Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would 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 to discuss Sohu's third quarter 2022 results. On the call are Chairman and Chief Executive Officer, Dr. Charles Zhang; CFO, Joanna Lv; and Vice President of Finance, James Deng. Also with us are Changyou's CEO, Dewen Chen; and the CFO, Yaobin Wang. 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 measures discussed on this 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 containing and involve these statements. 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 hand the call over to Dr. Charles Zhang. Charles, please proceed.

Thank you, Huang. And thank you, everyone, for joining our call. In the third quarter of 2022, we've faced severe headwinds from COVID-19 pandemic and uncertainties in the macroeconomic environment. Despite these, we maintained our focus on refining our products, improving operating efficiency and enhancing monetization capabilities. Thanks to strict budget control and solid performance of our online game business. Our bottom-line performance for the quarter was well above expectations. For Sohu Media Portal, we enhanced user experience through continuous improvements in products and technology. For Sohu Video, we continued to execute our Twin Engine strategy, developing science and knowledge-based live broadcasting with our advanced live broadcasting technology and compelling content and events. Leveraging the differentiated advantages of the Sohu product matrix, we continue to explore ways to improve monetization for both Sohu Media Portal and Sohu Video. Online Games performed well during the quarter with revenues exceeding our prior guidance. I'll go into details about each of these businesses in a moment, but first, a quick overview of our financial performance. For the third quarter of 2022, total revenue $185 million, down 14% year-over-year and 5% quarter-over-quarter. Brand advertising revenue were $26 million, down 24% year-over-year and up 3% quarter-over-quarter. Online game revenues were $149 million, down 11% year-over-year and 5% quarter-over-quarter. GAAP net loss attributable to Sohu.com Limited of $22 million compared with a net income of $12 million in the third quarter of 2021 and net income of $9 million in the second quarter of 2022. Non-GAAP net loss attributable to Sohu.com Limited was $17 million compared with a net income of $17 million in the third quarter of 2021 and net income of $12 million in the second quarter of 2022. Now I'll go through some of our key businesses. First, Media Portal and Sohu Video.…

Thank you, Charles. I will now walk you through the key financials of our major segments for third quarter of 2022. All the numbers on a 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 $50 million, down 11% year-over-year and 6% quarter-over-quarter. The quarterly operating loss was $38 million, compared with an operating loss of $37 million in the same quarter last year. For Sohu Video, quarterly revenues were $60 million, down 29% year-over-year and up 4% quarter-over-quarter. The quarterly operating loss was $31 million, compared with an operating loss of $10 million in the same quarter last year. For Changyou's online game business and 17,173, quarterly revenues $150 million, down 11% year-over-year and 6% quarter-over-quarter. The quarterly operating profit was $58 million, compared with an operating profit of $79 million in the same quarter last year. For the fourth quarter of 2022, we expect brand advertising revenues to be between $25 million and $28 million. This implies annual decrease of 17% to 26% and a sequential decrease of 3% to a sequential increase of 9%. Online game revenues to be between $118 million and $128 million, this implies annual decrease of 11% to 18% and a sequential decrease of 14% to 21%. Non-GAAP net loss attributable to Sohu.com Limited to be between $10 million and $20 million and GAAP net loss attributable to Sohu.com Limited to be between $30 million and $23 million. This forecast reflects our 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.

[Operator Instructions] First question is from the line of Thomas Chong of Jefferies.

Hi, good evening, management. Thanks for taking my questions. Given that we have seen the macro headwinds and also the outbreak of pandemic, I just wanted to get some color from Charles, you can share about how we should think about the advertising trends across the different categories, like auto, FMCG, properties, et cetera, and also how we should think about the advertising outlook in 2023? And my second question is about the gaming business. Given that we haven't seen [inaudible] release in October and so far in November, how should we think about the gaming approval trend in China and on Changyou, how should we think about our new games in the pipeline for next year?

Okay. So the general advertising market is kind of logging. The trend is at least for Q3 and onwards is kind of downward. But among them, I think auto is doing fine. Auto is doing relatively better. Real estate is really bad. The Internet services, I think Q3 is not as good as Q2, because in Q3 -- Q1 -- Q2, we have the [inaudible] 618 right, so Q3 is a low season, and FMCG seems doing better in Q3. That's relatively ranking of sectors. Your next question is about game, right?

We have a couple of projects that are waiting for the license approval, but we have no further news about that. So we are just waiting. Currently, in our game pipeline, we have more than 10 games and half of them are fit for global market and the rest of them are for the domestic market.

I mean this advertising downward trend, we were -- we actually a little bit better by -- as I just said the -- our unique marketing activity -- marketing activities, unique event, event to the marketing activities that we were able to draw some advertisers.

Our next question comes from the line of Eddie Leung of Bank of America.

Hey, thanks. Can I have a follow-up on the near-term advertising trend. Could you describe what you have seen in September, October and early November? The reason we ask is we all know there have been more lockdowns in the recent 12 months. So just wondering how you have -- how you see the trend evolving in the past couple of months? So that's my first question. And then secondly, on use of cash, we continue to see a very strong cash balance. So wondering if we should expect any more share buyback program or even a dividend?

Yes. I think the lockdown did have a negative impact over our advertising income because companies expect -- we rely mostly on brand advertising. So companies, especially large corporations, their previously scheduled events -- marketing events and those kinds of things are not able to be held. So that's why that impacted their spending on our platform. But we are doing not so bad actually because we have some kind of online events like I just mentioned, there are Physics class or other science and nature-based, knowledge-based live streaming, broadcasting events that does not need people to meet in person. So that's -- we just get back a little bit some of the -- their advertising dollars.

And use of cash?

Use of cash, yes, because of the economic uncertainties -- macroeconomic uncertainties, we hold back after -- we have completed our -- as we reported, we completed $100 million buyback already, right? So a further buyback, we hold back because we just wait to see the -- in view of the economic uncertainties with it. And also, we have a lot of things to do. We have a lot of things in improving our products, developing our user base and -- so we -- for long term in the future, we do have place to spend our money.

Next, we have the question from Alicia Yap from Citi.

Hi, thanks. Good evening, Charles and management. Thanks for taking my question. I do have a couple of questions. First is on the fourth quarter online gaming revenue guidance. It seems quite a big sequential decline. Can management elaborate a little bit the reasons of the soft gaming guidance. I thought if I heard it correctly, Charles actually mentioned there will be some expansion path update for the TLBB PC and all that. So just wondering kind of the discrepancy on the games content update versus the guidance. Secondly, also related to the gaming. Just in general, if management can share your view, has gaming industry monetization been affected by the latest macro weakness. So have you seen or do you think the COVID lockdown or the soft macro have negatively impacted the gaming revenues and the gamers' time spend on gaming?

Yes. To answer your last question, yes, it's conflicting factors. One is that people will have more time spending stay home and more time to play game. But the macroeconomic situation, people have less money, so people are not willing to spend as much as before. So that's why it's a -- monetization it's -- the overall effect is actually negative now.

That was primarily due to the natural decline of our -- some of our other games for TLBB franchise as well as the sales decline and partly due to the negative impact of exchange rate.

I see. Thank you. Can I have one follow-up on the brand advertising. So if management can comment regarding the guidance that you provide for 4Q as well as your thoughts into 2023. Are you more confident or less confident about the recovery pace of the ad sentiment into next year?

Well, we are confident because our platform, our user base is growing and also our light broadcasting and also our unique marketing events activities. It's very unique. Other companies do not have these kinds of things. So we are confident, but it really depends on the overall economic situation if -- and also the future -- the COVID-19 policy, right? So it all depends. So if the economy is doing well, we are very confident that we'll do well. We'll do better than overall -- the average. But it really depends on the COVID policy and the lockdown...

And then just -- I see. Just lastly, on the share buyback. I think you mentioned given because of the macro weakness, so you wanted to be a little bit cautious on spending the money, right? But let's say, if macro recover and your gaming business doing well, advertising also recover if your share price still around this level, then you would consider more aggressive buyback? Is that what you mean?

Well, we'll not exclude that possibility.

Okay. All right. Thank you, Charles. Thank you, management. Thank you for the question. That concludes today's conference call. Thank you for your participation. You may now disconnect.