Prepared remarks
Ladies and gentlemen, thank you for standing by, and good day. Thank you for joining Sohu's First Quarter 2026 Earnings Conference Call. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. 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.
Thank you, operator. Thank you for joining us to discuss Sohu's Fourth Quarter 2026 results. On the call are Chairman and the Chief Executive Officer, Dr. Charles Zhang; CFO, Joanna Lv; and the Vice President of Finance, James Deng. Also with us CEO Dewen Chen; CFO, Yaobin Wang. Before management begins their prepared remarks, I would like to remind you of the company's safe harbor statements in connection with today's conference call. Except for the historical information contained herein, the matters discussed may contain forward-looking statements. These statements are based on current plans, estimates, projections and expectations. Therefore, you should not place any reliance on them. Forward-looking statements involve 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 potential risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission, including the most recent report on Form 20-F. With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed.
Thanks, Huang, and thank you, everyone, for joining our call. In the first quarter of 2026, our marketing services revenue, online game revenue and bottom-line performance all exceeded our previous guidance. For the Sohu Media platform, we will continue to focus on promoting a healthy and vibrant atmosphere on our platform with a series of differentiated events. At the same time, we kept refining our products to cater to users' needs. Leveraging our unique events and brand influence, we were able to explore new monetization opportunities. For online games, we delivered another solid quarter, driven by a wealth of high-quality content and targeted operational refinements that resonated with our diverse player base. Before going through each business unit in more detail, let me first give you a quick overview of our financial performance. For the first quarter of 2026, total revenues were $141 million, up 4% year-over-year and down 1% quarter-over-quarter. Marketing Services revenues were $13 million, down 8% year-over-year and 26% quarter-over-quarter. Online game revenues were $125 million, up 6% year-over-year and 3% quarter-over-quarter. GAAP net loss attributable to Sohu.com Limited was $4 million compared with a net income of $182 million in the first quarter of 2025 and a net income of $223 million in the fourth quarter of 2025. Non-GAAP net loss attributable to Sohu.com Limited was a $4 million loss compared with a net loss of $16 million in the first quarter of 2025 and a net income of $261 million in the fourth quarter of 2025. Now I'll go through our key businesses in more detail. First, Sohu Media platform. In the fourth quarter of 2026, we continued to integrate resources in depth and upgrade our products with cutting-edge technologies. We offer users various practical and user-friendly functions to optimize the user experience, enhance user engagement and further promote dissemination of content. At the same time, we kept focusing on promoting a vigorous atmosphere in our community and fostering a prosperous platform ecosystem. Benefiting from unique offline events we held, we provided users with plenty of interaction opportunities, improved social engagement and generated abundant premium content that was widely spread over the Internet. In March, for example, we successfully held the 18th Sohu News Marathon in Hong Kong and an offline seminar of our physics class at Hong Kong University of Science and Technology. This season's marathon attracted active participation by celebrities and broadcasters nationwide, greatly promoting total interactions on our platform. Meanwhile, Charles' Physics Class made its debut at the Hong Kong University of Science and Technology, bringing in-depth physics knowledge to the public. Both events were well received by audiences, thereby creating a strong synergy between our flagship IPs and further expanding our brand influence. In April, we hosted the 2026 Spring Convention of Sohu Video Influencers, which has been held biannually for the past three years. We invited celebrities and gathered influencers from various fields, including verticals popular with young users such as K-pop and Hanfu, as well as professionals in fields such as science and health. The convention created a chance for broadcasters to interact in person, promoting content generation and dissemination and creating genuine social connections. During the quarter, we also launched the 2026 Sohu K-Pop Dancing Festival competition, a year-long event, and the 2026 Hanfu Chinese Costume Model Competition, also a year-long event, to further consolidate our influence and appeal in these areas. We continue to combine offline events with online interactions and to update our profile and the standard of our competitions. With these efforts, we garnered widespread attention and attracted some high-profile guests and users with shared interests to participate and interact on our platform. We continue to leverage our unique content and live broadcasting technology while exploring new business opportunities to provide targeted marketing solutions for advertisers through our innovative and customized events and campaigns such as the Cloud IP, driving traffic to the platform and unlocking monetization potential. Next, turning to our online game business. During the quarter, our online game business performed well with revenues exceeding our prior guidance. In our PC game business, we rolled out various holiday events around the Chinese New Year and Valentine's Day as well as promotional events for the regular TLBB PC, which helped sustain stable player engagement. Apart from holiday events, we also introduced a new full client for TLBB which boosted player enthusiasm. Meanwhile, we continue to update and refine TLBB to secure its long-term retention. Turning to our mobile side, the mobile game business launched an expansion pack for Legacy TLBB mobile to celebrate the Chinese New Year along with diverse online and offline events, and earnings for this game stayed largely stable on a sequential basis. Next quarter, we will continue to launch expansion packs and content updates for the TLBB services and other titles to further keep players engaged. Looking ahead, we will remain committed to our top game strategy. On the product development front, we will stay anchored in a user-centric approach and adhere to a systematic R&D process while driving the implementation of new technologies to enhance efficiency and product success rate. Regarding our pipeline, we seek to further unlock the potential of our TLBB IP. Meanwhile, as we maintain our competitive edge in the MMORPG space, we will continue to diversify our portfolio with multiple types of games and expand our product offerings with global appeal. Now I'd like to provide an update on the ongoing share repurchase program. As of May 13, 2026, Sohu has repurchased 8.7 million ADS at an aggregate cost of approximately $160 million. With that, I'll turn now the call to our CFO, Joanna. Joanna?
Thank you, Charles. I will now walk you through the key financials of our major segments for the first quarter of 2026. All the numbers discussed are on a non-GAAP basis. You may find a reconciliation of non-GAAP to GAAP measures on our IR website. Social media platform: Quarterly revenues were $16 million compared with $70 million in the same quarter last year. Quarterly operating loss was $70 million, flat with the same quarter last year. For Changyou, quarterly revenues were $125 million compared with $180 million in the same quarter last year. Quarterly operating profit was $66 million compared with operating profit of $55 million in the same quarter last year. For the second quarter of 2026, we expect Marketing Services revenue to be between $30 million and $40 million. This implies a year-over-year decrease of 10% to 17% and a sequential increase of 4% to 11%. Online game revenues are expected to be between $104 million and $114 million. This implies a year-over-year change ranging from a 2% decrease to an 8% increase and a sequential decrease of 8% to 17%. Both non-GAAP and GAAP net loss attributable to Sohu.com Limited are expected to be between $25 million and $50 million. This forecast reflects management's current and preliminary view, which is subject to substantial uncertainty. This concludes our prepared remarks. Operator, we would now like to open the call to questions.
Questions and answers
We will now take our first question. Our first question comes from Thomas Chong of Jefferies.
I have a couple of questions. I think first is on our marketing services and our advertising revenue. Can management comment about how we should think about the advertising outlook in the second half and full year? In particular, we are going to soon have some major events. Would this be a big positive to our advertising revenue in Q2 and Q3? My second question is about the gaming business. Can you comment about the quarter-to-date performance so far in Q2? Do you see more likely to hit the low end or the high end of the revenue guidance? And my third question is about the earnings outlook. Given our solid performance in Q1, and we are expecting the losses to widen sequentially in Q2, I'm just wondering, is this a conservative assumption? Should we use Q2 as a benchmark to project Q3 and Q4 bottom line?
Okay, Thomas. So the first question is about marketing services revenue, right? Regarding Q2 forecast, as Joanna said, there is expected sequential growth compared with Q1. First of all, the overall economic situation is somewhat downbeat, and advertisers tend to be cautious in spending. We are able to maintain some growth because we have our unique and differentiated marketing solutions and events, especially that we can take advantage of our growing network, influencers and some IPs like my own physics class IP and offline events like the Hanfu competition. We have quite unique tailor-made or customized marketing solutions based on our own platform and activities. Your next question is about the overall year outlook from Q2. I think it will be similar. About the game: the first quarter was good. For the second part, do you mean whether we are more likely to hit the low end or the high end, right?
So far, the performance in the second quarter is largely in line with our expectation. The level of revenue will largely depend on the performance of the content and activities we plan to roll out for our TLBB series games and whether they can satisfy users' needs. So far, we believe it is in line with our expectation. Also, as we plan to roll out fewer promotional and revenue-boosting activities in the second quarter, we expect our gaming revenue to experience a natural decline.
So the TLBB return that was in Q1 did have an impact; we expect revenue to decline year-over-year in Q3 compared with last year. Do you have a third question, Thomas?
Yes. On the bottom line, because Q1 we were better than expected, but Q2 we are seeing sequential widening of the losses. So I just want to see if Q2 is a benchmark for Q3 and Q4?
I think this year Q2 and Q3 will be similar to last year because on the marketing services side, the platform business is basically about the same. We're still working on our total network and making sure that we have a larger user base so that we can have an uptick. Right now we are maintaining stable advertising growth. The Q2 results or the earnings drop compared with Q1 is mainly because the gaming revenue is much lower than Q1, as I described.
We will now take our next question from the line of Alicia Yap, Citi.
I have two follow-ups on the earlier questions. You mentioned the second-quarter guidance is a bit weaker than I expected in terms of the sequential trend that typically we would see from Q1 to Q2, even though sequentially there is growth. But the year-over-year decline seems to be worse than the first-quarter year-over-year decline. I'm just wondering, is the macro getting even weaker than what you had previously expected, say, compared to five months ago at the beginning of the year? Any color you can share on the overall macro outlook? Is that worse than what you had previously expected? And then on the operating loss, I just wanted to make sure I did not hear it wrong. For this Q1, the marketing ad business operating loss was $70 million. I just wanted to double check on that because I think our revenue is only like $14 million or $15 million, but then we are losing $70 million. It seems like the expense is about multiple times the revenue. So I just wanted to make sure I heard it correctly. And if so, where did the money get spent? Is it mostly on product development or on user acquisition?
So first, to answer your question about the operating loss for the marketing business in Q1: the $70 million operating loss you referenced is correct and is similar to previous quarters. We did not spend more money than in prior quarters. The cost is mainly a combination of user acquisition, team costs and product development. We are building three social network products: one is Sohu Video, another is our Sohu News app, and we continue to develop additional community features. For each product, especially Sohu Video, we spend on user acquisition, team costs and product development. It's similar to previous quarters, and until we really have a successful product that grows to a much larger scale, these costs will continue. Considering the macroeconomic situation, advertising dollars are more constrained, so those advertising dollars will not fully cover the ongoing costs we incur on product and user acquisition, which are about $10 million per quarter for some of the investments.
Okay. And then on the guidance: is that worse than you expected?
The guidance reflects that the macro environment is softer compared with last year. Advertisers are generally more cautious because of intense industry competition and lower margins. We have to come up with really unique events or opportunities — for example, my own physics class IP or other differentiated IPs — to provide marketing solutions that justify advertising spend. Compared with a few years ago, when it was easier for advertisers to decide to spend, now they are much more selective.
I see. Just lastly to follow up: you mentioned auto is one of the industry verticals probably cutting back ad budgets. Any other verticals where you're seeing more cautious ad budgets?
It is across the board. Many companies are pulling back because Chinese consumers are spending less; that in turn impacts companies' revenues and profitability and leads them to reduce advertising dollars. We see caution across auto, IT, FMCG and other sectors.
Maybe just lastly, in terms of first-quarter advertising revenue contribution by industry vertical, can you rank them by contribution percentage?
Auto accounted for 19% of advertising revenue. IT services and home appliances/electronics accounted for another 19%. FMCG was about 14%. We are seeing some good signs in the IT sector as traditional home appliances become smarter and more AI-enabled; new intelligent products represent a marketing opportunity. For example, at the Shanghai AWE, we saw many new smart home appliances that are being marketed aggressively.
So should we expect in Q2 that IT and FMCG budgets may be more upbeat while auto remains weaker? Is that fair to assume?
Yes. In the second quarter we expect auto to remain under pressure due to fierce competition and higher penetration of electric vehicles. Auto companies are also looking to export more to Europe and the Middle East, which puts domestic demand under pressure. Overall consumer spending is weaker because many people are servicing large mortgages and have less disposable income, which is a major drag on the Chinese economy and on advertising demand.
I am showing no further questions. And with that, we conclude our conference call for today. Thank you for your participation. You may now disconnect your lines. Portions of this transcript that are marked Interpreted were spoken by an interpreter present on the live call.