Prior to this, the news of Tencent's wholly-owned acquisition of Sogou was hotly discussed, and there was also a lot of discussion about who was the winner of the deal.

Sogou released his financial performance report for the second quarter ending June 30, 2020. According to the financial report, revenue of Sogou reached $261 million in Q2 in 2020, down 14% from the same period last year. This is the first year-on-year decline in revenue since Sogou went public in 2017.

According to GAAP, the net loss attributable to Sogou was $8.5 million, compared with a net profit of $21.3 million in the same period last year. Under non-GAAP, the net loss attributable to Sogou was $5.5 million.

Sogou's revenue fell year-on-year for the first time since its listing.

Sogou was listed on the New York Stock Exchange in November, opening at $13, the same as the offering price, when Sogou's market capitalization reached $5.096 billion. As of the press time, Sogou quoted a price of US $8.56, with a total market capitalization of US $3.328 billion. According to the financial report, Sogou's revenue is mainly composed of two parts: search and search-related advertising revenue, and other income.

For a long time, search and search advertising-related advertising revenue has been Sogou's main source of income, the proportion of revenue has remained high, continued at more than 90%.

According to the financial report, Q2 Sogou's total revenue in 2020 was 261 million US dollars, down 14 percent from 304 million US dollars in the same period last year. This is the first time that Sogou's revenue has declined compared with the same period last year since Sogou went public.In fact, Sogou's revenue has slowed since Q3 in 2018, while Sogou's revenue growth in Q4 in 2019 and Q1 in 2020 was less than 2 per cent year-on-year, and revenue growth almost stagnated.

Search and search-related advertising revenue as Sogou's main source of income, its revenue growth rate also continues to decline compared with the same period last year. Negative year-on-year growth has been the first since Q4 in 2017, sending out a dangerous signal.

Sogou's search and related advertising revenue was $241 million in the second quarter of 2020, down 13% from $276 million in the same period last year, according to the financial report.

Pay-per-click-based search services also showed a year-on-year decline, accounting for 86.9% of search and search-related revenue, compared with 88.2% a year earlier.

In terms of traffic, Sogou has always relied on third parties, with nearly 80 per cent of traffic coming from outside.

Sogou's traffic mainly comes from Sogou's search for Tencent products such as App, Sogou input method, QQ Browser and Wechat, as well as partnerships with mainstream mobile phone manufacturers. According to the disclosure of the previous prospectus, 38% of the traffic comes from Tencent products; 43% comes from mobile phone preinstalled, while Sogou's own traffic accounts for only 21%, which lacks the ability to make hematopoiesis independently.

With the peak of the traffic dividend, the cost of getting traffic on the Internet platform is also rising. Sogou, who relies on a third party to obtain traffic, has also increased the cost of obtaining traffic during the epidemic. According to the financial report, in 2020, Sogou's revenue cost was $169.6 million, of which the traffic acquisition cost was $159.1 million, an increase of 9% over the same period last year, accounting for 60.9% of the total revenue, compared with 48.2% in the same period last year.

Sogou explained that this was mainly due to the increase in Sogou's traffic from third-party channels during the epidemic because users were forced to spend more time online. For a long time, Sogou lacks his own content ecology, so Sogou relies more on Tencent in the ecological construction of content services.

According to relevant data, Sogou search is the default general search engine in many of Tencent's products. In 2019, about 35% of Sogou's total search traffic was contributed by Tencent's products. Sogou's traffic from Tencent accounted for 36% in the first quarter of 2020.

Sogou pointed out in his internal letter that in terms of content services and ecological construction, Sogou continues to deepen cooperation with the official account of Wechat, constantly improve the content of Sogou, and supplement the content through cooperation with official websites, experts, and academic websites. Search has always been Sogou's core business. Sogou since its inception, the standard Baidu, both in addition to searching this main channel, are in the AI, however, Sogou regardless of the search market share, revenue scale and market capitalization, are not comparable to Baidu, Inc..

In the field of search market, Sogou was left behind by Baidu, Inc.. From this point of view, Sogou's business is lacklustre and has not been recognized by the capital market.

Sogou AI is difficult to carry the revenue banner.

Sogou revenue structure single standing criticism, Sogou tried to bet on AI, trying to break the current revenue structure single problem. Sogou tried in the fields of AI and Internet finance.

From Sogou's revenue source, Sogou's other income mainly includes Sogou's intelligent hardware sales income and financial business income, and other revenue accounts for a relatively small portion of Sogou's total revenue.

Sogou's other income from Q2 in 2020 was $20.58 million, down 25 per cent from $27.46 million a year earlier, according to the financial report. Sogou's other income contributed less than 8 per cent of revenue in the second quarter.

As for the decline in other revenues, Sogou explained that it was due to a decline in revenue from non-core businesses, which partially offset the 20 per cent annual growth in artificial intelligence hardware. Sogou tool product Sogou input method is Sogou's "hard core" product, which has accumulated a large number of users for Sogou.

According to the financial report, the number of daily active users of Sogou's mobile phone input method increased by 6% in the second quarter compared with the same period last year, reaching 484 million, with an average daily voice request peak of more than 1.4 billion. However, Sogou has always been unable to realize the number of daily active users of 484 million mobile phone input method very well. Prior to this, Sogou tried to cash through Internet finance, from "a little bit to borrow money" to "a little bit of installment", and then to Sogou to borrow money, Sogou's financial business is not going smoothly.

With the strong supervision of Internet finance, if you want to realize the realization of traffic through finance, it is far from enough to hold an Internet small loan license, while with the adjustment of private lending rates, "profiteering cash loans" have also become a thing of the past. Profit margins have also been compressed, and it is by no means easy for Sogou to make a breakthrough in finance.

The way of Internet finance seems to be very difficult to get through. in order to tell a good story, AI is highly expected by Wang Xiaochuan. Sogou's smart hardware business achieved 25 per cent year-on-year revenue growth in the second quarter of 2020.

Wang Xiaochuan, CEO of Sogou, said, "search maintained a stable share of traffic in the second quarter, and artificial intelligence hardware business achieved strong growth in this quarter." "

Sogou said that in the future, the input method will continue to enrich voice, OCR, translation and other AI input services to optimize the user experience. The AI hardware business has achieved strong growth, but the other income where the AI hardware business is located accounts for less than 8% of the revenue. AI, which is given high hopes by Wang Xiaochuan, can hardly resist the banner of Sogou's revenue. In a short period of time, Sogou's revenue is still supported by search business.

Sogou's AI path revolves around language and focuses on the field of human-computer interaction and knowledge computing. Sogou realizes the layout of human-computer interaction through speech recognition, speech synthesis, image recognition, image synthesis and other technologies. Sogou has successively launched AI recorder C1 and C1 Pro in the recording pen industry, which integrates various technologies including speech recognition, speech synthesis, machine translation and other technologies, providing real-time recording and text translation, synchronous multilingual translation and other functions.

However, in terms of smart hardware, Sogou also faces competition from iFLYTEK. Sogou CEO Wang Xiaochuan also wrote in an internal letter that in the future, Sogou's strategy will focus on AI, strengthen the accumulation and exploration of AI technology with language as the core, and make AI-enabled innovative smart hardware products to help users express and obtain information in more scenarios.

According to Sogou's official website, Sogou's smart hardware mainly includes Sogou travel translation treasure, Sogou shorthand translation pen, Sogou children's intercom positioning watch, and so on. At present, AI is still in the initial stage of development and needs a long-term and stable investment. Although Sogou has made some achievements in artificial intelligence hardware, there is still a long way to go.

Total operating expenses for Q2 in 2020 were $90.35 million, down 6 per cent from $96.12 million a year earlier, according to financial data. Of this total, R & D expenditure was $48.68 million, down 4 per cent from $50.61 million in the same period last year. However, in terms of revenue share of R & D expenditure, Q2 R & D expenditure accounted for 18.6% of total revenue in 2020, compared with 16.7% of total revenue in the same period last year.

The future large-scale application of AI and the final commercial realization will take a long time. Betting in the field of AI is also a challenge to a company's cash flow.

Sogou had $1.2 billion in cash and cash equivalents and short-term investments as of June 30, 2020, compared with $1.1 billion as of December 31, 2019, according to the financial report.

Net operating cash inflows were $49.2 million in the second quarter of 2020. Capital expenditure in the second quarter of 2020 was $5.8 million.