Sogou Announces First Quarter 2021 Results


BEIJING, May 14, 2021 /PRNewswire/ — Sogou Inc. (NYSE: SOGO) (“Sogou” or the “Company”), an innovator in search and a leader in China’s internet industry, today announced its unaudited financial results for the first quarter, ended March 31, 2021.

First Quarter 2021 Financial Results

Total revenues[1] were $137.2 million, a 47% decrease year-over-year. The decrease was primarily driven by uncertainties with respect to Sogou’s business policies among certain advertisers as a result of the previously-announced proposal by Tencent Holdings Limited (“Tencent“) to take Sogou private, as well as reduced traffic acquisition activity.

  • Search and search-related revenues were $127.8 million, a 46% decrease year-over-year. Auction-based pay-for-click services decreased year-over-year, accounting for 83.8% of search and search-related revenues, compared to 91.0% in the corresponding period in 2020.
  • Other revenues were $9.5 million, a 52% decrease year-over-year, as the Company scaled back non-core businesses.

Cost of revenues was $107.9 million, a 50% decrease year-over-year. Traffic acquisition cost, a primary driver of cost of revenues, was $75.4 million, a 58% decrease year-over-year, representing 54.9% of total revenues, compared to 70.5% in the corresponding period in 2020. The decrease in traffic acquisition costs was driven by decreased traffic acquisition from third parties.

Gross profit and non-GAAP[2] gross profit were both $29.4 million, a 27% decrease year-over-year for both.

Total operating expenses were $78.3 million, a 5% decrease year-over-year.

  • Research and development expenses were $51.8 million, a 10% increase year-over-year, representing 37.8% of total revenues, compared to 18.3% in the corresponding period in 2020. The increase was primarily attributable to an increase in personnel-related expenses.
  • Sales and marketing expenses were $20.8 million, a 27% decrease year-over-year, representing 15.2% of total revenues, compared to 11.1% in the corresponding period in 2020. The decrease was primarily due to a decrease in advertising and promotion expenses.
  • General and administrative expenses were $5.7 million, a 19% decrease year-over-year, representing 4.1% of total revenues, compared to 2.7% in the corresponding period in 2020. The decrease was primarily due to a reversal of an allowance for credit losses in relation to non-core businesses.

Operating loss was $48.9 million, compared to a loss of $42.4 million in the corresponding period in 2020. Non-GAAP operating loss was $47.7 million, compared to a loss of $41.9 million in the corresponding period in 2020.

Other income, net was $83.4 million, compared to $7.2 million in the corresponding period in 2020. The increase was primarily due to a $76.7 million unrealized gain from a change in the fair value of the Company’s equity investment in Zhihu Inc. (NYSE: ZH), which completed an IPO in March 2021.

Income tax expense was $0.6 million, compared to an income tax benefit of $1.0 million in the corresponding period in 2020.

Net income attributable to Sogou Inc. was $35.3 million, compared to a net loss of $31.6 million in the corresponding period in 2020. Non-GAAP net income attributable to Sogou Inc. was $36.5 million, compared to a net loss of $31.1 million in the corresponding period in 2020.

GAAP and Non-GAAP basic and diluted income per ADS were both $0.09.

As of March 31, 2021, the Company had cash and cash equivalents and short-term investments of $1.0 billion, compared to $1.1 billion as of December 31, 2020. Net operating cash outflow for the first quarter of 2021 was $56.6 million. Capital expenditures for the first quarter of 2021 were $4.9 million.

[1] On a constant currency (non-GAAP) basis, if the exchange rate in the first quarter of 2021 had been the same as it was in the first quarter of 2020, or RMB 6.98=$1.00, total revenues in the first quarter of 2021 would have been $127.5 million, or $9.7 million less than GAAP total revenues, and down 50% year-over-year.

[2] Non-GAAP results exclude share-based compensation expense. Explanation of the Company’s non-GAAP financial measures and related reconciliations to GAAP financial measures are included in the accompanying “Non-GAAP Disclosure” and “Reconciliations of Non-GAAP Results of Operation Measures to the Nearest Comparable GAAP Measures.”

Merger Agreement with Tencent

As previously announced, on September 29, 2020, the Company announced that it had entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with THL A21 Limited (“THL”), TitanSupernova Limited (“Parent”), and Tencent Mobility Limited, each of which is a direct or indirect wholly-owned subsidiary of Tencent, which contemplates that Parent will be merged with and into Sogou in an all-cash transaction (the “Merger”), and Sogou will become a wholly-owned indirect subsidiary of Tencent.

Upon the effectiveness of the Merger, if it is completed, outstanding Class A ordinary shares of the Company (each a “Class A Ordinary Share”), including Class A Ordinary Shares represented by American depositary shares (“ADSs”), other than Excluded Shares (as defined in the Merger Agreement) and ADSs representing Excluded Shares, will be cancelled in exchange for the right of the holders thereof to receive $9.00 in cash per share or ADS.

On or about the same time as the Company entered into the Merger Agreement, Sohu.com Limited (“Sohu”) (NASDAQ: SOHU), which is currently the Company’s indirect controlling shareholder through Sohu’s wholly-owned subsidiary Sohu.com (Search) Limited (“Sohu Search”), and Sohu Search entered into a share purchase agreement with Parent, pursuant to which Sohu Search agreed to sell all of the Class A Ordinary Shares and Class B ordinary shares of the Company (each a “Class B Ordinary Share”) owned by it to Parent (the “Share Purchase”). Also on or about the same time, THL and Parent entered into a contribution agreement, pursuant to which THL agreed to contribute all of the Class B Ordinary Shares of the Company owned by it to Parent (the “Share Contribution”). Each of the closing of the Share Purchase and the closing of the Share Contribution is expected to take place shortly prior to the completion of the Merger.

Following the completion of the Share Purchase and the Share Contribution, Parent will hold not less than 90% of the voting power represented by all issued and outstanding shares of the Company. Accordingly, it is intended that the Merger will be in the form of a short-form merger of Parent with and into the Company in accordance with section 233(7) of the Companies Act of the Cayman Islands, and shareholder approval of the Merger Agreement and the Merger will not be required.

If completed, the Merger will result in the Company becoming a privately-held indirect wholly-owned subsidiary of Tencent, the Company’s ADSs will no longer be listed on the New York Stock Exchange, and the ADS program will be terminated. The parties currently expect the Merger to be completed after the second quarter of 2021, subject to the satisfaction or waiver of all the conditions to the Merger, including the receipt of regulatory approvals such as clearance of anti-trust filings.

The Company does not undertake any obligation to provide any updates with respect to the Merger, the Share Purchase, or any other transaction, except as required under applicable law.

Non-GAAP Disclosure

To supplement the unaudited consolidated financial information prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), Sogou’s management uses non-GAAP measures of gross profit, gross margin, and net income that are adjusted from results based on GAAP to exclude the impact of share-based awards. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP…



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