Categories Earnings Call Transcripts, Technology

Sogou Inc. (NYSE: SOGO) Q4 2019 Earnings Call Transcript

Sogou Inc.  (NYSE: SOGO) Q4 2019 Earnings Conference Call
Final Transcript

Corporate Participants:

Jessie Zheng — Investor Relations Contact

Xiaochuan Wang — Board Member and Chief Executive Officer

Joe Zhou — Chief Financial Officer

Analysts:

Thomas Chong — Jefferies — Analyst

Daniel Chan — JPMorgan — Analyst

Natalie Wu — CICC — Analyst

Alicia Yap — Citigroup Inc. — Analyst

Elsie Cheng — Goldman Sachs — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to Sogou’s Fourth Quarter and Full Year 2019 Earnings Conference Call. [Operator Instructions] Today’s conference call is being recorded and if you have any objections you may disconnect at this time.

I would now like to turn the call over to your host today, Jessie Zheng Investor Relations Director of Sogou. Please go ahead.

Jessie Zheng — Investor Relations Contact

Hello, everyone, and thank you for joining Sogou’s fourth quarter and full year 2019 earnings conference call. On the call are our CEO Xiaochuan Wang and our CFO, Joe Zhou will give an overview of the operations and the financial results. In line with our practice on the previous earnings conference calls, Xiaochuan’s prepared remarks will be made in Xiaochuan’s voice using personalized speech synthesis and style transfer learning technology, which was developed by the Sogou Voice Interaction Technology Center. Xiaochuan will join the Q&A portion of the call in person.

Before management begins their prepared remarks, I would like to remind you of the Company’s Safe Harbor statement in connection with today’s conference call. Except for the historical information contained here, the matters discussed in this conference call are forward-looking statements. These statements are based on current plans, estimates and projections and therefore you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties.

We caution you that a number of important factors could cause actual results to differ materially from those containing any forward-looking statements. For more information about the potential risks and uncertainties, please refer to the Company’s filings with the Securities and Exchange Commission.

With that, I would now turn the call over to our CEO, Xiaochuan Wang.

Xiaochuan Wang — Board Member and Chief Executive Officer

Thank you, Jessie, and hello everyone. We maintained steady progress in 2019. Despite headwinds in the macro environment and online advertising industry in China, our total revenue increased 9% year-over-year to over RMB8 billion and net income surpassed RMB730 million for the year. This was primarily driven by our dedication to continuously drive organic traffic growth and unlock the monetization potential of our core user assets, while at the same time further improving operational efficiencies.

By the end of 2019, Sogou Search remains China’s second largest search engine and our search revenue continued to grow faster than the industry average.

Sogou Mobile Keyboard increase its user base to 464 million DAUs, reinforcing its position as the third largest Chinese mobile app in terms of DAUs, according to iResearch.

With respect to our Recommendation Service that leverages Mobile Keyboard, its revenue continued to experience robust growth. In addition, our Smart Hardware business maintained healthy momentum, thanks to ongoing upgrade to our AI offerings.

Now, let me walk you through each of our core businesses, including Search, Mobile Keyboard and Smart Hardware. In Search, on top of ongoing efforts to improve the quality of Search services, we also strengthened our content and service ecosystem during 2019. On the content front, we made solid progress in building a more professional Search platform.

For example, healthcare-related content on Sogou Search continued to be perceived as more reliable. Our intelligent Q&A provided users’ wider access to high quality content including that on WeChat Official Accounts and Sogou Hao also further optimized its content ecosystem.

On the services front, we enhanced our offerings, starting with Healthcare, to explore opportunities in Smart triggers [Phonetic]. Throughout the year, we significantly improved user experience in healthcare search and both average click-through volume and click-through rate per person recorded solid increases. Our up top direct answer results fulfilled a significant portion of our overall search results with a high level of accuracy. These initiatives have effectively boosted our organic traffic growth.

Turning to Mobile Keyboard, over the past year, we launched a comprehensive set of upgrades to expand the user perception of AI input with our smarter AI enabled solutions that allow more efficient and accurate input. In particular, we released a number of product innovations which differentiate us from other player and expand our user base.

For example, Smart Wang Zai an AI enabled communication assistant within Mobile Keyboard that was launched in the third quarter of 2019 to recommend to user a large variety of emoticons, punch lines, replies and comments to use in chats and online shopping. The recommended content has been used hundreds of millions of times per day on average and the daily usage number keeps climbing.

Another good example is our AI enabled voice functions such as voice conversion and personalized voice recognition, which effectively strengthened our user stickiness. By the end of December 2019, Sogou Mobile Keyboard processed 54% more daily voice requests on average year-over-year with up to 800 million requests per day, retaining our position as the largest voice recognition app in China.

On top of product upgrades, we have also strengthened our recommendation service that leverages mobile keyboard to further unlock its commercial value. In 2019, revenue generated from our recommendation services increased nearly 19%. Going forward, we intend to tap into additional use cases for recommendation that are fulfilling users’ various needs for information discovery while they are typing.

Our Smart Hardware leveraged our AI technologies to further drive business upgrades. In 2019, we successfully launched a new compelling product category AI Smart recorded C1 and C1 Pro which led and AI-driven upgrading all across the recording industry. The two products also topped the best-selling list on several mainstream e-commerce platform.

At the same time, we proactively established an AI innovation alliance with leading recorded players in China under which we have been able to capture an increasing number of users through opening up our Sogou transcription service. These also allows us to drive the AI evolution of traditional recorded and to explore a service-based business model in the future. Going forward, we will set up R&D efforts to diversify our product matrix and strengthening the pipeline.

Moving onto AI, in 2019, we made great advances across our core language centric AI technology including voice, computer vision, machine translation and Q&A. in addition to empowering our core Search Mobile Keyboard and Smart Hardware businesses, we also integrated the technologies into the industry-leading solutions, including Vocational Avatars and AI-powered Simultaneous Interpretation.

In particular, with further advanced Sogou Vocational Avatars with real time human interaction feature. Moreover, we expanded the application of this into multiple sectors including AI News Anchor for news broadcasting, AI Virtual Judge for legal services, Al Host for literature and entertainment events and AI customer service avatars for financial services. Our proprietary vocational avatar Yanny has successfully hosted multiple conferences recently and gained broad recognition among the industry.

In terms of Sogou’s Simultaneous Interpretation solution, we made substantial progress in utilizing our proprietary Context Engine, computer vision as well as AI self-learning capabilities in the latest upgrade. This means our solution is able to not only listen but also to and thing in real time during the interpretation process. This is the first of its kind in the market. As a result, the accurately of interpretation results has increased 40%. In 2019 Sogou’s Simultaneous Interpretation solution supported nearly 50 conferences in the areas of technology, finance, sports and more.

Next I’d like to talk about the impact of the recent COVID-19 outbreak. Before I begin, I want to say that our thoughts go out to those who have been impacted by the situation, our users, employees, business partners and the general public.

When the outbreak started, we donated RMB30 million worth of cash and materials to aid the frontline medical staff in regions that have been severely impacted. We also pledged RMB50 million to set up a special purpose fund, which will be used to help primary level public health institutions tackle the critical issues faced with an emphasis on AI applications.

The internet technologies have played an important role in resolving various difficulties during the outbreak. This has also created emerging opportunities for Sogou which we can leverage to accumulate and cultivate additional users.

During the outbreak, benefiting from users’ surging request for finding reliable information and high efficiency. Sogou Search traffic reached a record high level. Of that, healthcare search traffic increased as much as 100% year-over-year, and online consultation volume rose a very substantial 400% year-over-year.

Sogou Mobile Keyboard DAUs also booked a record high of 480 million with organic users growing significantly. The increases also resulted from our efforts as a major industry player to quickly mobilize our R&D and technological advantages to address the situation. We are pleased that this has enabled us to make constructive contributions at this challenging time as well as to boost our development in search, feed and AI healthcare.

Let me give a few examples of our initiatives in relation to the outbreak. Sogou Search launched a series of functions, which allow users to have quick, convenient and effective access to academic information; functions like diagnosed patients, travel history search were the first of their kinds in the market, which generated wide recognition among our user and the industry.

Meanwhile, we also facilitated the development of AI Healthcare to serve our users during the outbreak and in partnering with authorities, including China’s National Health Commission, we launched an AI enabled instant [Phonetic] chat robot as well as an intelligence Q&A robot to alleviate the threat faced by primary level health institutions, particularly in handling massive and repetitive queries about the epidemic.

Looking forward, the epidemic so far has caused significant interruption to business and economic activities across many industries in China, including online advertising industry. Sogou is not immune to the impact and there will be a one-off short term dampening impact on our results in the first quarter of 2020. Nevertheless, from a long-term perspective, the epidemic has increased user’s reliance on the Internet, fostered more online behavior, and generated new demand from both users and businesses, which we believe will drive the ongoing development of the Internet industry.

Looking at 2020, we will capitalize on the trend to strengthen and speed up our innovation. We will further consolidate and leverage our core competencies to upgrade products and services and to increase users’ mindshare.

In Search, as we are committed to achieving stable business growth, we will continue to upgrade Sogou Search platform with a focus on intelligent Q&A and at the same time, tap into the potential of our organic channels and Tencent content. Moreover, we will allocate more resources to grow our Mobile Keyboard and Smart Hardware businesses to increase the revenue contribution.

While it is difficult to predict how the year will unfold, with this set of strategies implemented and once things return to normal post the epidemic, we currently expect our business to accelerate in the second half of 2020. We will however, keep the investment community well informed on this moving forward. With that, I will now turn the call to Joe to go through our financials.

Joe Zhou — Chief Financial Officer

Thank you, Xiaochuan. Hello, everyone. In the fourth quarter of 2019, we recorded total revenues of $301 million; as such, remained resilient despite the pressure from external challenges. And Recommendation Service and Smart Hardware continued to deliver solid growth. Moreover we again, witnessed, across the board market expansion, and our non-GAAP net income increased 44% year-over-year to $39 million. The solid profitability primarily resulting from our stringent control in traffic acquisition costs and expenses, as well as improved operating efficiency.

Now, I’ll walk you through our fourth quarter financials in greater detail. Please note that, unless otherwise noted, all monetary amounts that I discuss are in US dollars. Also note that I will refer to some non-GAAP numbers which exclude share-based compensation expenses. You can find a reconciliation of non-GAAP to GAAP measures in our earnings release.

Total revenues in the fourth quarter was $301 million on a constant currency basis. Total revenues in the fourth quarter would have been $306 million, a 3% increase year-over-year. Search and Search related revenues were $275 million. On a constant currency basis, Search and Search related revenues would have booked a 1% increase year-over-year.

The increase was primarily due to growth in auction-based-pay-for-click services. Auction-based-pay-for-click services accounted for 88% of search and search-related revenues compared to 85% in the corresponding period in 2018. Other revenues were $26 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 $169 million, a 9% decrease year-over-year. Traffic acquisition costs, our primary driver of cost of revenues was $129 million, a 14% decrease year-over-year, representing 43% of total revenues compared to 50% in the corresponding period in 2018. As we continue to benefit from increasing contribution from organic traffic and industry competition for external traffic has proved moderated. We expect TAC growth to be well contained in 2020.

Gross profit was $132 million, an 18% increase year-over-year. Non-GAAP gross profit was $133 million, a 19% increase year-over-year. Both GAAP and non-GAAP gross margin increased to 44% compared to 38% a year ago. The increase primarily resulted from our efforts to control traffic acquisition cost. Total operating expenses were $95 million, a 4% decrease year-over-year.

Research and development expenses were $49 million, 1% [Phonetic] increase year-over-year, representing 16% of total revenue, largely flat compared to the corresponding period in 2018. Sales and marketing expenses was $35 million, a 16% decrease year-over-year, representing 12% of total revenues compared to 14% in the corresponding period in 2018. The decrease was primarily attributable to a decrease in marketing and promotional spending.

G&A expenses were $11 million, a 21% increase year-over-year, representing 4% of total revenues compared to 3% in the corresponding period in 2018. The increase was primarily due to an increase in professional fees. Operating income was $37 million, a 202% increase year-over-year compared to $12 million in the corresponding period in 2018. Non-GAAP operating income was $41 million, a 216% increase year-over-year compared to $13 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 increase was primarily due to a $9.1 million impairment loss on the Company’s, equity investments in 2019. Income tax expense was $2 million compared to income tax benefit of $4 million in the corresponding period in 2018.

Net income attributable to Sogou was $35 million, a 33% increase year-over-year compared to net income of $26 million in the corresponding period in 2018. Non-GAAP net income attributable to Sogou was $39 million, a 44% increase year-over-year compared to net income of $27 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 31st 2019, we had cash and cash equivalents and short-term investments of $1.1 billion compared to $1 billion as of December 31st 2008. Net operating cash inflow for the fourth quarter was $52 million. Capital expenditures for the fourth quarter were $9 million.

Now I’ll briefly walk through the highlights of our full year results. Total revenues were $1.2 billion, a 4% increase from 2018 or a 9% increase on a constant currency basis. Search and search related revenues were $1 billion, a 5% increase from 2018. Auction-based-pay-for-click-services accounted for 88% of search and search related revenues compared to 84% in 2018. Other revenues were $99 million compared to $101 million in 2018.

Net income was $89 million compared to $99 million in 2018. Non-GAAP net income was $105 million compared to $113 million in 2018. Basic and diluted earnings per ADS were $0.23. Non-GAAP basic and diluted earnings per ADS were $0.27.

And finally, turning to our outlook. For the first quarter of 2020, we expect total revenues to be in the range of $240 million to $260 million, representing a 5% decrease to 3% increase year-over-year or 1% decrease to a 7% increase year-over-year in RMB terms. This near-term guidance takes into account the impact of the coronavirus outbreak as well as other challenges in the medical environment and online advertising industry.

Given our Search business has navigated the situation relatively well, we expect Search to remain resilient in this first quarter. As Xiaochuan mentioned, we remain confident in our overall positioning with strong execution of our strategies in Search, Mobile Keyboard and Smart Hardware. We also expect to benefit from the broader industry trend of increasing online migration. We currently expect to get back on track post the epidemic and accelerate development in the second half of 2020.

Please note that for the first quarter 2020 guidance, we have presumed an exchange rate of RMB7 to $1, as compared with the actual exchange rate of approximately, RMB6.74 to $1 for the first quarter of 2019. And RMB7.03 to $1 for the fourth quarter of 2019.

That concludes our prepared remarks.

Jessie Zheng — Investor Relations Contact

Thank you, Joe. Operator, we now like to open the call for questions.

Question-and-Answers:

Operator

[Operator Instructions] The first question today comes from Thomas Chong of Jefferies. Please go ahead.

Thomas Chong — Jefferies — Analyst

[Foreign Speech] Thanks, management, for taking my questions and wish everyone is good health and safe. My questions is about the advertising trend across different industries. Can management share about how different categories allocate their spending in Q1 and how we should think about the trend in Q2 and second half?

And my second question is about our Smart Hardware initiative. Can management share the KPIs for this year and about the timing that we expect to achieve our profitability? Thank you.

Joe Zhou — Chief Financial Officer

Okay [Speech Overlap]. So for Q1, during the outbreak we are benefiting from use of search inquiries for finding reliable information and high efficiency. So our search traffic reached a record high. But the outbreak has caused a significantly interruptions to China’s economy and businesses, which has negative short-term impact on online advertising, so therefore, despite the strong increase in traffic, our search-related revenues will face more pressure. So we currently expect that in Q1 2020, the search related revenue will be resilient, say largely flattish or a little bit better.

Xiaochuan Wang — Board Member and Chief Executive Officer

[Foreign Speech] So in terms of the Hardware question, At Sogou, we’ll launch a mainstream hardware product within this year, targeting a larger population of consumers with vaster development space and we expect to achieve mid-to-high single digit revenue contribution from our hardware business and we expect to achieve profitability in 2021.

Joe Zhou — Chief Financial Officer

And let me add more color on the second quarter and second half. So basically, we expect the advertising revenue were largely recovered from the Q1, I mean the coronavirus outbreak. So the growth rate will accelerate in Q2 and with our — we will continue to unlock the value of our Mobile Keyboard and accelerate the Smart Hardware in the second half the revenue will be — will accelerate further. I mean quarter-over-quarter comparing to Q2.

Thomas Chong — Jefferies — Analyst

Got it. Thank you.

Operator

The next question comes from Daniel Chan of JPMorgan. Please go ahead.

Daniel Chan — JPMorgan — Analyst

[Foreign Speech] I’ll translate myself. I wish everybody are in good health. My first question is regarding the advertising business. Could management give us some update on how the business recovery in the last two weeks and also some preliminary view on what do we expect our — when do we expect our advertising business to back to normal status.

Second question is on the Mobile Keyboard. So we have done pretty well in terms of revenue growth for the Keyboard in 2019. So what is our main strategy to further monetize and further grow our Mobile Keyboard in 2020? Thank you.

Joe Zhou — Chief Financial Officer

[Foreign Speech] Okay, so over the past two weeks, we see the advertising revenue recovery with limited visibility where we still take time to look at revenue, so basically it will recover quarter-over-quarter. So in Q2, it will largely recover, but of course, not 100% to normal situation.

For the second half, we expect it will fully recover to a normal situation. So as I mentioned, with the — which will unlock the value of our Mobile Keyboard and Smart Hardware. So that’s why in the second half we expect revenue growth to accelerate.

Xiaochuan Wang — Board Member and Chief Executive Officer

[Foreign Speech] Okay. In response to your Mobile Keyboard question, I think you have noticed that in 2019, we further grown our user base and we’ve launched a very innovative function called smart Wang Zai, which basically transforms Mobile Keyboard to an intelligent communication assistant that we can leverage to do all kinds of recommendations.

And in 2020, we will step up our efforts to strengthen users’ mind share. And in terms of commercialization, we’ll steadily drive forward recommendation service with more targeted recommendations of both information and services and we are also further unlock the commercial value of Mobile Keyboard’s user assets such as the roll-out of paid to see value added services, including personalized graphical schemes and emoticons etc.

Recommendation service has grown by nearly 19% year-over-year in 2019 and we expect it will maintain robust growth in 2020 as a percentage of our total revenues, is going to be like mid to high single-digit contribution in 2020, and we — while we will continue to grow to a meaningful level going forward.

Operator

The next question comes from Natalie Wu of CICC. Please go ahead.

Natalie Wu — CICC — Analyst

[Foreign Speech] I’ll translate myself, I’m good. And so, thanks for taking my questions. Basically I have two questions here. First one is that your first quarter outlook is quite resilient than peers terms of strategy and outbreak impact. So wondering if it is the result of different revenue contribution industry mix from your key advertisers. So can management update us your up-to-date advertising sector distribution and what would you expect that distribution to evolve by the end of this year.

And my second question was regarding the recent moves into investment into Chinese doctor [Phonetic]. I noticed that you did just — you made an investment into the online medical treatment platform [Indecipherable]. So just wondering what kind of the strategic collaborations do we anticipate in the future? Thank you.

Joe Zhou — Chief Financial Officer

Okay, I’ll take the first question. So for Q1 guidance, so if you look at midline, RMB term basically, it means a 3% increase year-over-year. That’s better than industry average. That’s primarily because, first, during the outbreak, we are benefiting from users searching press for finding reliable information. So our search traffic reached a record high. And the second, our search advertising has relatively small scale, which means that we have more space to further [Indecipherable] and the last difference may be different sector mix. The higher contribution from online gaming, streaming and online education sectors which experienced significant growth as people have to stay at home during the epidemic. So if you look at Q4, the top verticals, the say gaming, e-Commerce, healthcare and services — business services and education.

So if we look into Q1, basically the trend is that for gaming and education, I mean, on the online education, they will benefit from the epidemic.

Xiaochuan Wang — Board Member and Chief Executive Officer

[Foreign Speech] Okay. In response to our AI healthcare question, I think you know in the last few years we have been very dedicated to building a professional healthcare search platform. Therefore we have strong presence in health search and that as a foundation will gradually operate AI healthcare as an independent business unit.

And our ultimate goal is to grow into a digital family doctor model. I think Sogou’s AI healthcare is still targeting consumer market given that healthcare is a low frequency request, it’s very likely that ultimate gateway will be — will still be search. And by then the AI healthcare platform will not only provide healthcare information but also provide additional healthcare services like Smart triage etc.

So our core competitive edge is actually search plus AI because we have a very well recognized healthcare search platform that’s acting as traffic engines for AI healthcare and nearly 10% of our total traffic is coming from health care. It’s a traffic gateway that users have been used to and in the past year, we’ve been trying to build this platform into authoritative and reliable healthcare search platform, providing both content and services. Therefore, this had laid a solid foundation for us to develop AI healthcare.

And second, Sogou has a very strong AI capabilities. This will be — our leading AI technology is able to help alleviate the shortage of managed [Phonetic] resources and to create a barrier to industry peers in the competition. And in 2019, we’ve actually done a lot in developing AI healthcare. We’ve received Internet hospital license, and during the epidemic we’ve seen new opportunities with the rollout of our online healthcare search, online healthcare consultation, symptom checker and intelligent Q&A rollouts.

Notably healthcare search traffic has increased 100%. Online healthcare consultation has significantly grown by 400%. In addition, we’ve launched RMB50 million special purpose fund to drive AI application in healthcare. Lastly we are also seeking M&As to accelerate AI healthcare development. Our latest investment in Chinese Doctor [Phonetic] is actually a first mover in the sector is part of the efforts. We believe by partnering with [Indecipherable], it will facilitate our development in AI healthcare in the future.

Operator

The next question today comes from Alicia Yap of Citigroup. Please go ahead.

Alicia Yap — Citigroup Inc. — Analyst

Hi, good evening, management. Thanks for taking my questions. [Foreign Speech] So my questions is related to management comment regarding into the second half where you expect the revenue to accelerate. So besides the Smart Hardware new product launch which is going to contribute a pretty big driver on that.

For Search revenue, do you also expect re-acceleration? If so, what are driver for the Search revenue to reaccelerate? And then just another quick follow-up is that currently what are traffic re-direction from the Mobile Keyboard through your search currently? Thank you.

Joe Zhou — Chief Financial Officer

Okay. So for Search revenue, basically if you look at Q1, Q2 and the second half, the trend will be that for Q1 basically it will be flattish or 1% to 2% increase year-over-year in RMB terms. And in second quarter, whilst the epidemic comes to its end the advertising revenue will recover, largely recover, so the growth rate will accelerate.

And in the second half, it will further accelerate to say, maybe to around 5%. So if you look at Q4 for search related revenue, the year-over-year growth rate, it’s about something around 1% in RMB terms year-over-year. So that’s basic the trend for search part.

For revenue from Mobile Keyboard, you know we leverage our Mobile Keyboard to build up our recommendation surveys system. So for 2019, the revenue from recommendation services accounted for 8% of our total revenues comparing to 4% in 2018. So, looking to 2020, we will continue to focus on unlock the value of our Mobile Keyboard. So we expect that contribution will continue to expand.

Alicia Yap — Citigroup Inc. — Analyst

Thank you.

Operator

The next question comes from Elsie Cheng of Goldman Sachs.

Elsie Cheng — Goldman Sachs — Analyst

[Foreign Speech] Thank you, management. I have three questions. The first one is to follow-up on the recovery question earlier. Just want to understand a little bit more about what kind of recovery ratio we’re looking at right now and if possible any color on the speed of recovery. And second question is about our strategy on Search Input Method and Smart Hardware, if we go beyond 2020, how should we think about the synergies in developing hardware and internet business together.

And the third question is, wanted to ask about the mini-programs and the thinking about mini-program strategies at Sogou because as we understand, it’s more integrated with the input method in terms of product features for now and how do we think about developing this to drive business in future? Thank you.

Joe Zhou — Chief Financial Officer

Okay. So, for the first question regarding how the advertising revenue will recover, so you know these are relatively small scale, maybe were not a very good indicator for the whole industry. And as the epidemic is still evolving and post a lot of uncertainties, so there is limited visibility regarding how it will fully recover. But if you look at Sogou, as I mentioned, we expect Q2, we will largely recover from the epidemic and for second half, we will fully recover from the epidemic. I mean Xiaochuan will take the second and the third question.

Xiaochuan Wang — Board Member and Chief Executive Officer

[Foreign Speech] So, in terms of your question about on the synergies between Search, Mobile Keyboard and Hardware, basically, we are very — we have a very strong core asset in Mobile Keyboard is actually helping users to input and express themselves. And Search is about help users to get information. But before you get information, you have to input something. And hardware is very good carrier of connecting with input and output. It integrates the basic functions of Search and Mobile Keyboard. And in 2019 we’ll launch a new category of hardware called Smart Recorder.

It’s basically a hardware version of the voice internet search and in the future we’re going to integrate increasingly more AI capabilities not only on the interaction — interactive features like voice image or computer vision but also integrating more knowledge computing capabilities that provide users with a direct answers, a better solutions or services.

So this is — this is something that only hardware can do and we believe we have very strong synergies between all the core assets — I mean all the core assets at Sogou.

[Foreign Speech] We think many programs are very good medium that we can leverage. Actually, we have been integrating mini-programs in both Search and Mobile Keyboard. Mini-programs have been across all the information use cases across Sogou’s products and that allows us to provide users with both content and services and develop a close loop of ecosystem for them.

But what we have observed is that many programs are not material to driving search traffic and existing mini programs, how they can benefit content providers or advertisers is yet to be — you know is yet to be seen. I think the most successful mini-program are still within innovation ecosystem. But having said that, we are really trying to tap into the potential of the mini programs and we’ll definitely do something about it later.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to the Company for any closing remarks.

Jessie Zheng — Investor Relations Contact

Thank you, everyone, for joining today’s call and for your continued support for Sogou. We look forward to speaking to you again in the future.

Operator

[Operator Closing Remarks]

Disclaimer

This transcript is produced by AlphaStreet, Inc. While we strive to produce the best transcripts, it may contain misspellings and other inaccuracies. This transcript is provided as is without express or implied warranties of any kind. As with all our articles, AlphaStreet, Inc. does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Neither the information nor any opinion expressed in this transcript constitutes a solicitation of the purchase or sale of securities or commodities. Any opinion expressed in the transcript does not necessarily reflect the views of AlphaStreet, Inc.

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