The daily active users of Sogou Mobile Keyboard grew by 9% YoY to 464 million in the fourth quarter of 2019. It processed up to 802 million daily voice requests, according to Sogou’s announced financial results.
Sogou Financial Results in Q4 2019
Total revenues were $301.0 million, a 1% increase year-over-year.
- Search and search-related revenues were $274.6 million, down 1% year-over-year. However, auction-based pay-for-click services continued to increase year-over-year, accounting for 88.2% of search and search-related revenues, compared to 84.8% in the corresponding period in 2018.
- Other revenues were $26.4 million, a 26% increase year-over-year. The increase was primarily due to increased revenues from sales of smart hardware products.
Cost of revenues was $168.7 million, a 9% decrease year-over-year. Traffic acquisition cost, a primary driver of cost of revenues, was $129.0 million, a 14% decrease year-over-year, representing 42.8% of total revenues, compared to 50.3% in the corresponding period in 2018.
Gross profit was $132.4 million, an 18% increase year-over-year. Non-GAAP gross profit was $132.6 million, a 19% increase year-over-year.
Total operating expenses were $95.0 million, a 4% decrease year-over-year.
- Research and development expenses were $48.7 million, a 1% increase year-over-year, representing 16.2% of total revenues, largely flat with the corresponding period in 2018.
- Sales and marketing expenses were $34.9 million, a 16% decrease year-over-year, representing 11.6% of total revenues, compared to 14.0% in the corresponding period in 2018. The decrease was primarily attributable to a decrease in marketing and promotional spending.
- General and administrative expenses were $11.3 million, a 21% increase year-over-year, representing 3.8% of total revenues, compared to 3.1% in the corresponding period in 2018. The increase was primarily due to an increase in professional fees.
Operating income was $37.4 million, a 202% increase year-over-year, compared to $12.4 million in the corresponding period in 2018. Non-GAAP operating income was $41.5 million, a 216% increase year-over-year, compared to $13.1 million in the corresponding period in 2018.
Other income, net was $0.5 million, compared to $9.6 million in the corresponding period in 2018. The decrease was primarily due to a $9.1 million impairment loss on certain equity investments of Sogou in 2019.
Income tax expense was $2.0 million, compared to an income tax benefit of $3.6 million in the corresponding period of 2018.
Net income attributable to Sogou Inc. was $35.0 million, a 33% increase year-over-year, compared to net income of $26.4 million in the corresponding period in 2018. Non-GAAP net income attributable to Sogou Inc. was $39.0 million, a 44% increase year-over-year, compared to net income of $27.1 million in the corresponding period in 2018.
Basic and diluted earnings per ADS were $0.09. Non-GAAP basic and diluted earnings per ADS were $0.10.
As of December 31, 2019, it had cash and cash equivalents and short-term investments of $1.1 billion, compared to $1.0 billion as of December 31, 2018.
Net operating cash inflow for the fourth quarter of 2019 was $52.0 million. Capital expenditures for the fourth quarter of 2019 were $9.1 million.
Sogou Financial Results for Full Year 2019
Total revenues were $1.17 billion, a 4% increase from 2018.
- Search and search-related revenues were $1.07 billion, a 5% increase from 2018. The increase was primarily due to growth in auction-based pay-for-click services. Auction-based pay-for-click services accounted for 88.1% of search and search-related revenues, compared to 83.8% in 2018.
- Other revenues were $99.1 million, compared to $101.0 million in 2018.
Cost of revenues was $738.5 million, a 6% increase from 2018. Traffic acquisition cost, a primary driver of cost of revenues, was $562.2 million, a 6% increase from 2018, representing 48.0% of total revenues, compared to 47.4% in 2018.
Gross profit was $433.8 million, a 1% increase from 2018. Non-GAAP gross profit was $434.3 million, a 1% increase from 2018.
Total operating expenses were $369.4 million, a 4% decrease from 2018.
- Research and development expenses were $190.4 million, a 6% decrease from 2018, representing 16.2% of total revenues, compared to 17.9% in 2018.
- Sales and marketing expenses were $138.3 million, a 5% decrease from 2018, representing 11.8% of total revenues, compared to 13.0% in 2018.
- General and administrative expenses were $40.7 million, a 7% increase from 2018, representing 3.5% of total revenues, compared to 3.4% in 2018.
Operating income was $64.4 million, a 44% increase from 2018. Non-GAAP operating income was $80.3 million, a 36% increase from 2018.
Other income, net was $21.1 million, compared to $41.5 million in 2018. The decrease was primarily due to a $17.8 million gain from one of Sogou’s equity investments recognized in the third quarter of 2018.
Income tax expense was $2.7 million, compared to $1.2 million in 2018.
Net income attributable to Sogou Inc. was $89.1 million, compared to $98.8 million in 2018. Non-GAAP net income attributable to Sogou Inc. was $105.0 million, compared to $113.0 million in 2018.
Basic and diluted earnings per ADS were $0.23. Non-GAAP basic and diluted earnings per ADS were $0.27.
Sogou Outlook for Q1 2020
For the first quarter of 2020, Sogou expects total revenues to be in the range of $240 million to $260 million, representing a 5% decrease to 3% increase year-over-year, or a 1% decrease to 7% increase year-over-year in RMB terms.
In developing this guidance, Sogou has considered the potential impact of the COVID-19 outbreak, as well as other challenges in the macro-environment and the online advertising industry.
Given its Search business has navigated the situation relatively well, Sogou expects Search to remain resilient in the first quarter. The guidance represents its current and preliminary view, which is subject to substantial uncertainty, particularly as to the development and potential impact of the COVID-19 virus in China and elsewhere.
For the first quarter 2020 guidance, the Company has adopted a presumed exchange rate of RMB7.00 = $1.00, as compared with the actual exchange rate of approximately RMB6.74 = $1.00 for the first quarter of 2019, and RMB7.03 = $1.00 for the fourth quarter of 2019.