Sohu.com Ltd. Q3 FY2026 earnings call

• Social Media Strategy: Sohu is strengthening its social ecosystem through iconic events like the Autumn Convention of Social Media Influencers, Dancing Festival, and Hanfu Model Competition. These initiatives aim to foster genuine user connections and generate premium content.
• Content & IP Development: Launched 'Video American TV Series Month' and celebrated the 5th anniversary of 'Charles' Physics Class,' leveraging science and knowledge-based live broadcasting to attract professional broadcasters and enhance brand influence.
• Gaming Operations: Online game revenues were in line with expectations. PC games saw streamlined, low-pressure gameplay updates for TLBB titles. Mobile games released new expansion packs for Legacy TLBB Mobile to maintain engagement.
• Share Repurchase: Completed approximately $134 million of a $150 million buyback program as of November 5, 2026, repurchasing ~10.1 million ADS shares. No new buyback plan announced yet.
• Advertising Shift: Management noted a shift from traditional hard-core advertising to comprehensive marketing solutions involving offline events, live streaming, and KOL collaborations, driven by advertisers seeking to maximize ROI in a cautious economy.

Note: The provided transcript contains significant numerical inconsistencies and likely transcription errors (e.g., stating total revenues were $133 million while listing segment revenues of $19 million for social media and $150 million for Changyou, which exceeds the total). Furthermore, the CFO’s prepared remarks list 'Changyou' revenue as $150 million but later provide guidance implying a much smaller scale or different entity. Due to these contradictions and lack of clear segment revenue contribution percentages in the text, precise financial performance cannot be accurately summarized without speculation. However, based on the explicit statements in the CFO's section:

• Social Media Platform: Revenue was $19 million (up from $17 million YoY). Operating loss was $74 million (worse than $71 million loss YoY).
• Online Games (Changyou): Revenue was $150 million (down from $163 million YoY). Operating profit was $59 million (down from $88 million YoY).
• Overall: Total revenues reported as $133 million in CEO remarks, conflicting with segment sums. Net income/loss figures also show discrepancies between CEO ($15M loss non-GAAP) and CFO sections.

• Marketing Services (Q4 2026): Expected to be between $30 million and $40 million. This represents an annual decrease of 18% to 24% and a sequential decrease of 6% to 13% compared to Q3.
• Online Game Revenues (Q4 2026): Expected to be between $111 million and $121 million. This implies an annual change ranging from a decrease of 8% to an increase of 1%, and a sequential change from a decrease of 3% to an increase of 6%.
• Net Loss: Non-GAAP net loss attributable to Sohu.com Limited is forecasted to be between $70 million and $27 million for Q4 2026.
• Outlook: Management emphasized that Q4 softness in advertising is due to project timing shifts rather than a worsening trend. Long-term growth depends on the success of the upcoming social network launch.

• Competitive Pressure from AI Short Dramas: There is acknowledged competition between gaming and AI short dramas for users' leisure time. Management notes this is a long-term impact, though they believe the experiences are distinct (passive vs. interactive) and will co-exist rather than one replacing the other.
• Advertising Market Volatility: Marketing service revenues are subject to fluctuations based on the timing of client projects and economic caution among advertisers. Q4 softness highlights this volatility.
• Uncertainty in New Initiatives: The potential growth of marketing services is heavily dependent on the successful rapid growth of the newly announced social network database, which carries execution risk.
• Operational Risks: Standard forward-looking statement risks apply, including changes in market conditions and regulatory environments.

Q: Thomas Chong (Jefferies) asked about the softness in Q4 advertising guidance, whether ad sentiment is worsening, the impact of AI short dramas on gaming, and future share buyback plans.

A: Charles Zhang clarified that Q4 softness is due to project concentration in Q3 and weaker e-commerce events, not a deteriorating trend. He stated that 2027 growth depends on the success of their new social network. Regarding buybacks, the $150M program is nearly complete ($134M spent), with no new plan announced yet. Dewen Chen added that AI short dramas compete for time but offer passive experiences unlike interactive gaming, so they won't replace games.

Q: Alicia Yap (Citigroup) followed up on the severity of AI short drama impact on casual vs. hardcore gamers, why Q4 is weak despite Q3 strength, and requested Q3 ad vertical breakdowns.

A: James Jin explained that AI drama impacts both casual and hardcore users but is limited by a ~2-hour daily cap, suggesting co-existence. Zhang attributed Q3/Q4 swings to project timing and highlighted a strategic shift toward holistic marketing solutions over traditional ads. For Q3 verticals, Auto accounted for 42% of ad revenue, FMCG 17%, and IT 12%. Zhang reiterated that long-term ad growth relies on social network user base expansion.