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Sogou Inc. (NYSE:SOGO)
Q1 2020 Earnings Call
May 18, 2020, 6:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to Sogou's First Quarter 2020 Earnings Conference Call. [Operator Instructions]

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

Jessie Zheng -- Investor Relations

Hello, everyone, and thank you for joining Sogou's first quarter 2020 earnings conference call.

On the call are CEO, Xiaochuan Wang, and our CFO, Joe Zhou. They'll give an overview of our 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 herein, 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 these. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of factors could cause actual results to differ materially from those contained in 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 will now turn the call over to our CEO, Xiaochuan Wang.

Xiaochuan Wang -- Sogou Board Member, Chief Executive Officer

Thank you, Jessie.

In the first quarter of 2020, despite the setback in the macro environment and the online advertising industry in China amid COVID-19, Sogou continued to forge ahead with a 5% year-over-year increase in total revenues. Both our core search and mobile keyboard recorded new highs in the quarter thanks to the surge of users' demand for reliable information and high efficiency during the pandemic. In particular, Sogou Search witnessed a traffic increase of nearly 20% year-over-year, remaining China's second largest search engine, and our core search revenue continued to outperform the industry.

Meanwhile, Sogou Mobile Keyboard further expanded its DAUs by 9% year-over-year to 482 million, reinforcing its position as the third largest Chinese mobile app in terms of DAUs according to iResearch. Leveraging Mobile keyboard, we continued to optimize Recommendation Service, while also exploring new commercial opportunities for Mobile keyboard with its user assets in the quarter. In addition, our Smart Hardware business maintained steady progress despite the pandemic.

With the pandemic highlighting the importance of the internet industry, we took the opportunity to carry out an all-round upgrade across our four businesses, leveraging our leading AI technology in the first quarter and at the same time tap into new areas with high development potential. Specifically, we made further breakthroughs across our language-centric AI technologies, Sogou's core competitiveness in voice, computer vision, machine translation and Q&A, and continued to empower our core search, Mobile Keyboard and Smart Hardware businesses in an effort to set a high threshold of technology advancement and product innovation in the industry.

Taking our voice technology as an example, it has supported Mobile Keyboard's industry leading voice recognition function and helped Mobile Keyboard evolve into an AI communication assistant. In addition to that, it has also allowed our Smart Hardware to establish a number of technology barriers which contributed to the solid growth of our smart recording products in both sales and gross margin in the quarter against the general downtrend within the industry.

Our Q&A technology is another good example which has not only facilitated the upgrade of Sogou's search platforms, but also provided powerful technology integration to build up our AI healthcare platform that leverages search as a traffic gateway. Additionally, our exclusive vocational avatars and industry leading simultaneous interpretation solution continue to strengthen the influence of our AI technologies and brand in the quarter, paving the way for more applications in certain sectors.

Now let me walk you through each of our core businesses, including Search, Mobile Keyboard and Smart Hardware.

In Search, we continued to push upgrades by integrating our intelligent Q&A capabilities, moving beyond providing general information to offering valuable knowledge that best matches users' search intent. In the first quarter, we focused on optimizing our knowledge graph to improve our overall search quality. As a result, for our high-quality encyclopedia content leveraging knowledge graph, the click-through rate increased over 30% year-over-year. Meanwhile, riding on our content and services that we have accumulated in healthcare search, we have been proactively developing AI healthcare during the pandemic. As a result, at peak, healthcare search queries tripled year-over-year and online healthcare consultation volumes rose over seven-fold compared to the normal levels before the pandemic.

Just a few examples of our initiatives in AI healthcare. Our AI enabled symptom checker and intelligent Q&A robots have been able to save medical resources, especially in primary level health institutions from handling massive and repetitive queries about the pandemic. In addition, we recently launched the world's first AI nutritionist jointly with China Nutrition Society, a nationwide nonprofit academic organization. Empowered by our knowledge computing and natural interaction technologies, the new service is able to provide personalized dietary guidance based on users' health conditions. Going forward, we will incorporate more cutting edge AI technologies to transform our healthcare search to an acceptable and reliable service platform for everyone.

Turning to Mobile Keyboard. We are committed to evolving it into an AI communication assistant. For one thing, we further enhanced its AI input functions to support users in a more efficient and thoughtful way. For example, to meet the input needs of different user groups, we launched an array of AI enabled handwriting functions in the quarter, including auto-complete, smart association and hand-drawn emoticons. As a result, users for handwriting functions increased almost 30% year-over-year in the quarter.

Meanwhile, we continue to upgrade Smart Wangzai and enables it to better assist the user in various chats. For example, we rolled out a popular AI enabled emoticon function which can pop out all kinds of entertaining stickers and emojis on one click whenever users type, which significantly improve our user engagement and penetration. As of March, Smart Wangzai has been used 900 million times per week, and on a sequential basis, its per person usage has increased 200%.

Moreover, Mobile Keyboard continues to maintain its position as China's largest voice recognition app. As of the end of March, its average daily voice requests more than doubled from a year ago, with the peak at 1.4 billion requests per day. In addition, as we continued to optimize our recommendation service that leverages Mobile Keyboard, we have also been expanding other use cases for Mobile Keyboard to better tap into the monetization potential of its user assets.

On Smart Hardware, in the first quarter we continued to upgrade AI offerings to further boost our product's competitiveness and brand influence. Following the rollout of our industry-leading smart recorder in 2019, we expanded our product matrix by launching an actual recorder category in this March for more complex use cases such as conferences and training. It successfully captured the interest of users with a number of pioneering and distinctive functions such as transcription of the largest number of languages and dialects in the industry, mutual translation of the languages, industry's first AI enabled noise reduction, auto identification of speakers, auto-recognition of applause and laughter and so on. Driven by this new high-end category, our recording products continued to outperform the industry and peers in the quarter despite the dampening market during the pandemic, helping a few mainstream e-commerce platforms in sales and achieving gross margin expansion. Going forward, we will carve out more AI hardware categories, particularly mainstream hardware, that will further position our products as AI assistants to users.

Finally, as we move ahead, we will continue to gear up our AI and big data driven business upgrades to create more value to our users, establishing a more robust business that presents greater potential. In Search, we expect to maintain steady development momentum in the quarters to come, while at the same time we will strive to accelerate the growth of other businesses, expanding the contribution of Mobile Keyboard and Smart Hardware to our total revenues.

Looking ahead, we expect this pandemic to continue to weigh in for a period of time. However, as we steadily implement our strategy, and with all our efforts in place, we believe we will return to healthy growth post the pandemic once the external market normalizes. Most importantly, our long-term growth prospects remain intact.

With that, I will now turn the call to Joe to go through our financials. Joe, please go ahead.

Joe Zhou -- Chief Financial Officer

Thank you, Xiaochuan. Hello, everyone.

In the first quarter of 2020, our total revenues remained resilient in the challenging environment. On the profitability side, there was definitely impact from the COVID-19 as a result of the increase in traffic acquisition cost which we had anticipated. Looking ahead, we foresee ongoing pressure on our overall results in the second quarter as the pandemic lingers. That said, in the second half of the year, we expect to drive further improvement quarter by quarter in both our top and bottom line performance. And to eventually climb back to our healthy across trajectory once the external market normalizes after the pandemic.

Now I'll walk you through our first quarter financials in greater detail. Then I'll come to the guidance.

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 first quarter were $257 million, a 2% increase year-over-year. On a constant currency basis, total revenues in the first quarter increased 5% year-over-year. Search and the search related revenues were $238 million, a 1% increase year-over-year. On a constant currency basis, search and search related revenues increased 5% year-over-year. The increase was primarily due to the growth in auction based pay-for-click services which accounted for 91% of search and search related revenues compared to 87% in the corresponding period in 2019. Other revenues were $20 million, a 6% increase year-over-year. The increase was primarily due to increased revenues from sales of Smart Hardware products.

Cost of revenues was $217 million, an 18% increase year-over-year. Traffic acquisition cost, a primary driver of cost of revenues, was $181 million, a 27% increase year-over-year, representing 71% of total revenues compared to 57% in the corresponding period in 2019. The increase was driven by increased traffic acquisition as users confined to their homes spent more time online during the COVID-19 outbreak. Looking into the second quarter, as people are increasingly returning to work and as we are proactively managing our traffic acquisition activity, given the challenging environment, we expect traffic acquisition cost to gradually drop back to normal level with sequential decrease, both in absolute amount and as percentage of total revenues.

Gross profit and non-GAAP gross profit were both $40 million, both a 41% decrease year-over-year. Both GAAP and non-GAAP gross margin was 16% compared to 27% a year ago. The decrease primarily resulted from the growth of traffic acquisition cost outpacing that of revenues.

Total operating expenses were $83 million, a 3% increase year-over-year. Research and development expenses were $47 million, a 15% increase year-over-year, representing 18% of total revenues compared to 16% in the corresponding period in 2019. The increase was primarily attributable to an increase in personnel related expenses. Sales and marketing expenses were $29 million, a 2% decrease year-over-year, representing 11% of total revenues, largely flat with the corresponding period in 2019. G&A expenses were $7 million, a 29% decrease year-over-year, representing 3% of total revenues compared to 4% in the corresponding period in 2019. The decrease was primarily due to a decrease in expenses related to the Company's noncore businesses.

Operating loss was $42 million compared to a loss of $12 million in the corresponding period in 2019. Non-GAAP operating loss was $22 million compared to a loss of $11 million in the corresponding period in 2019.

Other income net was $7.2 million compared to $8.7 million in the corresponding period in 2019. The decrease was primarily due to our charitable donations of $1.9 million associated with the COVID-19 outbreak.

Income tax benefit was $1 million compared to income tax benefit of $0.2 million in the corresponding period in 2019.

Net loss attributable to Sogou was $32 million compared to a net loss of $3.9 million in the corresponding period in 2019. Non-GAAP net loss attributable to Sogou was $31 million compared to a net loss of $2.7 million in the corresponding period in 2019. Both GAAP and non-GAAP basic and diluted loss per ADS was $0.08.

As of March 31, 2020, we had cash and cash equivalents and short-term investments of $1.2 billion compared to $1.1 billion as of December 31, 2019.

Net operating cash inflow for the first quarter of 2020 was $26 million. Capital expenditures for the first quarter was $3.8 million.

And lastly, turning to our outlook. For the second quarter of 2020, we expect total revenues to be in the range of $260 million to $280 million, representing a decrease of 8% to 14% year-over-year or a decrease of 4% to 11% year-over-year in RMB terms. This near-term guidance takes into account the expected continued impact of the coronavirus outbreak and the resulting contraction of the Chinese economy as well as other challenges in the macro environment and the online advertising industry. That said, on the bottom line, we expect our losses to narrow in the second quarter as we anticipate traffic acquisition costs will decrease sequentially, and we will continue to stringently manage our costs and expenses.

Please note that for the second quarter 2020 guidance, we have presumed an exchange rate of RMB7.07 to the dollar as compared with the actual exchange rate of approximately RMB6.82 to the dollar for the second quarter of 2019 and RMB6.98 to the dollar for the first quarter of 2020.

That concludes our prepared remarks.

Jessie Zheng -- Investor Relations

Thank you, Joe.

Operator, we'd now like to open the call for questions.

Questions and Answers:

Operator

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

Thomas Chong -- Jefferies -- Analyst

Hi, good evening. Thanks, management, for taking my questions. I have a question about the second half. Given the fact that our losses to be level in the Q1, in the second quarter as traffic acquisition cost is trending down, how should we think about the second half advertising trend as the coronavirus is gradually phasing out as well as our bottom line in terms of the profitability in the second half? That's my first question. And my second question is about the non-advertising business, in particular the Smart Hardware initiatives. Can you talk about the long-term trend in terms of the profitability of this business and how we should think about the timing in terms of improving the fundamentals in the second half and 2021? Thank you.

Joe Zhou -- Chief Financial Officer

Okay. I'll take the first question regarding the second half. So, due to the pandemic, currently, the visibility for the second half is not very high. But I can share with you some trends for the second half. So, basically for advertising revenue, it will improve quarter-over-quarter from Q2 to Q4.

And for Mobile Keyboard, we have been working hard to unlock its monetization value, and we will continue to do that. So, together with the continuous expansion of user base and unlock its commercial value of the Mobile Keyboard. So its revenue contribution will continue to expand during the second half. And as it is organic traffic, most of the incremental revenue will go into profits. And for Smart Hardware, the sales growth will accelerate in the second half, driven by solid sales momentum for new models of our existing products, say, Teemo watch and AI recorder as well as new products to be launched in the second half.

So, with the improvement on revenue side for the profitability, post the pandemic, our profitability will return to a meaningful profit level. So basically for search, with search related revenue grow quarter-over-quarter and the TAC will be trending down in the second half, so the profitability for search related business will improve. And, with the incremental revenue and profit from the Mobile Keyboard and with the acceleration of sales and healthy gross margin of the Smart Hardware business, we will see strong growth of gross profit from the Smart Hardware business in the second half. And last but not least, we will remain stringent on cost and expense control and continue to improve our operating efficiency. So, with all that, the profitability will improve quarter-over-quarter, and in the second half it will climb back to a meaningful profit level.

Thomas Chong -- Jefferies -- Analyst

Got it. Thank you, Joe Zhou.

Xiaochuan Wang -- Sogou Board Member, Chief Executive Officer

[Foreign Speech]

So turning to your question on Smart Hardware. As you know, Smart Hardware is our long-term business strategy. We are trying to facilitate AI driven product integrates to integrate more natural interaction technologies to create higher threshold of technology barriers for competitors. So, with that strategy, we have seen our sales and gross margins have been expanding for the past quarters. And if you look at the current market for Smart Hardware, actually due to the COVID-19, actually the industry has seen some downtrend, but Sogou's AI Smart Hardware has booked a nice growth in the first quarter and will continue to record year-over-year growth of 30% in the second quarter and we expect it to return to rapid growth in the second half of this year.

And this year, we will continue to leverage our strong AI technologies to further strengthen our product matrix and pipeline. Our two product lines, including Sogou AI and Teemo. For Sogou AI, it enhances our VPA positioning and make it a personal intelligent voice interaction hardware. And for Teemo, we will focus on children, education and health. And we will invest in R&D and other necessary investments to facilitate the growth of Smart Hardware business, and we expect loss will narrow down this year with accelerated revenue growth in the second half.

Thomas Chong -- Jefferies -- Analyst

Got it. Thank you.

Operator

The next question today comes from Elsie Cheng of Goldman Sachs. Please go ahead.

Haiwen Cheng -- Goldman Sachs -- Analyst

Thank you, management for taking my question.

[Foreign Speech]

My first question is on traffic monetization. We've got like 20% plus traffic growth in the quarter, with increased traffic in healthcare vertical and higher CTR at the encyclopedia side as well. So, can management share a little bit more color on your thoughts in monetizing the traffic on our platform? How do you look at the near-term headwind from the macro side and long-term potential there? And the second question is on the Input Method user monetization. We've got quite a large user base; it's been growing healthily as well. Can you share some thoughts into the monetization outlook down the road? Thank you.

Xiaochuan Wang -- Sogou Board Member, Chief Executive Officer

[Foreign Speech]

In terms of search monetization, I think because of the distraction of the COVID-19, apparently, advertisers have scaled back their advertising budget, and for now it looks like we have to take more time to negotiate with advertisers for their annual framework agreement and we expect advertising spend has a chance to normalize within this year if everything goes well.

And for Sogou Search, we are actually trying to upgrade our search products and services with smart Q&A capabilities and move beyond providing information to offering valuable knowledge, and we are focused on knowledge generation and knowledge computing to bring more value-added services to our users. For example, recently we launched our AI nutritionist empowered by our knowledge computing and natural interaction technology. This new service is able to provide personalized dietary guidance based on users' health condition, and this is some kind of value-add services to users that we can actually roll out to advertisers for monetization potential.

[Foreign Speech]

With more knowledge embedded in our search results, it's actually going to attract increasing number of advertisers. And also, if it is influential enough, we can actually charge users directly.

[Foreign Speech]

Turning to the monetization of Mobile Keyboard. I think our strategy is always that we'll further grow our user base and explore more use cases to evaluate the monetization progress. And in the past we have rolled out monetization service. We have steadily driven it forward with our optimized big data capabilities that better support targeted recommendation, and it's expected to maintain steady growth momentum.

And we are also tapping into the potential of more value-added services such as the e-commerce shopping guides and the emojis service to better connect customers and merchants. And we expect great growth for Mobile Keyboard. Now Mobile Keyboard contributed to mid to high single digits of our total revenues, and we expect it to grow to a meaningful level within this year.

Haiwen Cheng -- Goldman Sachs -- Analyst

Thank you.

Operator

The next question comes from Alex Yao of JP Morgan. Please go ahead.

Alex C. Yao -- JP Morgan Chase & Co. -- Analyst

Thank you, management, for taking the question. My first question is about the second quarter guidance. Can you break out the guidance for advertising revenue and the non-ad revenue? Particularly for the ads revenue, is the weakness in the advertising revenue growth rate more reflective of a traffic weakness or demand weakness? If the issue is more on the demand side, can you help us understand where do you see the weakest demand at the moment? Is it more from the multinational companies or more from nonperformance of brand strategy? Any color would be helpful. Thank you.

Joe Zhou -- Chief Financial Officer

Okay. I'll take the first question. So, for Q2 guidance, in RMB terms, our guidance indicates an 8% year-over-year decline at midpoint. So, the decline was mainly due to the negative impact of the pandemic on search-related revenues. For Smart Hardware, it will continue to have a strong year-over-year growth, mainly driven by our AI recorder. So, for the search related revenue, the year-over-year decline is mainly due to the weak demand. So the pandemic hit all the sectors. So, basically those very same factors during the Q1 start to normalize in Q2 as people are increasingly returning to work. So those advertisers such as online gaming, including live streaming and online education, they scaled back their ads budgets from the Q1 level. So, in Q2, those sectors will report much slower growth in Q2 on a year-over-year basis.

For the sectors that was seriously impacted by the pandemic in Q1, say, those offline service sectors such as healthcare, merchant services and local life services have been recovering but in a relatively slow pace and still spend much less on a year-over-year basis so far. So, for e-commerce -- it's gradually recovering, but not fully back to their normal levels on a year-over-year basis, especially for those online travel agencies. We include that into the e-commerce. So for OTA, it will take more time for their advertising comes back to normal level.

So, with that, for Q2, with the pressure on the revenue side, but TAC will trending down, so sequentially it will decrease more than 10% -- between 10% to 20%. So it will narrow down our loss from RMB220 million in Q1 to basically around RMB50 million loss in Q2.

Alex C. Yao -- JP Morgan Chase & Co. -- Analyst

Understood. So the second question is a follow-up on the traffic acquisition cost side. Is the traffic acquisition payout occurring largely based on the number of search queries generated within the third-party browsers, meaning, the more traffic query, the more you need to pay them regardless of your monetization level? Or, if I were to generalize the trend, the TAC is more reflective of your traffic in terms of query growth with regard to the third-party browser operators and less a function of monetization or other elements, is that the correct understanding?

Joe Zhou -- Chief Financial Officer

Yeah. So the traffic increased roughly 20% due to the pandemic, say, people staying at home and they have more time to go online, search for those information. So we pay to content manufacturers for the default search engine on per query basis, so we'll pay them based on the number of queries multiplied by the fixed unit price. So, due to the pandemic advertisers downscaled their budgets. So, meanwhile the price of traffic acquisition is fixed. So the economics of the acquired traffic on a per unit basis increased in Q1. So that's why we made the RMB220 million RMB loss in Q1. So far, with the pandemic getting much better, the traffic has been trending down. So basically by the end of Q2, it will basically go back to our normal level. So, due to the trending down -- average, I mean, for Q2, our average traffic will be, say, 10% to 20% lower than Q1. So accordingly, the TAC will be 10% to 20% lower than Q1.

Alex C. Yao -- JP Morgan Chase & Co. -- Analyst

Understood. Thank you, Joe.

Operator

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

Yue Wu -- CICC -- Analyst

Hi. Good evening. Thanks for taking my question. My question is more regarding the traffic acquisition cost as well. So, Joe, you've mentioned that 20% growth is coming from traffic growth in the first quarter. So does that mean that the other, like 5% to 7% is coming from the price hike? So just wondering can we assume a similar price hike growth coming to the second half of this year?

Joe Zhou -- Chief Financial Officer

For other sectors -- so, basically other factors, we see traffic growth...

Yue Wu -- CICC -- Analyst

Sorry?

Joe Zhou -- Chief Financial Officer

Yeah. So, we see the traffic increase for all the channels, organic and Tencent and also acquired traffic. So, for the acquired traffic -- yeah? Yeah. So the total traffic increase -- apart from the increased traffic volume, also, say, 5% to 10% price hike.

Yue Wu -- CICC -- Analyst

Yeah. So, for the second half of this year, should we assume a similar pace of this kind of the year-over-year [Phonetic] growth of the price hike?

Joe Zhou -- Chief Financial Officer

Yeah. Yes. The price fixed at the beginning of this year, so it will be the same price going through the year.

Yue Wu -- CICC -- Analyst

Got it. Also, can I get an update of your traffic distribution between the organic and the acquired traffic? And also, how much traffic contributions from WeChat channel currently? Did you see any improvement after the format upgrade earlier this year? Thank you.

Joe Zhou -- Chief Financial Officer

Yeah, OK. So let's start with the last quarter. So in Q4 '19, the traffic contribution, 30% from organic and 35% from Tencent and another 35% from acquired traffic. So in Q1, due to the pandemic, so we see the substantial increase in traffic, especially for those traffic from acquired traffic channel. So, this quarter, organic -- for other channel, you look at the absolute volume -- the traffic increased comparing to last quarter. But with more traffic increased from acquired traffic channel, so the contribution changed to 25% organic, 36% from Tencent and 39% from acquired channel. So, after the pandemic, the traffic acquisition will go down.

So, if we look at the end of this year, so basically it will go back to normal, say, 30% organic, 35% from Tencent and 35% from traffic acquisition. So when we say we try to drive up our organic traffic and unlock the value of such traffic, we mean traffic more than search traffic. So for Keyboard, we may unlock its value. We will create more scenario to monetize, not necessarily search or newsfeed. So for those kind of traffic, we cannot translate it into the search volume. So when I say, by the end the compensation will be 30% from organic, we don't include such traffic other than search. And as such -- I mentioned we will try to charge users for those value-added services. So, for that kind of revenue -- traffic, we cannot translate that into organic traffic.

Yue Wu -- CICC -- Analyst

Got it. So, within the 35% traffic coming from Tencent channel, is the traffic contributions from WeChat still minimal?

Joe Zhou -- Chief Financial Officer

Yeah, still minimum. The vast majority of the traffic is coming from QQ mobile browser.

Yue Wu -- CICC -- Analyst

Got it. Thank you, Joe.

Joe Zhou -- Chief Financial Officer

Thank you.

Operator

[Operator Instructions] The next question today comes from Alicia Yap of Citigroup. Please go ahead.

Alicia Yap -- Citigroup -- Analyst

Hi. Good evening, management. Thanks for taking my questions. I wanted to see if management can share with us what's your view on how the Chinese users are searching, whether the information discovery behavior going to change over time, so will searching through browser environment still important gateway and how is the status of Sogou Mini program progress and any tractions there. And then just kind of a follow-up on the TAC part. So the pricing increase is negotiated in the beginning of the year, right. So, with the pandemic, is there any chance that we can renegotiate the pricing to go lower for the second half? Thank you.

Xiaochuan Wang -- Sogou Board Member, Chief Executive Officer

[Foreign Speech]

From users' behavior for search, I think for general search, it's always browser or app concentrated. Browser and app are basically the same thing. And for -- for some of the verticals -- [Indecipherable] within the vertical ecosystems that some large platforms such as WeChat or Toutiao.

[Foreign Speech]

So, regarding your second question on traffic acquisition cost, I just think it's already at a plateau within the industry, and we are making proactive negotiations only with the OEM manufacturers to see if there is some opportunity to move the price.

Alicia Yap -- Citigroup -- Analyst

Thank you.

Operator

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

Jessie Zheng -- Investor Relations

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]

Duration: 53 minutes

Call participants:

Jessie Zheng -- Investor Relations

Xiaochuan Wang -- Sogou Board Member, Chief Executive Officer

Joe Zhou -- Chief Financial Officer

Thomas Chong -- Jefferies -- Analyst

Haiwen Cheng -- Goldman Sachs -- Analyst

Alex C. Yao -- JP Morgan Chase & Co. -- Analyst

Yue Wu -- CICC -- Analyst

Alicia Yap -- Citigroup -- Analyst

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