Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining Sohu's Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference call is being recorded.

[Operator Instructions] I'd now like to turn the conference over to your host for today's conference call, Huang Pu, Investor Relations Director of Sohu. Please go ahead..

Thanks, operator. Thank you for joining us today to discuss Sohu's third quarter 2020 results. on the call are; Chairman and the Chief Executive Officer, Dr. Charles Zhang; CFO, Joanna Lv; and Vice President of Finance, James Deng. Also with us today are Changyou's CEO, Dewen Chen; and CFO, Yaobin Wang.

Before management begins their prepared remarks, I'd 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 on this conference call may contain 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.

For more information about the potential risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission, including the most recent Annual Report on Form 20-F. With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed..

Thanks, Huang Pu, and thank you to everyone for joining our call. In the third quarter of 2020, to further consolidate our core competitiveness and credibility, we continued to optimize our products, refine our technology, enhance the quality of premium content and improve its distribution.

At the same time, we kept exploring creative new and differentiated monetization opportunities. Benefiting from our more mature and sophisticated Sohu Video App, and its advanced live broadcasting technology, we successfully hosted many innovative content marketing campaigns that could leverage the broad reach of our product portfolio.

We saw positive feedback in terms of user interaction and from advertisers. So for this quarter, despite the current challenging macroeconomic environment, our brand advertising revenue reached the high end of our prior guidance and achieved the 8% quarter-over-quarter growth.

Our game business, Changyou's online games performed well for the third quarter of 2020, with revenue exceeding the high end of our prior guidance.

So before I go into more detail about our key financial results, please be reminded that on September 29th, 2020, our controlled subsidiary of Sogou and the subsidiary of Tencent entered into an Agreement and a Plan of Merger, which contemplate that Sogou will become a wholly-owned subsidiary of Tencent, and on the same date, we entered into a Share Purchase Agreement, in which we agreed to sell all of our Sogou Class A and Class B ordinary shares to Tencent shortly before the completion of the merger transaction between Tencent and Sogou.

Accordingly, Sogou's results of operations have been excluded from the company's results from our continuing operations. Retrospective adjustments to the historical statements have been made in order to provide a consistent basis of comparison.

Unless indicated otherwise, the results that we'll talk about here are related to continuing operations only. So for the third quarter of 2020, total revenues are US$158 million, down 6% year-over-year and 1% quarter-over-quarter. Brand advertising revenues are $41 million, down 11% year-over-year and up 8% quarter-over-quarter.

Online game revenues were $101 million, just down 6% year-over-year and 4% quarter-over-quarter.

GAAP net loss from continuing operations attributable to Sohu.com Limited was US$50 million, compared with a net loss of US$33 million in the third quarter of 2019 and net loss of US$77 million in the second quarter of 2020, but that was due to the tax planning for Q2.

Non-GAAP net loss from continuing operations attributable to Sohu.com Limited was a net loss of $7 million, compared with a net loss of $30 million in the third quarter of last year and a net loss of $75 million in the second quarter of 2020, that was due to the tax planning. Now let me go into the key businesses. First, Media Portal and Sohu Video.

So we continue to upgrade our products, improve the technology and refine social distribution features. We stimulated the generation of new content and further expanded our content dissemination, user interaction was enhanced on both the Sohu News App and Sohu Video App.

We're constantly looking for new ways to boost organic growth across our products, while strictly controlling the budget.

In addition, for Sohu Video, we further strengthened our two-engine strategy with long-form and short-form videos and accelerated the layout of value live streaming, where we disseminate professional knowledge and reliable information across in vertical areas.

We continue to concentrate on improving our live streaming technology and have applied these advanced technologies to various events, which allowed users to interact with each other in real-time and without upper limit of user numbers.

During the quarter, we successfully hosted a number of flagship events such as the sixth International Drone Photography Contest, [indiscernible] Campus Beauty Contest, the best selection series in a live streaming ecommerce, basically, and others with our enhanced video sharing technology, we not only stimulated online to offline interaction among the viewers, but also enhanced the generation of high quality content to improve the distribution across the products.

On the monetization side and with these technologies and the more mature Sohu Video App, we proactively explored new monetization opportunities and increased our monetization efficiency featured as value streaming, live streaming and live commerce [indiscernible] provided a new way for the advertisers to promote their brands and stimulate sales.

And as the live commerce, we share ideas, knowledge and thoughts about the lifestyle, while recommending premium products. We're able to meet advertisers' marketing demand and capture their attention on the budgets. So going forward, we're continuing to diversify our monetization strategies and actively explore new opportunities.

Now, let me turn to Changyou game business. For the third quarter of 2020, Changyou's online games performed well. For PC games, Changyou launched this year's second in-game promotional event. And various holiday events for to TLBB PC, which maintains the user engagement and the games' revenue remained stable on a sequential basis.

For mobile games, Changyou launched a new expansion pack for legacy TLBB mobile, featuring the addition of new plan and a new method of character development. Next quarter, Changyou will continue to focus on maintaining users' stability by updating game content and making optimizations for TLBB PC and the legacy to TLBB Mobile.

More recently, in October, Changyou rolled out some special servers for TLBB PC that use this content from an old version of the game. It has already attracted some players that we lost over the years, who love the game and feel nostalgic for their experience from years ago.

We expect these new servers will drive up revenue for TLBB PC by some extent in the fourth quarter. Looking ahead, Changyou will firmly execute its core strategy of top games. Changyou's strategic focus will continue to be on MMORPG mobile games, while we're also developing and looking to roll out other games across various enhancement and genres.

Currently, the development of several key games is well underway and we believe Changyou will bring more quality games to market in the future. Now, let me turn to Joanna, our CFO, who'll walk you through our financial results.

Joanna?.

Thank you, Charles. I will walk you through the key financials of our major segments for third quarter of 2020. All of the numbers that I will mention are all on the non-GAAP basis. You may find a reconciliation of non-GAAP to GAAP measures on our IR website.

For Sohu Media Portal, quarterly revenues were $25 million, down 3% year-over-year and up 9% quarter-over-quarter. The quarterly operating loss was $23 million compared with an operating loss of $31 million in the same quarter last year. For Sohu Video, quarterly revenues were $23 million, up 1% year-over-year and 2% quarter-over-quarter.

The quarterly operating loss was $12 million compared with an operating loss of $20 million in the same quarter last year. For Changyou, quarterly revenues, including 17173 were $104 million, down 6% year-over-year and 5% quarter-over-quarter. Changyou posted an operating profit of $33 million compared with $35 million in the same quarter last year.

For the fourth quarter of 2020, we expect brand advertising revenues to be between $37 million and $42 million. This implies annual decrease of 11% to an annual increase of 1%, and a sequential decrease of 10% to a sequential increase of 2%. Online game revenues to be between $140 million and $150 million.

This implies annual increase of 6% to 14% and a sequential increase of 38% to 48%. Non-GAAP net income from continuing operations attributable to Sohu.com Limited to be between $15 million and $25 million. And GAAP net income from continuing operations attributable to Sohu.com Limited to be between $10 million and $20 million.

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 COVID-19 virus.

Lastly, please be reminded that in the Q&A session, we won't take questions regarding any Sogou business updates or the agreements with Tencent for Sogou's privatization. And this concludes our prepared remarks. Operator, we will now like to open the call to questions..

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Thomas Chong from Jefferies. Please go ahead..

Hi. Good evening. Thanks, management for taking my questions. My question is about the brand advertising.

Can management comment about the trend for different key categories and how we should think about the momentum in 2021?.

Well, key sector, right. Auto industry, number one. And then -.

Internet -.

Internet services, followed by -.

Real estate..

Real estate, that's the top three categories. Yeah, we achieved 8% increase quarter-over-quarter, I mean, yeah, with you know the microeconomics, basically a challenging microeconomics situation, by being you know with, well, we are having you know this organic growth or the stabilized user base.

So, we are not spending a lot of money on our marketing channels, marketing for our products so, but with this creative marketing events and the content, actually content generation events, and also with live streaming, to you know beaming those events. This is very attractive to brand advertisers.

That's the reason why we are able to achieve advertising revenue growth without spending marketing you know sales cost more, yeah..

Thank you..

Thank you. Our next question comes from the line of Alicia Yap from Citigroup. Please ask your question..

Thanks. I'm Austin Pastner on behalf of Alicia Yap. For online games, can you remind us the breakdown of PC versus mobile games in the third quarter? And what are the drivers for the strong sequential growth of online games inside on your 4Q guidance? Thank you..

Well basically the - in Q3, the division between the PC game and mobile game, right?.

[Foreign Language] In terms of revenue, PC game accounts for 61% in the third quarter and mobile game, 39%. In terms of gross billing cash receipts, PC game accounts for 45% and the mobile game accounts for 55%.

[Foreign Language] In the fourth quarter, the increase mainly due to TLBB PC, actually we launched some special servers like Charles mentioned, that have old version as - for its content, and attracted some -.

Nostalgic, nostalgic experience, yeah..

Yeah. Attracted some players that we lost over year. And the other reason is, where we launched a game called the Illusion Connect in Korea - South Korea market. Thank you..

Got it, thank you..

Thank you. [Operator Instructions] Your next question comes from the line of [Chang Cheow from Foreign Tech Research] [ph]. Please ask your question..

Yeah. Good evening, management. Your guidance in online games are very encouraging.

I just wonder you said you know we are going into growth mode for the online games going forward?.

[Foreign Language] Yeah, thanks. Currently, we can only say the performance of fourth quarter..

Or maybe can you provide us some outlook in terms of your pipeline in games, you know what are you going to do next year?.

[Foreign Language] We have couple of games that the development is well underway, but the schedule is, depends on the license approval supplying program, and also the testing and their adjustments program. So it's not very easy to predict the specific launch date.

But for those game that we have obtained the license approval, we may have some more specific timing. [Foreign Language] Two of those are projects, the Sea of Dawn, the [New Jedi] [ph] and also Tetris, we have had license approval. We will launch the two games in the next year.

[Foreign Language] Next year, we will also put more efforts in the overseas market and we'll launch some other new games in the overseas market. Thank you..

Thanks. That's great..

Thank you. Our next question comes from the line of Alex Ko from Morgan Stanley. Please ask your question..

Hi. Management, thanks for taking my question. So I have a question on Sohu Video. So we know that the industry peers have been stepping up for content investment these days. So just want to get more color like how would the management plan to navigate like this kind of industry trend and like the content investment strategy going forward? Thank you..

Well, we have, as I just said, we have this twin-engine strategy with long-form content and then short-form, basically, UGC.

So for the long-form, our spending on basically to produce like [Teen Wolf] [ph] and most of the 15 episodes of drama episodes with reasonable investment, and then make sure that it can - again, you know it become a hit with much less spending compared with our peers.

So that was - so our spending on producing the long-form TV dramas remain similar to the previous year. And then so - but for this UGC and also social you know network product of video, it's not much - it doesn't need lobby management and also this live streaming, it's user-generated, only spending on the product development..

Got it, thank you..

Thank you. [Operator Instructions] And there are no further questions. So with that, we conclude our conference for today. Thank you for participating. You may all disconnect..