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Q2 2013 Earnings Conference Call

July 29, 2013 8:30 AM ET


Eric Yuan - Director, IR

Charles Zhang - Chairman and CEO

Belinda Wang - Co-President and COO

Carol Yu - Co-President and CFO

Xiaochuan Wang - CEO of Sogou

Alex Ho - CFO, Changyou


Eddie Leung - Merrill Lynch

C. Ming Zhao - 86Research

Alicia Yap - Barclays

Philip Wan - Morgan Stanley

Mark Marostica - Piper Jaffray

Alex Young - JPMorgan

Jiong Shao - Macquarie

Jialong Shi - CLSA

Muzhi Li - Citigroup

Fei Fang - Goldman Sachs

Chit Tsang - HSBC

Thomas Chong - BOCI

Wendy Huang - Standard Chartered



Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's Second Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a Q&A session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time.

I would now like to hand the conference over to your host for today's conference call, Mr. Eric Yuan, Investor Relations Director of Sohu. Thank you. Please go ahead, sir.

Eric Yuan

Thank you, operator. Thank you all for joining us today to discuss Sohu's second quarter 2013 results. On the call are Chairman, Chief Executive Officer, Dr. Charles Zhang; Co-President and the Chief Operating Officer, Belinda Wang; Co-President and the Chief Financial Officer, Carol Yu. Also with us from Changyou are, President Dewen Chen; Chief Financial Officer, Alex Ho; and Chief Information Officer, Wendy Pan; as well as CEO of Sogou, Xiaochuan Wang; Vice President of Sohu Entertainment and Sohu Video, Ye Deng.

Before management begins their prepared remarks, I would like to remind you of the company's Safe Harbor statement in connection with today's conference call. Except for the historical information contained herein, the matters discussed in this conference call 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 statements. For more information about the potential risks and uncertainties, please refer to the company's filings with Securities and Exchange Commission, including its registration statement and most recent Annual Report on Form 10-K.

Now, let me turn the call over to Dr. Charles Zhang, Chairman and CEO. Charles, please proceed.

Charles Zhang

Thank you and thanks to everyone for joining our call. We are pleased to report encouraging results across our business lines for the second quarter. Notably, for our online video business; most, if not all, operating metrics are ramping up fast during the first seven months of 2013, showing robust growth in user traffic and revenues.

Sogou and Changyou business continues to track well, building further on their solid fundamentals. Our group total revenues grew 33% year-over-year to $339 million.

On the Mobile front, the Group has secured a strong foothold in this important space. Within six months, Sogou Pinyin mobile version added 60% more users since the beginning of 2013. With its 115 million monthly active users, it solidified its position as one of the top three applications in China. Given the strength here, Sohu News and Sohu Video, the other two leading mobile apps also grew the total user base rapidly.

Now I would like to share some second quarter financial highlights with you. Total revenues were $339 million, up 33% year-over-year and 10% quarter-over-quarter. Net brand advertising revenues were $100 million, up 45% year-over-year and 25% quarter-over-quarter. Sogou revenues were $50 million, up 64% year-over-year and 27% quarter-over-quarter. Online games revenue were $168 million, up 24% year-over-year and 1% quarter-over-quarter. Non-GAAP diluted EPS was $0.58, exceeding the high end of our guidance by $0.03.

Now let me discuss our online video business in more detail. For Sohu Video, we have seen robust user and traffic growth, in particular, the mobile phone, where daily unique visitors and the video views for phone almost doubled that of January.

Upon launching the new season of The Voice of China on July 12, daily unique visitors and daily views on both PC and mobile, jumped by a further 20% to 30% in the past two weeks.

The growth in the user traffic is primarily attributable to our diversified and a vast quality content portfolio. In the second quarter, we maintained our strong position in domestic TV dramas, broadcasting a vast majority of the popular dramas.

Our efforts in original productions also brought unprecedented success off two original web series, mainly Diors Men and [My Ex]. The two dramas collected a wave of several comments, [upon their reviews], generated over 300 million video views, and ranked among top 10 search words.

Viewers enthusiasm is comparable to a top notch license content. The superior performance clearly demonstrates Sohu Video's undisputable ability, introducing content that will best fit the appetite of Chinese online users.

As early as mid-2012, we have a variety of shows on an important part of our content strategy, and have successfully established ourselves as the largest platform for this popular category, as measured by user base, according to iResearch. Continuing to pursue this strategy, on July 12, we began exclusively broadcasting the most anticipated reality show of the year, The Voice of China, Season Two. This show ran for 15 weeks, until early October on a weekly basis on national TV networks, that first three episodes consecutively ranked number one in viewership during the Friday night primetime.

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