Chinese search engine Sogou’s search-related revenues totaled $276 million in Q2 2019, accounting for 91% of total revenues according to its announced financial results.
Sogou Performance Highlights in Q2 2019
- Total revenues were $303.6 million, a 1% increase year-over-year, or an 8% increase in RMB terms.
- Net income attributable to Sogou Inc. was $21.3 million. Non-GAAP net income attributable to Sogou Inc. was $27.8 million.
- Sogou Mobile Keyboard had 453 million DAUs (daily average users), up 17% year-over-year. As China’s largest voice app, it processed up to 680 million daily voice requests.
During the second quarter, our business maintained steady growth and we made important progress in key areas,” said Xiaochuan Wang, CEO of Sogou. “Search revenues continued to grow faster than the industry average. At the same time, by leveraging the large user bases for both Search and Mobile Keyboard, we have gradually built up our big data and recommendation service at a company level and are focusing on unlocking its commercial value.”
Mr. Wang added,
We also geared up our efforts to drive innovation in language-centric AI technologies and continued to advance our leadership in voice and computer vision. Moreover, leveraging our core AI capabilities, we made significant progress in upgrading the smart hardware business, with new AI-enabled products launched and more in the pipeline. Going forward, we believe the steady growth in our core search business, coupled with the solid progress in the big data and recommendation service and smart hardware, will support sustainable expansion across our businesses.
Joe Zhou, CFO of Sogou, said, “We continued to drive top-line growth during the second quarter. Notably, revenues generated from the big data and recommendation service ramped up quickly year-over-year. Although we anticipate the external environment will remain challenging in the second half of 2019, we expect to experience positive momentum from our new growth drivers.”
Financial Results in Q2 2019
Total revenues were $303.6 million, a 1% increase year-over-year.
Search and search-related revenues were $276.2 million, a 2% increase year-over-year. The increase was primarily due to growth in auction-based pay-per-click services. Auction-based pay-for-click services accounted for 88.2% of search and search-related revenues, compared to 84.7% in the corresponding period in 2018.
Other revenues were $27.5 million, an 11% decrease year-over-year. The decrease was primarily due to lower sales of smart hardware products as a result of Sogou’s continued efforts to upgrade its smart hardware strategy.
Cost of revenues was $195.9 million, a 9% increase year-over-year. Traffic acquisition cost, a primary driver of the cost of revenues, was $146.3 million, an 8% increase year-over-year, representing 48.2% of total revenues, compared to 45.0% in the corresponding period in 2018. The increase was driven by price inflation.
Gross profit was $107.8 million, an 11% decrease year-over-year. Non-GAAP gross profit was $107.9 million, a 12% decrease year-over-year.
Total operating expenses were $96.1 million, largely flat year-over-year.
- Research and development expenses were $50.6 million, a 10% decrease year-over-year, representing 16.7% of total revenues, compared to 18.7% in the corresponding period in 2018. The decrease was primarily due to a decrease in professional fees.
- Sales and marketing expenses were $36.7 million, an 8% increase year-over-year, representing 12.1% of total revenues, compared to 11.2% in the corresponding period in 2018. The increase was primarily attributable to an increase in personnel-related expenses.
- General and administrative expenses were $8.8 million, a 31% increase year-over-year, representing 2.9% of total revenues, compared to 2.2% in the corresponding period in 2018. The increase was primarily due to an increase in expenses related to non-core business initiatives.
- Operating income was $11.6 million, compared to operating income of $24.8 million in the corresponding period in 2018. Non-GAAP operating income was $18.1 million, compared to non-GAAP operating income of $29.9 million in the corresponding period in 2018.
- Other income $4.2 million, compared to $3.4 million in the corresponding period in 2018.
The income tax benefit was $1.4 million, compared to income tax expense of $3.0 million in the corresponding period of 2018. The income tax benefit resulted from a tax filing adjustment of income tax expense previously recognized, which was due to a reduction in taxable income related to Chinese government initiatives to encourage investment in R&D.
Net income attributable to Sogou Inc. was $21.3 million, compared to net income of $33.2 million in the corresponding period in 2018. Non-GAAP net income attributable to Sogou Inc. was $27.8 million, compared to net income of $38.2 million in the corresponding period in 2018.
Basic and diluted earnings per ADS were $0.05. Non-GAAP basic and diluted earnings per ADS were $0.07.
As of June 30, 2019, Sogou had cash and cash equivalents and short-term investments of $1.1 billion, compared with $1.0 billion as of December 31, 2018. Net operating cash inflow for the second quarter of 2019 was $56.2 million. Capital expenditures for the second quarter of 2019 were $12.1 million.
China’s mobile internet users overview for the first half of 2019