Sogou net profit slipped gradually lost Tencent traffic bonus

Sogou net profit slipped gradually lost Tencent traffic bonus

Author Lv Qian

On November 5, Sogou (Nasdaq Securities Code: SOGO) released its unaudited third quarter results for 2018. According to the financial report, as of September 30, Sogou's total revenue exceeded 1.88 billion yuan, an increase of 10% over the same period last year; its total revenue in the third quarter was 276.6 million US dollars, an increase of 7% over the same period last year; and its net profit was 23.9 million US dollars, a decline of 23% over the same period last year.

Traffic dividend exhausted

The Sogou financial report is the first net profit decline since the listing of the company.

Sogou went public in 2017, and its prospectus showed that its total revenue in 2014, 2015 and 2016 were 386 million US dollars, 592 million US dollars and 660 million US dollars, respectively. Among them, search and search related advertising are the main revenue items, contributing 358 million US dollars, 540 million US dollars and 597 million US dollars respectively, accounting for 92.7%, 91.2% and 90.5% respectively.

In 2017, Sogou's annual total revenue reached a peak of 908.4 million US dollars, backed by Tencent traffic dividend support.

In September 2013, Tencent became the largest shareholder of Sogou. According to Sogou's prospectus, Tencent holds 151557875 shares of Class B common stock, accounting for 43.7%, which is the largest shareholder of Sogou. The strategic cooperation between Tencent and Sogou is taken as the default search engine for Tencent's products. Data show that as of June 2017, Tencent has brought about 38.2% of search traffic to Sogou. In October 2017, Tencent began to search WeChat in full volume.

Behind the revenue growth, with the ever higher traffic costs, Wang Xiaochuan, CEO of Sogou, predicted a 50% increase in traffic costs in 2018.

Li Kailong, founder and CEO of Hijack Technologies, told First Financial Journalist that, on the one hand, Sogou cannot shake Baidu's market position in the search market itself, and its core interests in the search market are intertwined and not replaceable overnight; on the other hand, in the flow layer, Sogou has long relied mainly on Teng. Traffic volume increases, but the flow of dividends released by Tencent is almost exhausted.

"In the overall market environment, the cost of traffic has become higher and higher, and Tencent itself has been hit hard, let alone Sogou." Li Kailong said. In its prospectus, Sogou also disclosed the risk that "if Sogou terminates or reduces its cooperation with Tencent, the company's business and growth prospects will be negatively affected."

High investment cost

Li Kailong said that at present, in the world, intelligent hardware products are in the investment stage in a year or two, and Sogou has no more core advantages in the field of AI than ordinary people, so it is necessary to continuously increase AI investment, which directly leads to the cost increase.

Wang Xiaochuan said that Sogou increased its investment in AI technology development this quarter and continued to integrate these technologies into Sogou search, Sogou mobile input method and Sogou intelligent hardware products. "We are committed to promoting the development of language-centered AI technology, and believe that this will enable us to It is enough to promote sustainable development of the platform.

Specifically reflected in the financial report, Sogou's R&D expenditure in the third quarter was $50.6 million, an increase of 26% over the same period last year, accounting for 18.3% of total revenue, and 15.7% over the same period last year.

Sogou said that the same increase in research and development expenditure in the third quarter was due to the increase in stock-based salary, salary and welfare costs and the development of outsourced products, reflecting the company's continued efforts to strengthen its artificial intelligence business.

In fact, in the last quarter, Sogou's earnings report showed that its cost expenditure rate was significantly higher than revenue growth rate, the company's gross profit fell, operating profit fell 2% year-on-year, the cost of flow acquisition in the second quarter was $135.7 million, an increase of 91% year-on-year, accounting for 45% of total revenue; the cost of flow acquisition in the third quarter was $135.2 million, compared with the same period last year. An increase of 58%, accounting for 48.9% of the company's total revenue, accounting for 33.3% in the same period last year.

In addition, as early as the second quarter of this year when Sogou released its earnings report, Sogou suspended part of its advertising business for 10 days in July this year, due to the impact of previous tremor advertisements that had insulted heroic content in Sogou Search, which is expected to lead to a one-time decrease in revenue in the third quarter of 2018.

AI landing profitability is difficult

For the third quarter financial results, Wang Xiaochuan said: "Our core business has developed steadily, Sogou Search adheres to differentiation strategy, and competitiveness continues to improve; Sogou Input Method further combines with search to produce better synergy effect. At the same time, we continue to invest in the field of artificial intelligence with language as the core, and constantly land technical achievements in search, input methods and intelligent hardware products.

In the third quarter, Sogou upgraded its speech recognition model in an all-round way, which further reduced the error rate of Chinese speech recognition by more than 20%, and the error rate of Chinese and English speech mixing by more than 50%. At the same time, the intelligent response function in chat scenario is optimized, and the self-developed dialogue algorithm model is used. In addition, the input method is docked with search, and the recommendation of relevant information and services in chat scenario is put forward.

As early as before, Wang Xiaochuan emphasized many times that language Sogou's core strengths. In view of this strategic positioning, Wang Xiaochuan believes that the input method itself can help the language to deal with, help the user to express, and help the user to obtain information. "Sogou takes language as its core and optimizes it as its core, which is our advantage." On the basis of language, Wang Xiaochuan believes that in order for Sogou to make AI technology not only satisfy existing products, but also find opportunities to develop new species, such as new smart hardware. This quarter, following the translation of Bao Bao and recording translation pens, Sogou's new online translation treasure Pro products.

For profit, Wang Xiaochuan had previously told First Financial Journalist that it must be landed in a scene to talk about "making money", "AI earning money, like voice earning money, is a false proposition, and needs to be landed on specific services."

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