond to the Proposal or as to whether or not the proposed acquisition of Sogou would be in the best interests of Sohu, in its capacity as Sogou's controlling shareholder, and Sohu's shareholders for Sohu to approve or reject the Proposal or a Proposed Transaction.
Business Outlook
For the third quarter of 2020, Sohu estimates:
-- Brand advertising revenues to be between US$37 million and US$42
million; this implies an annual decrease of 9% to 20% and a sequential
decrease of 3% to a sequential increase of 11%.
-- Online game revenues to be between US$85 million and US$95 million; this
implies an annual decrease of 12% to 21% and a sequential decrease of
10% to 20%.
-- Excluding the profit/loss generated by Sogou, non-GAAP net loss
attributable to Sohu.com Limited to be between US$10 million and US$20
million; and GAAP net loss attributable to Sohu.com Limited to be
between US$15 million and US$25 million.
For the third quarter 2020 guidance, the Company has adopted a presumed exchange rate of RMB7.00=US$1.00, as compared with the actual exchange rate of approximately RMB6.99=US$1.00 for the third quarter of 2019, and RMB7.08=US$1.00 for the second quarter of 2020.
This forecast reflects Sohu's management's current and preliminary view, which is subject to substantial uncertainty, particularly in view of the potential ongoing impact of the COVID-19 virus, which remains difficult to predict.
Non-GAAP Disclosure
To supplement the unaudited consolidated financial statements presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"), Sohu's management uses non-GAAP measures of gross profit, operating profit, net income, net income attributable to Sohu.com Limited and diluted net income attributable to Sohu.com Limited per ADS, which are adjusted from results based on GAAP to exclude the impact of the share-based awards, which consist mainly of share-based compensation expenses and 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; a one-time impairment charge recognized for an investment unrelated to the Company's core businesses; income/expense from the adjustment of contingent consideration previously recorded for acquisitions; dividend and deemed dividend to non-controlling preferred shareholders; the one-time income tax expense recognized in the fourth quarter of 2017 as a result of the Toll Charge imposed by the TCJA and the subsequent re-evaluation for the fourth quarter of 2018 and adjustment of the tax expense previously recognized for the Toll Charge; the resulting recognition of a previously unrecognized tax benefit and recording of an uncertain tax position related to the balance of the Toll Charge; and interest expense recognized in connection with the Toll Charge. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.
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; the one-time impairment charge recognized for an investment unrelated to the Company's core businesses; 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 income tax expense, income tax benefit, uncertain tax position, and interest recognized in relation to the Toll Charge 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; the one-time impairment charge recognized for an investment unrelated to the Company's core businesses; 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; the one-time income tax expense recognized in the fourth quarter of 2017 as a result of the Toll Charge imposed by the TCJA and the subsequent re-evaluation for the fourth quarter of 2018 and adjustment of the tax expense previously recognized for the Toll Charge; the resulting recognition of a previously unrecognized tax benefit and recording of an uncertain tax position related to the balance of the Toll Charge; and interest expense recognized in connection with the Toll Charge 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, the one-time impairment charge recognized for an investment unrelated to the Company's core businesses, 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, a one-time impairment charge recognized for an investment unrelated to the Company's core businesses, 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 one-time income tax expense recognized in the fourth quarter of 2017 as a result of the Toll Charge imposed by the TCJA and the subsequent re-evaluation for the fourth quarter of 2018 and adjustment of the tax expense previously recognized for the Toll Charge, the resulting recognition of a previously unrecognized tax benefit and recording of an uncertain tax position related to the balance of the Toll Charge, and interest expense recognized in connection with the Toll Charge.
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 ADS, 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 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 the People's Republic of China; fluctuations in Sohu's quarterly operating results; the possibilities that Sohu will be unable to recoup its investment in video content and that Changyou will be unable to develop a series of successful games for mobile platforms or successfully monetize mobile games it develops or acquires; Sohu's reliance on online advertising sales, online games and mobile services for its revenues; the impact of the U.S. TCJA; the effects of the COVID-19 virus on the economy in China in general and on Sohu's business in particular; and the fact that there is no assurance that Tencent will make a definitive offer to acquire Sogou, that a definitive agreement relating to the Proposal will be entered into between Tencent and Sogou, or that a Proposed Transaction or any other similar transaction between Tencent and Sogou will be approved or consummated. Further information regarding these and other risks is included in Sohu's annual report on Form 20-F for the year ended December 31, 2019, and other filings with the Securities and Exchange Commission.
Conference Call and Webcast
Sohu's management team will host a conference call at 7:30 a.m. U.S. Eastern Time, August 10, 2020 (7:30 p.m. Beijing/Hong Kong time, August 10, 2020) following the quarterly results announcement. Participants can register for the conference call by navigating to https://apac.directeventreg.com/registration/event/8993497. Once preregistration has been completed, participants will receive dial-in numbers, an event passcode, and a unique registrant ID.
To join the conference, please dial the number you receive, enter the event passcode followed by your unique registrant ID, and you will be joined to the conference instantly. Please dial in 10 minutes before the call is scheduled to begin.
A telephone replay of the call will be available after the conclusion of the conference call at 10:30 a.m. Eastern Time August 10 through August 18, 2020. The dial-in details for the telephone replay are:
International: +1-646-254-3697
Passcode: 8993497
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
Sohu.com Limited (NASDAQ: SOHU) is China's premier online brand and indispensable to the daily life of millions of Chinese, providing a network of web properties and community based/web 2.0 products which offer the vast Sohu user community a broad array of choices regarding information, entertainment and communication. Sohu has built one of the most comprehensive matrices of Chinese language web properties and proprietary search engines, consisting of the mass portal and leading online media destination www.sohu.com; interactive search engine www.sogou.com; developer and operator of online games www.changyou.com/en/ and online video website tv.sohu.com.
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 Changyou develops and operates a diverse portfolio of PC and mobile games, such as Tian Long Ba Bu ("TLBB"), one of the most popular PC games in China. Changyou also owns and operates the 17173.com Website, a game information portal in China. Sohu's online search subsidiary Sogou (NYSE: SOGO) has grown to become the second largest search engine by mobile queries in China. It also owns and operates Sogou Input Method, the largest Chinese language input software. Sohu, established by Dr. Charles Zhang, one of China's internet pioneers, is in its twenty-fourth year of operation.
For investor and media inquiries, please contact:
In China:
Ms. Pu Huang
Sohu.com Limited
Tel:
+86 (10) 6272-6645
E-mail:
ir@contact.sohu.com
In the United States:
Ms. Linda Bergkamp
Christensen
Tel:
+1 (480) 614-3004
E-mail:
lbergkamp@christensenir.com
SOHU.COM LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Three Months Ended
Jun. 30
, 20 Mar. 31
, Jun. 30
,
20 20
20 20
19
Revenues:
Online advertising
Brand advertising $
37,969 $
25,580 $
43,958
Search and search-related advertising 240,579 237,589 275,942
Subtotal 278,548 263,169 319,900
Online games 105,937 133,360 102,147
Others 36,579 39,471 40,199
Total revenues 421,064 436,000 462,246
Cost of revenues:
Online advertising
Brand advertising (includes stock-
based 22,790 25,519 31,432
compensation expense of $36, $-40, and
$-22,
respectively)
Search and search-related advertising
(includes 191,150 212,210 182,593
stock-based compensation expense of
$45, $77, and
$127, respectively)
Subtotal 213,940 237,729 214,025
Online games (includes stock-based
compensation 23,959 28,389 18,163
expense of $152, $161, and $-17,
respectively)
Others 12,133 8,568 19,624
Total cost of revenues 250,032 274,686 251,812
Gross profit 171,032 161,314 210,434
Operating expenses:
Product development (includes stock-
based 105,022 103,412 109,048
compensation expense of $4,169,
$2,429, and $3,587,
respectively)
Sales and marketing (includes stock-
based 64,579 62,841 90,580
compensation expense of $795, $-415,
and $1,355,
respectively)
General and administrative (includes
stock-based 24,097 19,296 21,987
compensation expense of $1,678,
$1,561, and $-572,
respectively)
Total operating expenses 193,698 185,549 221,615
Operating loss (22,666) (24,235) (11,181)
Other income[7], net 24,094 10,645 5,684
Interest income 2,196 2,126 3,286
Interest expense (1,431) (2,275) (3,737)
Exchange difference (259) 2,225 3,551
Income/(loss) before income tax
expense 1,934 (11,514) (2,397)
85,023 13,600 3,941
Income tax expense[8]
Net loss from continuing operations (83,089) (25,114) (6,338)
Net loss from discontinued operations,
net of tax (27,037)
Net loss (83,089) (25,114) (33,375)
Less: Net income/(loss) from
continuing operations (3,159) (5,008) 28,467
attributable to the noncontrolling
interest shareholders
Less: Net loss from discontinued
operations (8,949)
attributable to the noncontrolling
interest shareholders
Net loss from continuing operations
attributable to (79,930) (20,106) (34,805)
Sohu.com Limited
Net loss from discontinued operations
attributable to (18,088)
Sohu.com Limited
Net loss attributable to Sohu.com
Limited (79,930) (20,106) (52,893)
Basic net loss from continuing
operations per ADS (2.04) (0.51) (0.89)
attributable to Sohu.com Limited
Basic net loss from discontinued
operations per ADS (0.46)
attributable to Sohu.com Limited
Basic net loss per ADS
attributable to Sohu.com
Limited $
(2.04) $
(0.51) $
(1.35)
ADS used in computing basic net loss
per ADS attributable to 39,271 39,270 39,244
Sohu.com Limited
Diluted net loss from continuing
operations per ADS (2.04) (0.52) (0.89)
attributable to Sohu.com Limited
Diluted net loss from discontinued
operations per ADS (0.46)
attributable to Sohu.com Limited
Diluted net loss per ADS
attributable to Sohu.com
Limited $
(2.04) $
(0.52) $
(1.35)
ADS used in computing diluted net loss
per ADS 39,271 39,270 39,244
attributable to Sohu.com Limited
[7] For the second quarter of
2020, other income included a tax
refund that was received by Sogou
as part of the Chinese
government's initiatives taken in
response to COVID-19.
[8] Following completion of the
Changyou privatization, Changyou
changed its policy for its PRC
subsidiaries with respect to
distribution of cash dividends.
As a result, Changyou recognized
an additional accrual of
withholding income tax of US$88
million for the second quarter of
2020.
SOHU.COM LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
As of Jun. 30, 2020 As of Dec. 31, 2019
ASSETS
Current assets:
Cash and cash equivalents $
397,425 $
305,126
Restricted cash[9] 112,887 8,661
Short-term investments 1,077,572 1,316,833
Account and financing receivables, net 219,910 260,716
Prepaid and other current assets 132,673 124,332
Total current assets 1,940,467 2,015,668
Long-term investments, net 107,709 94,332
Fixed assets, net 410,105 447,688
Goodwill 53,185 52,923
Intangible assets, net 9,012 11,437
Restricted time deposits[9] 25,426 240
Prepaid non-current assets 1,391 1,882
Other assets 63,279 65,620
Total assets $
2,610,574 $
2,689,790
LIABILITIES
Current liabilities:
Accounts payable $
342,403 $
253,403
Accrued liabilities 236,849 249,810
Receipts in advance and deferred revenue 114,494 118,222
Accrued salary and benefits 101,289 110,833
Taxes payable 77,236 102,686
Short-term bank loans 128,251 114,528
Other short-term liabilities 146,422 149,311
Total current liabilities $
1,146,944 $
1,098,793
Long-term accounts payable 755 767
Long-term bank loans 92,000
Long-term tax liabilities[10] 375,714 277,544
Other long-term liabilities 3,284 5,769
Total long-term liabilities $
471,753 $
284,080
Total liabilities $
1,618,697 $
1,382,873
SHAREHOLDERS' EQUITY:
Sohu.com Limited shareholders' equity 288,946 428,454
Noncontrolling interest 702,931 878,463
Total shareholders' equity $
991,877 $
1,306,917
Total liabilities and shareholders' equity $
2,610,574 $
2,689,790
[9] In the second quarter of
2020, in connection with the
Company's financing of the
Changyou privatization,
Changyou pledged deposit
certificates in the amount of
US$127 million in the
aggregate, of which US$102
million was recorded as
restricted cash and US$25
million was recorded as
restricted time deposits.
[10] Following completion of the
Changyou privatization,
Changyou changed its policy for
its PRC subsidiaries with
respect to distribution of cash
dividends. As a result,
Changyou recognized an
additional accrual of
withholding income tax of US$88
million for the second quarter
of 2020.
SOHU.COM LIMITED
RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATIONS MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Three Months Ended Jun
. 30 Three Months Ended Mar
. 31 Three Months Ended Jun
. 30
, 2020 , 2020 , 2019
GAAP
Non-GAAP Non-GAAP GAAP
Non-GAAP Non-GAAP GAAP
Non-GAAP Non-GAAP
Adjustments Adjustments Adjustments
36
(a) (40)
(a) (22)
(a)
Brand advertising gross profit $
15,179 $
36 $
15,215 $
61 $
(40) $
21 $
12,526 $
(22) $
12,504
Brand advertising gross 40% 40% 0% 0% 28% 28%
margin
45
(a) 77
(a) 127
(a)
Search and search-related $
49,429 $
45 $
49,474 $
25,379 $
77 $
25,456 $
93,349 $
127 $
93,476
advertising gross profit
Search and search-related 21% 21% 11% 11% 34% 34%
advertising gross margin
81
(a) 37
(a) 105
(a)
Online advertising gross profit $
64,608 $
81 $
64,689 $
25,440 $
37 $
25,477 $
105,875 $
105 $
105,980
Online advertising gross 23% 23% 10% 10% 33% 33%
margin
152
(a) 161
(a) (17)
(a)
Online games gross profit $
81,978 $
152 $
82,130 $
104,971 $
161 $
105,132 $
83,984 $
(17) $
83,967
Online games gross margin 77% 78% 79% 79% 82% 82%
Others gross profit $
24,446
$
(a) $
24,446 $
30,903
$
(a) $
30,903 $
20,575
$
(a) $
20,575
Others gross margin 67% 67% 78% 78% 51% 51%
233
(a) 198
(a) 88
(a)
Gross profit $
171,032 $
233 $
171,265 $
161,314 $
198 $
161,512 $
210,434 $
88 $
210,522
Gross margin 41% 41% 37% 37% 46% 46%
Operating expenses $
193,698 $
(6,642)
(a) $
187,056 $
185,549 $
(3,575)
(a) $
181,974 $
221,615 $
(4,370)
(a) $
217,245
6,875
(a) 3,773
(a) 4,458
(a)
Operating loss $
(22,666) $
6,875 $
(15,791) $
(24,235) $
3,773 $
(20,462) $
(11,181) $
4,458 $
(6,723)
Operating margin -5% -4% -6% -5% -2% -1%
Income tax expense[11] $
(85,023) $
3,141
(c,d) $
(81,882) $
(13,600) $
2,195
(c,d) $
(11,405) $
(3,941) $
1,566
(c,d) $
(2,375)
6,875
(a) 3,773
(a) 4,458
(a)
(3,618)
(c) (855)
(c) 794
(c)
1,934
(d) 1,910
(d) 1,831
(d)
Net income/(loss) before non- $
(83,089) 5,191 (77,898) $
(25,114) 4,828 (20,286) $
(6,338) 7,083 745
controlling interest
6,875
(a) 3,773
(a) 4,458
(a)
(2,338)
(b) (2,761)
(b) (3,733)
(b)
(3,618)
(c) (855)
(c) 794
(c)
1,934
(d) 1,910
(d) 1,831
(d)
Net loss from continuing $
(79,986) 2,853 (77,133) $
(20,441) 2,067 (18,374) $
(34,932) 3,350 (31,582)
operations attributable to
Sohu.com Limited for diluted
net loss per ADS
Net loss from discontinued (18,062) (18,062)
operations attributable to
Sohu.com Limited for diluted
net loss per ADS
Net loss attributable to (79,986) 2,853 (77,133) (20,441) 2,067 (18,374) (52,994) 3,350 (49,644)
Sohu.com Limited for diluted
net loss per ADS
Diluted net loss from $
(2.04) (1.96) $
(0.52) (0.47) $
(0.89) (0.80)
continuing operations per
ADS attributable to Sohu.com
Limited
Diluted net loss from (0.46) (0.46)
discontinued operations per
ADS attributable to Sohu.com
Limited
Diluted net loss per ADS (2.04) (1.96) (0.52) (0.47) (1.35) (1.27)
attributable to Sohu.com
Limited
Shares used in computing 39,271 39,271 39,270 39,270 39,244 39,244
diluted net loss per ADS
attributable to Sohu.com
Limited
[11] Following completion of the Changyou privatization, Changyou changed its policy for its PRC subsidiaries with respect to distribution of cash dividends. As a result, Changyou recognized an additional
accrual of withholding income tax of US$88 million for the second quarter of 2020.
Note:
(a) To eliminate the impact
of share-based awards as
measured using the fair value
method. This adjustment does
not have any 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 any
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.
(d) To adjust for the effect
of the U.S. TCJA.
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SOURCE Sohu.com Ltd.
