This excerpt taken from the SOHU 8-K filed Nov 14, 2005.
Thank you all for joining our conference call today.
First, I would like to highlight one of the most significant events in our companys history. We, at Sohu, are all very excited to be the first Official Internet Content Sponsor for the 2008 Olympics. This will provide Sohu exclusive access to the 2008 Olympics official website content and also give the Company exclusive cross-marketing and cross-selling opportunities with the other Fortune 1000 corporate partners and sponsors such as Coca Cola, GE, McDonalds, Adidas, Lenovo, China Mobile, and Air China.
The magnitude of what this means for Sohu is enormous for the future of our online advertising business. This was a heavily sought after project in China and the environment in which we won was highly competitive and one that we view as a testament to the strength of Sohus brand. Our reasons for this investment are simple. As we move closer to the 2008 Olympics, we believe we will see accelerated growth opportunities in leveraging the sponsorship program and drive more advertising revenue through customers looking to capitalize on the 2008 Olympic event. We believe it will serve as a platform to showcase our superior technology and brand presence.
There are two core messages that I want to emphasize on our call today.
First, we firmly believe that having been chosen as the official internet content sponsor for the Olympic website puts us at the head of the pack amongst our peers. This endorsement is one of the most exclusive events that can happen in the Chinese internet market. With the full support of the BOCOG and the Chinese government, we are now well positioned to lead our company down the path of strong success through seamless execution of the Olympic website launch.
Second, we will continue to drive our business through continued development and rollout of our own innovative products and services to drive increased traffic and usage on our sites. We believe the combination of these two events will not only shape the way Sohu sells to its customers but that it will have a large impact on the Chinese internet market as a whole.
Now I would like to discuss the other highlights for the quarter.
First, we reported revenues of $28.3 million dollars, growing 9% sequentially and coming in again at the high end of
Now, let me discuss the progress of each of our business lines
Our advertising revenues were $18.8 million dollars and exceeded our prior company guidance. Brand advertising revenues were $15.6 million dollars and sponsored search accounted for $3.2 million dollars, an increase of 13% and 2% respectively.
Overall, we have seen a strong quarter in the advertising business. For the first nine months of 2005, we have grown 27% year over year similar to our closest competitor. In brand advertising, the 13% sequential revenue growth was mainly driven by heavy spending sectors such as real estate, information technology, and automobiles. Number of advertisers during the quarter grew from 420 to 450. Our fastest growing sectors
were online games, financial services, and FMCG (fast moving consumer goods). Online games came back stronger than expected mainly due to World of Warcraft having a lesser than expected impact on launch of other games and hence our business.
On the product side, we will continue to launch new products that will drive new users to our sites. For example, we have successfully built the largest community of users in the Chinese internet space such as Sohu BBS, the number one message board in China and Chinaren Alumni and Chinaren BBS. We also launched several new products including our picture bar which allows users to download picture through various content on our website and Sohus blog. All of these are contributing to increased traffic. The goal is to continue to provide more targeted marketing through this platform and to sell our products and services into that user base.
Overall, we remain confident that there will be strong growth for our advertising business over the next few years. The branding effect from the Olympic sponsorship will have a significant impact on our ability to drive our advertising business. Our reach will be much broader especially in areas such as sports, news and many of our other channels. We also strongly believe our leadership position allows us to continue to provide clients with a unique brand advertising opportunity reaching both the mass population and targeting communities via our numerous sector specific online channels.
Turning now to the outlook for advertising for the remainder of the year, year-to-date, our advertising revenues are up 27% growth over the same nine months of 2004.
We see continued healthy growth in brand advertising and as you can see from our guidance we expect to meet our overall advertising revenue growth target for the full year 2005 of 25%.
In sponsored search, we saw modest sequential growth which was largely due to several reasons:
1) an increasingly competitive search environment, and
2) an adjustment to our distributor structure as we strive to position Sogou more competitively by using multi-distributors rather than relying on one sole distributor.
To our satisfaction, our own internal data shows that Sogous traffic has grown 50% from Q2 to Q3.
Developing a successful search business is based on building the right technology and products to increase penetration. Our efforts towards strengthening our search business are heavily focused on these key areas. A good example is our recent upgrade from Sogou 2.0 to Sogou 2.5 which is targeted to be launched later this month. This will enhance the overall search quality which will lead to increased traffic over time. We are confident that our investments in developing the right technology and building the necessary products to make Sogou a leading search engine for Chinese language are focused in the right direction.
Turning to our wireless business, while our focus remains on our core advertising business, we have been happy to see a continuing cautious recovery in our wireless business, with 6% sequential growth to $6.8 million dollars. We are particularly pleased that in exchange for our 6% growth, we did not have to spend heavily on advertisements or other marketing efforts to achieve that growth. We are pleased that
our wireless business, although small, has become very stable. Additionally, our Olympic sponsorship could also have a positive impact on our wireless business. China Mobile is also a member of the Olympic sponsorship program and we view this as a potential catalyst for enhanced cooperation in the future, particularly around the coverage and related program services of the 2008 Beijing Olympics.
I would like to now give the floor to our CFO, Carol Yu, for a financial review.