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SOHU » Topics » Charles Zhang:

This excerpt taken from the SOHU 8-K filed Feb 9, 2005.

Charles Zhang:

 

Now I’d like to discuss progress in our Online Games, our third business line.

 

Our revenues for online games in Q4 came in precisely as guided. This is the first quarter in which online games represent 5% of overall revenues. We are committed to online games for the long term and we are encouraged by this incremental progress. Since the commercial launch of latest game Blade Online early in the fourth quarter, on October 17 to be precise, the user numbers have stabilized at a level of 20,000 Average Concurrent Users. We believe this is a modestly successful game that will bring in some stable and recurring revenue in coming quarters, together with our first game, Knight, which is now in a mature stage.

 

Fourthly, our Wireless Revenues

 

By now, SOHU’s short messaging services have been switched onto China Mobile’s new billing platform MISC in 11 out of 13 provinces. Only the provinces Jiangxi and Jilin have not yet switched to MISC. That means that 95% of our SMS revenue is already on MISC. So from now on, we expect MISC for our SMS to have very little impact on us.

 

As has been the case every quarter, it is very difficult to give any specific outlook for our wireless business going forward. For each of the four quarters in 2004, we experienced a substantial and continued downturn of our wireless revenues, due to reasons such as tighter billing controls from operators and suspension of our MMS service. Often these new regulatory developments were difficult to foresee. We do believe we have hit the bottom of our wireless decline in the fourth quarter and are now back on the road to recovery.

 

Specific measures taken over the past few quarters, which we expect will bear fruit starting the first quarter of 2005, are

 

  •   We have now expanded our co-operation with operators to cover not only China Mobile and China Unicom, but also China Telecom and China Netcom, which gives us access to over 65 million PAS users. The bulk of these services are now in testing phase, and we plan to start charging late in the first quarter.

 

  •   We continue to develop products for both 2G and 2.5G platforms because we believe there is a viable market for niche SMS products to co-exist with the market for 2.5G products.

 

  •   We have by now fully integrated Goodfeel, the WAP company we acquired last year, and SOHU’s own WAP team. We expect this to be a positive for our WAP revenues going forward.

Finally, our fifth business line of E-commerce

 

This was another good quarter for our e-commerce. We strongly believe in the long-term opportunity for e-commerce in China. At this early stage we are willing to sacrifice some gross margins for revenues to make our mark in this promising but still nascent online sector.

 

Before we move to the financial presentation, let me brief you on our operational progress:

 

I would specifically like to mention three of our recent operational highlights:

 

  1. Firstly, we achieved a new milestone in our drive to become the most prominent and most influential online media platform in China. Our annual Top Ten news award ceremony, where we select the top stories and personalities of the year, was again a resounding success that generated huge publicity in China. This year we added to the event a Business Summit on the theme of ‘2005 New Vision for China’, which was attended by high-level national business leaders. Through this Business Summit we further leveraged our status as a key online media platform that influences public debate in Chinese society.

 

  2. Secondly, we continue to add to our large portfolio of high-profile content partners and marketing partnerships. In late November, early December we hosted the exclusive Chinese Official website for the 54th Miss World Contest, which took place in the Chinese city Sanya. In addition, we are currently working with the Miss World Organization and China’s ministry of Health to raise funds for AIDS education and awareness.

 

  3. And finally, ‘Content is ever more King’ in this increasingly profitable and competitive Internet landscape, and we continue to invest in more, better and branded content on our web properties. We are pleased that our cooperation with Disney saw another major initiative with the launch of the Chinese language miniwebsite and wireless downloads for the latest Disney hit, The Incredibles.

 

Now, I’d like to give the floor to our Chief Financial Officer, Carol Yu, for a financial review.

 

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