On March 4, 2024, Sohu (SOHU.US) announced financial results for Q4 and the full year of 2023. According to financial reports, Sohu achieved total revenue of US$141 million in the 2023Q4; total revenue for the full year of last year was US$601 million. Meanwhile, on March 2, 2024, the board of directors of Sohu approved an additional amount to the previously announced American Depositary Stock Repurchase Plan, increasing the total amount from a maximum of 80 million US dollars to a maximum total amount of 150 million US dollars. The share repurchase program will begin on November 11, 2023 and will last for 2 years. As of February 29, 2024, Sohu has repurchased 1276,457 Sohu American Depositary Shares for a total amount of about US$12 million.

Sohu began transformation in 2019. Management is currently increasing repurchases based on two judgments: first, the company has deviated from intrinsic value and is in a relatively undervalued position compared to peers; second, it firmly believes that the company's transformation is in the right direction and that the company can achieve results.

Buybacks highlight long-term growth confidence

This additional buyback has demonstrated the company's management's confidence in future growth prospects. If we take a close look at Sohu's repurchase history in the past, we can see that the company's buyback efforts have increased markedly in recent years. The company's act of stepping up repurchase efforts at this time is not only about future business development, but also about confidence in current value safety margins.

The data shows that in the past three months, Sohu's stock has risen by more than 20%. Judging from the valuation index, Sohu's book value is nearly 30 US dollars per share, which is far higher than the current stock price. In view of Sohu's undervaluation and the optimistic outlook reflected in the repurchase plan, 3 institutions rated Sohu's shares as buy/increase. Among them, Citibank adjusted the target share price from 16 US dollars/share to 17 US dollars/share.

Financial reports show that Sohu's gross margin remains at a high level. In 2023, the gross margin of both the US GAAP and the non-US GAAP was 76%. The trend has continued to rise in recent years, indicating that Sohu's measures to continuously improve operational efficiency in recent years have achieved certain results.

Compared with the industry average of 49.07%, Sohu's gross margin is 50% higher.

Sohu's business consists of three major businesses: brand advertising, online gaming, and others. The gross margin of all businesses increased in 2023 compared to 2022. In particular, the gross margin of the brand advertising business increased from 16% to 20%, which is particularly prominent when the overall advertising market is weak. Behind this is externally, Sohu continues to flourish in terms of marketing activities. Various brand IPs continue to export high-quality boutique content and expand the platform's influence; internally, optimized operations have brought about a more positive and healthy state of development in business operations, leading to a significant increase in gross margin.

Sohu is still introducing new ideas

As Zhang Chaoyang said, our long-term principle is to insist on being the best social networking platform and short video live streaming platform in China in terms of internet media and social networking.

First, Sohu Video added live streaming of knowledge.

In recent years, from Oriental Selection's unique bilingual live streaming, where the number of fans soared to 10 million within a week, to live streaming of open classes at Tsinghua University and Peking University.

Behind the popularity of live streaming of knowledge, it confirms the current demand of users for high-quality, high-quality scientific knowledge. According to data from Ai Media Consulting, the size of China's knowledge payment market reached 112.65 billion yuan in 2022, an increase of about 70 times over 2015. The market size is expected to reach 28.88 billion yuan in 2025.

Data source: Ai Media Consulting

Sohu founder Zhang Chaoyang's own student status (Doctor of Physics at MIT) and personal influence (Internet godfather) gave him a natural foundation for entering the field of scientific live streaming. Since its launch in 2021, “Zhang Chaoyang's Physics Course” has gradually formed a full-link IP ecosystem including online live broadcasts, short videos, offline lectures, and book publishing over a period of more than two years.

Under the leadership of “Zhang Chaoyang's Physics Course” IP, Sohu Video has attracted more professional broadcasters to join and continuously expand the coverage of live knowledge broadcasts.

Furthermore, commercialization opportunities brought by well-known IPs can also drive the growth of Sohu's advertising business. Sohu said in its earnings report that it was widely recognized by advertisers because high-quality content, including “Dialogue Under the Starry Sky,” sparked discussion and dissemination on multiple platforms.

Second, stick to the “dual engine” strategy for long and short videos.

According to data from Ai Media Consulting, 34.8% and 29.9% of netizens viewed short videos to learn about the current situation, trends, and make friends. This means that over 60% of users have social needs when using video software. However, at present, the entire short video industry is showing a situation where algorithms are heavy and social networking is light. Short video platforms, in particular, mainly produce content in UGC, so they may face pressure on the content side compared to mature platforms.

Photo source: Ai Media Consulting

In this regard, Sohu Video continues to promote a “dual engine strategy” for long and short videos.

In terms of long videos, Sohu Video successively outputs high-quality homemade series such as “Backlighting You”. In terms of short videos, Sohu Video's “Follow Stream” focuses on PGC, UGC, and Vlog self-media short videos to create a boutique vertical platform.

The Sohu Video “Follow Stream” platform has various circles. Users can retweet, follow, and spend on the platform to meet friends via video. With strong social attributes, users attracted through live streaming of knowledge can be effectively retained and converted into circle users to enhance user stickiness.

Last year, Sohu Video launched events such as the Sohu Video Broadcaster Conference, the Sohu Video Dance Jump Contest, and the Sohu Video National Style Festival to gather accurate traffic within the community through “Follow Stream” and then use the platform's influence to break the wall and further gather fans from all over the network.

epilogue

After several years of business transformation and exploration, Sohu's stock price is relatively low, but at the same time, the valuation safety margin is also high. As the platform and products continue to be refined, its future is worth looking forward to.