Zhang Chaoyang, Who Is Not A Good Man, Can Still Bring Sohu Back To The Internet Center?

It has been 20 years since Sohu was listed on NASDAQ in July 2000. At that time, the successive listing of sina, Netease and Sohu opened the curtain for China's Internet to enter the world stage. In the following 20 years, the Internet wave was turbulent, and the Internet companies in it had experienced ups and downs.

In August 2019, after publishing the Q2 financial report of the year, Sohu's share price plummeted to $8.8 per share, and the last time this figure appeared was in early 2003. The stock price returns to 16 years ago overnight, which can not help but be lamented. However, the stock price of Sohu did not fall to $1.5 billion this year, even more, it did not stop falling to $1.5 billion this year.

However, as of November 16, the shares closed at $18.74 per share, with a market value of $736 million. In more than half a year, the market value of Sohu has increased more than three times. This is not because Sohu has made rapid progress in business, but during this period, Changyou and Sogou, its two major listed businesses, have been privatized successively. The former returned to Sohu group, while the latter was sold to Tencent.

After 20 years of listing, Sohu has not only completed the cycle of stock price, but also returned to its original appearance from complexity and simplification in business. On November 16, on the 18th floor of Sohu media building, Zhang Chaoyang, chairman and CEO of Sohu media building, said in an interview with 21st century economic report and other media that in the past 20 years, Sohu has seized many opportunities, had a lot of brilliance and many regrets, but the company is still very young, and better days are still ahead.

In Zhang Chaoyang's view, the improvement of Sohu's management level in the past two years has had a significant impact on the turnaround of the company's performance. Next, Sohu's goal is still to return to the stage center of China's Internet.

This goal is somewhat familiar. In 2016, Zhang Chaoyang proposed that "Sohu should return to the Internet Center in three years", but the result was contrary to his wishes. So this time, Sohu with more streamlined business and 2020 is expected to turn losses into profits, can you achieve what you want?

Expected profit in 2020

According to the Q3 financial report just released, Sohu achieved revenue of $158 million, a year-on-year decrease of 6% and a month on month decrease of 1%. Under the non-U.S. general accounting standards, the net loss attributable to Sohu was $7 million, compared with a net loss of $33 million in the same period last year.

At present, Sohu's revenue mainly comes from two parts: brand advertising and online games. During the reporting period, Sohu's revenue from brand advertising was $41 million, down 11% year-on-year and 8% month on month. The revenue from online game business was $101 million, down 6% year-on-year and 4% month on month.

From the perspective of Q3, Sohu's performance is not satisfactory. Zhang Chaoyang said that the loss in the quarter was mainly due to the introduction of some new games, resulting in increased costs and lower profits of all game businesses. However, compared with last year, Sohu's net loss has been significantly narrowed.

In the first quarter of this year, after deducting Sogou's performance, Sohu's net loss under non-U.S. GAAP was $8 million; in the second quarter, after deducting Sogou's performance and Changyou's accrued income tax, Sohu realized a profit of $12 million under non-U.S. GAAP.

According to Q3 financial report, Sohu expects net profit in the fourth quarter to be between $15 million and $25 million. Even according to the lower limit of the expected range, Sohu will achieve a net profit of 12 million US dollars for the whole year.

After Sohu's success, it seems that Sohu's cash flow can only go on.

As for how to make profits, 2019 is a turning point, which also happened in Zhang Chaoyang. Zhang Chaoyang has told reporters that in the past year, he has devoted a long time to work, which can be said to be 777, and he has been more meticulous in the management of the company.

More importantly, Zhang Chaoyang began to get rid of the "good people culture" established in Sohu in the past. Zhang Chaoyang said that his management is strict now, emphasizing the goal orientation. Everyone should record and implement what they have said. If they fail to achieve the goal, they will face punishment, which may be warning, bonus deduction or even resignation.

He realized that if not, it would be unfair to good employees. "Laziness and idleness are not acceptable in Sohu now," Zhang said.

Of course, in addition to changes in management, Zhang Chaoyang's choice of core business is also the key to determine whether Sohu is profitable or not.

Recover Changyou and sell Sogou

Last September, Sohu made a privatization offer to Changyou's board of directors. In April this year, Sohu announced that it had completed the privatization of Changyou, which means that Sohu has acquired all the outstanding shares of Changyou that it does not hold, and Changyou has become a wholly-owned subsidiary of Sohu, and officially delisted from NASDAQ.

As for the privatization of Changyou, Zhang Chaoyang said in an interview with 21st century economic report in April that there are many reasons for Changyou's privatization, including the undervalued market value and Sohu's hope to merge Changyou back into the group, so as to help realize a sound financial cycle for the whole group.

In fact, Sohu has always enjoyed more than 90% of Changyou's voting rights, so Changyou's performance has been incorporated into Sohu's financial report. Therefore, Changyou's privatization is more a change in ownership, which has little impact on Sohu's financial performance.

What really changes Sohu may be selling Sogou. Its board of directors announced on July 27 that Tencent's proposed acquisition of all shares of Sogou had not been privatized.

On September 29, Sogou announced that it had reached a final agreement on the privatization transaction. The deal is expected to be completed in the fourth quarter of 2020. After the merger, Sogou will become an indirect wholly-owned subsidiary of Tencent, and it will also delist from the NYSE.

In the Sogou deal, Sohu will receive a total of about $1.18 billion in cash. After the transaction is completed, Sohu will no longer have any rights and interests in Sogou.

Sogou is an internal incubation project of Sohu. Sogou has played an important role in the development of Sohu in the past ten years from the official launch of Sogou in 2004 to the sale of all of it to Tencent. According to the financial report in 2019, Sogou's revenue has accounted for more than half of Sohu's total revenue and is the main source of income.

However, it is also the beginning of 2019, Sogou made a loss, which also made a negative contribution to Sohu's profits. In the first quarter of this year, Sohu's net loss under non US GAAP was $18 million, while after deducting Sogou's performance, Sohu's net loss was $8 million.

This means that Sogou brought a net loss of US $10 million for Sohu in Q1. In the second quarter, Sogou's net loss narrowed, but it also brought a net loss to Sohu.

For Sohu, which is in urgent need of making profits, Sogou has become a kind of negative equity. However, Zhang Chaoyang told reporters that there are many reasons for selling Sogou. He also believes that Sogou's loss is temporary. In addition to revenue, Sogou's value is more about search technology and strength, which Tencent attaches great importance to. For Sohu, at present, it still hopes to focus on the business of the group, so it has reached this transaction.

As of September 30, Sohu held a total of $192 million in cash and cash equivalents and short-term investments. After completing the Sogou deal, Sohu will also receive $1.18 billion in cash. Zhang Chaoyang says, these money Sohu still can invest in existing business, won't do expansion.

Are you still able to eat?

In an interview with a reporter at the beginning of this year, someone asked Zhang Chaoyang about his retirement. Zhang said, "I didn't think about retirement. Now Sohu is returning to the center, and I'm in the state of fighting happily."

From the mental state of view, Zhang Chaoyang now maintains really good. In terms of qualifications, Zhang Chaoyang is old enough. When Ma Yun interviewed Sohu, Ma Huateng was also inspired by Zhang Chaoyang when he founded Tencent. In terms of attitude, Zhang Chaoyang is now low enough. He is reforming Sohu with a new entrepreneurial mentality.

However, the outside world has always held a skeptical attitude towards what he said "let Sohu return to China's Internet Center". This is not because he does not believe Zhang Chaoyang's determination, but because the times have changed, people don't know whether Zhang Chaoyang can still seize this era.

Now Zhang Chaoyang has three cards, Sohu information business, Sohu Video and games. In terms of revenue, brand advertising, value-added payment of Sohu Video and game revenue are all of Sohu's revenue. And these several tracks, each of which has already become a red sea, and surrounded by strong enemies, Sohu wants to wade out a new road from here, it is really difficult.

Zhang Chaoyang said that his daily time allocation is mostly on Internet products, followed by media content, and finally on online dramas. As for games, although games are now Sohu's main revenue source, with Q3 accounting for more than 63%, Zhang Chaoyang admitted that he did not spend much time in the game business.

"Everyone's choice is different, some things I will do myself, but some I will leave to the team to do." Zhang Chaoyang said, "the technology industry specializes in Internet products and media, so I can only provide some management support for the game business. What I hope is to make the Sohu platform bigger, so that when the game business is promoted in the future, I don't need to spend money on other platforms."

In Zhang Chaoyang's opinion, the cash flow of game business is relatively good now, and the platform business is generally in loss before the outbreak. This is because the platform business must be bigger to turn losses into profits. Now Sohu's platform business is still in the stage of re entrepreneurship. Once it becomes bigger in the future, its profit prospects will be very good.

But for Sohu, at this time, it fell into a contradiction, because on the one hand, to control costs and ensure profitability, on the other hand, it also wants to do large platform business, but without investment, how to do big business?

In this regard, Zhang Chaoyang said that in the past, the company had to give priority to ensuring its survival because of insufficient funds. However, after the completion of the Sogou transaction, Sohu's capital will become more sufficient. At that time, whether to develop more rapidly, abandon profits and increase investment is still under discussion and planning.

At present, Sohu seems to be recovering step by step according to Zhang Chaoyang's plan. However, whether it can really return to the center of the stage can only be borrowed from Zhang Chaoyang's answer to "whether Sohu can continue to iterate out better new products and compete in the market." this can only be told by time