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In the evening news of November 5, Beijing time, Sina Technologies News, Sogou (NYSE: SOGO) announced its unaudited financial report for the third quarter of fiscal year 2018 as of September 30, 2018. Earnings report showed that Sogou's total revenue in the third quarter was $276 million 600 thousand, up 7% from the same period last year. According to GAAP, the net profit attributable to Sogou in the third quarter was $23.9 million, down 23% from the same period last year, while the net profit attributable to Sogou in the third quarter was $28 million, down 10% from the same period last year.
After the announcement of the financial report, the management of Sogou CEO Wang Xiaochuan and CFO Zhou Yi attended the subsequent telephone conference, interpreted the financial report and answered the analyst's questions.
The following is the main content of this conference call Q & a session.
Thomas Chong, Credit Suisse analyst: I have two questions. The first one is about the performance outlook for 2019. How do companies view the macroeconomic downturn and the impact of government regulation on revenue? The second question is about the company's AI strategy next year. What level of revenue will Sogou's smart hardware business achieve in 2019?
Wang Xiaochuan: With regard to the macroeconomic and policy implications, we can now see that China's macroeconomic situation is relatively tight, so advertisers may tighten their advertising budgets. But the good news is that when advertisers tighten their budgets, search advertising is considered to be a particularly effective form of advertising, so budgetary tightening is the least among all forms of advertising, and it is a kind of rigid delivery. That is to say, search advertising will be affected by the macro economy, but it will be relatively small in the advertising industry.
As for hardware, our basic idea is to make full use of Sogou's interactive and computing technology in voice, translation, dialogue and question-and-answer, so as to get better user reputation and entrance. Therefore, we will further strengthen the company's AI team. In addition to the upgrade of Translation Baohui, we will continue to release new products based on company's AI technology. On the one hand, we will strengthen the brand influence, on the other hand, we will launch strategic hardware products that can grab the entrance. We expect 2019 Sogou hardware sales to grow three times this year.
Bill Lou, Goldman Sachs bank analyst (Bill Liu): my question is about the composition of company traffic. According to my understanding, the growth rate of original search traffic of Sogou is the same as before, and also the fastest in all traffic. But what I want to know is, as shipments of smartphones and other smart devices decline, does the Company anticipate a decline in customer purchases in absolute terms, and what is the difference in the composition of future traffic?
Zhou Yi: let me first introduce more background information about traffic composition. In the third quarter, the proportion of original traffic in total traffic was 26%. In addition, Tencent channel contributed about 37% of the traffic, and the remaining 37% came from OEM channel. We believe that the decline in mobile phone sales will not have a direct impact on Sogou search traffic, because the number of mobile phone users has not declined, so it will not have an impact on traffic acquisition. We will continue to improve our commercialization capabilities, continue to provide competitive product prices, and enhance Sogou's traffic acquisition capabilities in order to achieve steady growth in traffic.
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