Sohu.com (SOHU)

Third Quarter Highlights

Explanation of the Company’s non-GAAP financial measures and related reconciliations to GAAP financial measures are included in the accompanying “Non-GAAP Disclosure” and the “Reconciliation to Unaudited Condensed Consolidated Statements of Operations.”

Dr. Charles Zhang, Chairman and CEO of Sohu.com, commented, “This quarter marks another achievement of record total revenues as we continue successes in both our portal and online game businesses. We are pleased to receive external recognition for the success of our business from Fortune magazine, which ranked us as the third-fastest growing U.S.-listed company in August of this year.”

“Our investments in branding, online content and advanced technologies are attracting new users and advertisers and are helping us to deliver on our long-term strategy to build China’s leading mainstream media platform,” continued Dr. Zhang. “Our online game business also continues to deliver record results. The strong foundation established by the successful performance and increasing popularity of our existing games allows us to strategically license high-quality games and invest in new technologies to further enrich and diversify our game portfolio. We remain confident that our online game business will retain its leadership position while continuing to capture additional market share.”

Commenting on Sohu’s brand advertising business, Ms. Belinda Wang, Co-President and Chief Marketing Officer of Sohu.com, added, “Brand advertising revenues over the first nine months of 2009 grew 5.6% year-on-year, despite the global financial crisis and the tough comparison from heavy ad spending pertaining to the 2008 Beijing Olympic Games. As advertisers increasingly demand targeted, cost-effective advertising, they are shifting greater proportions of their advertising budgets to Internet media from traditional advertising. With one of China’s most powerful mainstream media platforms, we are well positioned to benefit from this ongoing trend.”

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Second Quarter Highlights

Explanation of the Company’s non-GAAP financial measures and related reconciliations to GAAP financial measures are included in the accompanying “Non-GAAP Disclosure” and the “Reconciliation to Unaudited Condensed Consolidated Statements of Operations.”

Dr. Charles Zhang, chairman and CEO of Sohu.com, commented, “We are pleased to report another quarter of solid financial results from a unique combination of our two core businesses, our portal business and online game business. Even in this weak economic environment, our portal business continues to show modest growth and a strong ability to grab market share. Our ongoing investment in branding, content offering, and technological products has continued to strengthen our leading position as one of the most powerful mainstream media platforms in China.

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“Our online game business delivered another quarter of record revenues and as a strong defensive play in a difficult economic environment it continues to be an ideal complement to our portal business. We are resolute in our efforts to build the online game business for the long-term by utilizing Changyou’s game development platform, player feedback system and strong R&D capabilities to deliver quality games that improve the user experience. We remain confident that this focus and growing user base, will allow our online game business to maintain its upward momentum.”

Dr. Zhang continued, “As we continue to execute on our strategy, we expect ongoing synergies between our portal business and our online game business to secure long-term and sustainable growth for Sohu.”

Commenting on Sohu’s brand advertising business, Ms. Belinda Wang, Sohu.com co-president and chief marketing officer, added, “Despite tough year-on-year comparisons from heavy ad spending leading up to the 2008 Beijing Olympic Games, brand advertising revenues grew at 5% year-on-year, demonstrating that our continual investments in branding, content offering and technological products are paying off. On the advertising business front, advertisers have begun to deploy their budgets in response to signs of economic recovery in China and increasingly look toward internet media as a cost-effective alternative to advertising in traditional media. Our strong user growth, robust media platform and continually evolving technologies make Sohu well-positioned to capitalize on these trends.”

First Quarter Highlights

Explanation of the Company’s non-GAAP financial measures and related reconciliations to GAAP financial measures are included in the accompanying “Non-GAAP Disclosure” and the “Reconciliation to Unaudited Condensed Consolidated Statements of Operations.”

Dr. Charles Zhang, Chairman and CEO of Sohu.com, commented, “We are pleased to report another quarter of solid financial results, which further proves the combination of our two core businesses, namely our portal business and online game business, can enable Sohu to deliver sustainable growth through various economic cycles. Our online game business has been more resilient to the weak economic conditions and continues to show strong growth momentum. This more than offsets any temporary impact on our portal business brought by the economic weakness in China.

“For Sohu’s portal business, as always, we are extremely focused on our long-term strategic vision to make Sohu one of the most powerful mainstream media platforms in China. With some indications of the potential recovery of the overall economy underway, we believe a modest macro environment provides great media-driven opportunities for Sohu. Bolstered by a rapidly growing Internet population, we will put to use our unparalleled media platform to further strengthen our position as a leading Internet company in China in 2009.”

“Success of our online game business has been one of our proud achievements. In a short period of two years, Sohu’s online game business was developed from nascency to become one of the top massively multiplayer online role-playing game (MMORPG) operators in China. Its success was further endorsed by the spin-off and initial public offering of MMORPG subsidiary Changyou.com (NASDAQ: CYOU) on April 2, 2009. Changyou’s public debut was one of the most successful IPOs in the US markets in nearly 12 months. The successful IPO provides Changyou with the platform and resources to become a leading company in the MMORPG industry, and enables Changyou to compete head to head with first tier players.

Dr. Zhang continued, “Going forward, Sohu and Changyou will continue to enjoy the same synergies as before. Sohu provides Changyou with advertising resources on the Sohu portal and its verticals, especially China’s largest gaming portal 17173.com, marketing and promotion of Changyou’s games through the use of Sohu’s web domains, single user-ID system and base of more than 250 million registered users, as well as Sohu’s strong brand recognition and user platforms. Meanwhile, Changyou continues to bring users to Sohu portal.”

Commenting on Sohu’s brand advertising business, Ms. Belinda Wang, Co-President and Chief Marketing Officer of Sohu.com, said, “Although the general advertising and media industry have been shadowed by weak economic conditions and advertisers remain cautious about their advertising spending, Internet as a group will continue to gain market share from other offline media. Despite a difficult economic environment, Sohu’s continuous efforts and investment in branding, sales and marketing initiatives, technology and content offering will continue to pay off.”

Fiscal Year 2008 Highlights

Explanation of the Company’s non-GAAP financial measures and related reconciliations to GAAP financial measures are included in the accompanying “Non-GAAP Disclosure” and the “Reconciliation to Unaudited Condensed Consolidated Statements of Operations.”

Dr. Charles Zhang, Chairman and CEO of Sohu.com, commented, “We are pleased to report another strong quarter of financial results. The fourth quarter 2008 marks our sixth consecutive quarter of record total revenues and record net income. This is particularly impressive as it follows our strong third quarter 2008 results which reflected our major achievements surrounding the Beijing 2008 Olympics. Throughout the year, we were successful in leveraging historic national events to promote innovative online programming and attract new users and major advertisers to our portal. The satisfying business performance is made possible only by our strong execution on our long-term strategic vision and continuous efforts to maintain our position as a leading Internet company in China.”

Dr. Zhang continued, “TLBB achieved 7% revenue growth quarter-on-quarter in Mainland China in its seventh quarter of commercial operation, with record PCUs up to 740,000 in the fourth quarter. Our international licensing strategy in Asia has resulted in solid user acceptance of TLBB and we plan to enter Malaysia and Singapore in the second half of 2009 to further penetrate the region. Additionally, four-year old Blade Online is making a growing contribution to our online game business, with a revenue increase of 35% quarter-on-quarter.”

Commenting on the progress in Sohu’s brand advertising business, Ms. Belinda Wang, Co-President and Chief Marketing Officer of Sohu.com, said, “Our success in brand advertising revenues was fueled by a continuation of the fundamental trends in online spending, including the continuing shift of advertising budgets from offline to online, and the overall effectiveness of advertisers’ marketing campaigns on Sohu’s platform. Sohu is recognized nationwide as one of the best and most cost-effective portals for launching marketing campaigns and there is a growing awareness that Sohu achieves maximum results for its advertisers.”

Third Quarter Highlights

“Our overall business continues to perform very well and we gained strong momentum from the successful execution of our strategy in the third quarter. Our constant drive to offer premier content and cutting edge technological products, enabled us to gain market share from competitors and elevate the Sohu brand,” said Dr. Charles Zhang, Chairman and CEO of Sohu.com. “As expected, Sohu benefited from the growth of the Internet in China following the Beijing 2008 Olympics and other major historic events, attracting a significant number of new users to our community who have continued to adopt Sohu as their portal of choice.”

“At the same time we continue to invest in the development of products to increase user stickiness. Our online game business continues to deliver solid performance as a result of our superior development capabilities and successful strategy of focusing on users’ in-game experience. Our game pipeline and licensing strategy are progressing well and on schedule with many successes including the selective export of our flagship game, TLBB, to overseas markets and a revitalization of Blade Online.”

Ms. Belinda Wang, Co-President and Chief Marketing Officer of Sohu.com, said, “Strong brand advertising revenue growth this quarter was primarily driven by continued shifting of advertising budgets from offline to online, and robust spending surrounding the 2008 Beijing Olympics. Advertisers are increasingly interested in implementing their online marketing campaigns on Sohu’s platform as a result of the significant expansion in unique visitors on our site. We are confident of spending patterns in the fourth quarter due in part to those advertisers who did not advertise during the Olympics and believe the fundamental trends in online spending will continue.”

Dr. Gong Yu, Chief Operating Officer of Sohu.com, added, “In providing the most comprehensive, authoritative and first-hand coverage of the Beijing 2008 Olympic Games, Sohu enhanced its brand value and became recognized as the Number 1 Portal of Choice for Olympic reporting. By offering innovative products on our platform, we significantly increased the momentum of new users to our community.”

Second Quarter Highlights

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Record high total revenues and record high for each revenue category: brand advertising, advertising, online games, and non-advertising revenues as well as net income.  All such operating parameters exceed company guidance.

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Brand advertising revenues of US$41.7 million, up 57% year-on-year and 26% quarter-on-quarter, beating high-end of company guidance by US$2.2 million.

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Advertising revenues of US$43.4 million, up 53% year-on-year and 25% quarter-on-quarter.

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Online games revenues of US$47.9 million, up 11.5 times year-on-year and 17% quarter-on-quarter.  In-house developed massive multiplayer online role-playing game Tian Long Ba Bu (“TLBB”) revenue up 17% quarter-on-quarter to US$45.5 million.

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Non-advertising revenues of US$58.6 million, up 452% year-on-year and 17% quarter-on-quarter.

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Total revenues of US$102.0 million, up 162% year-on-year and 20% quarter-on-quarter, exceeding the high end of company guidance by US$6.0 million.

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Non-GAAP net income (i.e. excluding share-based compensation expenses) of US$42.3 million or US$1.07 per fully diluted share, exceeding the high end of company guidance by 32 US cents.  Non-GAAP net income increased by 423% year-on-year and 69% quarter-on-quarter.

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GAAP net income of US$40.2 million or US$1.02 per fully diluted share.  GAAP net income increased by 604% year-on-year and 86% quarter-on-quarter.

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Explanation of the Company's non-GAAP financial measures and the related reconciliations to GAAP financial measures are included in the accompanying “Non-GAAP Disclosure” and “Reconciliations to Unaudited Condensed Consolidated Statements of Operations.”

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“We are very pleased with our strong performance this quarter,” said Dr. Charles Zhang, Chairman and CEO of Sohu.com. “Sohu achieved another milestone in the Company’s history with total revenues exceeding $100 million which further demonstrated Sohu’s leadership position in the China Internet space, driven by our strong media influence, premier content offerings and increased popularity of our products such as Sohu Blogs and Sogou Pinyin, and the growth of our online games business. We expect that penetration of the Internet in China will be escalated to an even higher level with the Beijing 2008 Olympic Games and that, combined with our technological advancements and portal strength, will help us to continue our success for the remainder of 2008 and beyond.”

Ms. Belinda Wang, Co-President and Chief Marketing Officer of Sohu.com, said, “This quarter we continued to experience strong growth in brand advertising revenues. The growing momentum reflects the overall expansion of the China Internet market, increased shift in advertising budgets from offline to online, the robust pace of advertising spending leading up to the Beijing 2008 Olympic Games, as well as our significant traffic increase, which further enhances the overall effectiveness of advertisers’ marketing campaigns on the Sohu platform.”

Dr. Gong Yu, Chief Operating Officer of Sohu.com, added, “During the second quarter, Sohu continued its strategy of offering high-quality content. These initiatives and improvements all add up to our profound progress in increasing new users and user ‘stickiness’, which has reinforced Sohu’s leading position among China Internet companies. As the Internet Content Sponsor for the Beijing 2008 Olympic Games, Sohu has been well prepared to provide the most comprehensive, authoritative and first-hand coverage of the Olympics and Team China.”

First Quarter Highlights

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Record high total revenues and record high for each revenue category: brand advertising, advertising, online game, and non-advertising revenues as well as net income. All such operating parameters exceed company guidance.

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Brand advertising revenues of US$33.2 million, up 41% year-on-year and 3% quarter-on-quarter.

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Advertising revenues of US$34.8 million, up 36% year-on-year and 3% quarter-on-quarter.

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Online game revenues of US$41.0 million, up 24 times year-on-year and 71% quarter-on-quarter.  In-house developed massive multiplayer online role-playing game Tian Long Ba Bu (“TLBB”) further solidified its success with revenue up 77% quarter-on-quarter to US$38.9 million.

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Non-advertising revenues of US$50.1 million, up 570% year-on-year and 58% quarter-on-quarter.

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Total revenues of US$84.8 million, up 156% year-on-year and 30% quarter-on-quarter, exceeding the high end of company guidance by US$16.3 million.

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Non-GAAP net income (i.e. excluding share-based compensation expenses) of US$25.1 million or US$0.64 per fully diluted share, exceeding the high end of guidance by 19 US cents. Non-GAAP net income increased by 261% year-on-year and 48% quarter-on-quarter.

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GAAP net income of US$21.6 million or US$0.55 per fully diluted share.  GAAP net income increased by 383% year-on-year and 43% quarter-on-quarter.

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Explanation of the Company's non-GAAP financial measures and the related reconciliations to GAAP financial measures are included in the accompanying “Non-GAAP Disclosure” and the “Reconciliations to Unaudited Condensed Consolidated Statements of Operations.”

Dr. Charles Zhang, Chairman and CEO of Sohu.com, stated, “We are very pleased with our first quarter of 2008, which was our third consecutive quarter in which we reported record total revenues and record revenues in each category, as well as record non-GAAP net income.  We believe that these results are made possible only by our long-term strategic vision regarding the

Chinese Internet space, such as our sponsorship of the 2008 Beijing Olympics, and by our continued technological development and advancement, such as with our in-house developed online game Tian Long Ba Bu.  All of these achievements demonstrate the strength and power of the Sohu brand and our ability to continue to execute on our plan to lead the Chinese Internet space.”

Ms. Belinda Wang, Co-President and Chief Marketing Officer of Sohu.com, said, “Despite a generally weak season in the industry for the first quarter of the year, we were able to achieve yet another record in terms of brand advertising revenues.  We can squarely attribute these results to the continued shifting of advertising from offline to online and the robust momentum in advertisers’ spending as the 2008 Beijing Olympic Games quickly draw near.  And looking ahead at the remainder of 2008, we believe the growth of our brand advertising business will be even stronger, primarily driven by the increasing Olympic-related advertising spending and our growing penetration in the overall market.”

Dr. Gong Yu, Chief Operating Officer of Sohu.com, added, “The impact and the reach of our online reporting abilities across China are well-respected by the industry, and have further positioned Sohu as one of the most authoritative and powerful online media sources in China.  We have worked continuously to provide premier content and innovative products to our users.” 

Fiscal Year 2007 Highlights

Dr. Charles Zhang, Chairman and CEO of Sohu.com, stated, “Once again our team delivered an outstanding quarter with record total revenues and earnings. We are even more pleased to report that we exceeded our raised guidance in each of our revenue categories and earnings for the fourth quarter announced in early December. Sohu’s technological innovation and leadership as well as our strategic vision and execution continue to be the catalysts that propel us forward. With the Beijing 2008 Olympic Games kicking off in 185 days, the Sohu brand resonates across China as we broaden our media reach to penetrate the Olympic audience. We expect the continued expansion of the total Chinese internet population, combined with our advancements in technology and our Olympic sponsorship, to help us to increase our market share of internet users. We believe that we will continue to reap the rewards of our success and strong branding for 2008 and beyond.”

Ms. Belinda Wang, Co-President and Chief Marketing Officer of Sohu.com, said, “We are excited about the trends driving strong momentum in the Chinese online advertising market. For fiscal 2007, Olympic partners, sponsors and suppliers increased advertising spending with Sohu by 74% year-on-year. Looking ahead for 2008, we believe the growth of our brand advertising business will continue to be robust.”

Dr. Gong Yu, Chief Operating Officer of Sohu.com, added, “We have never performed better on an operating level and there is still a lot of leverage in the existing infrastructure and technology. This is particularly important as Sohu continues to leverage its opportunities surrounding the Olympics and further our role as being the leading internet portal in China.”

Third Quarter Highlights

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Record high total revenues and record high for each revenue category: brand advertising, advertising, and non-advertising revenues as well as non-GAAP net income. All such operating parameters exceed company guidance.

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Brand advertising revenues of US$29.8 million, up 42% year-on-year and 12% quarter-on-quarter.

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Advertising revenues of US$31.5 million, up 32% year-on-year and 11% quarter-on-quarter.

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Online games revenues of US$12.7 million, up 473% year-on-year and 232% quarter-on-quarter. In-house developed massive multiplayer online role-playing game Tian Long Ba Bu (TLBB) solidified its success with revenue up 384% quarter-on-quarter to US$10.9 million.

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Non-advertising revenues of US$20.0 million, up 74% year-on-year and 88% quarter-on-quarter.

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Total revenues of US$51.5 million, up 46% year-on-year and 32% quarter-on-quarter, exceeding company guidance by US$4.5 million.

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Non-GAAP net income (i.e. excluding share-based compensation expenses) of US$11.7 million or US$0.30 per fully diluted share, exceeding company guidance by 3 US cents. Non-GAAP net income increased 37% year-on-year and 44% quarter-on-quarter.

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GAAP net income of US$9.7 million or US$0.25 per fully diluted share. GAAP net income increased 47% year-on-year and 70% quarter-on-quarter.

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Explanation of the Company's non-GAAP financial measures and the related reconciliations to GAAP financial measures are included in the accompanying “Non-GAAP Disclosure” and the “Reconciliations to Unaudited Condensed Consolidated Statements of Operations.”

Dr. Charles Zhang, Chairman and CEO of Sohu.com, stated, “I am very pleased to report another outstanding quarter with record total revenues and non-GAAP earnings. We have exceeded all of our guidance for each of our revenue categories as well as earnings.  This set of results are made possible only because of our focus on technology and our long-term vision, such as our investment in our first in-house developed online game Tian Long Ba Bu and our Beijing 2008 Olympics sponsorship. Our other technological initiatives, including Sohu 3.0 launched during late July, Sogou Pinyin, are all progressing well. Our unmatched reporting on the “One Year Countdown to Beijing 2008 Olympics” and successful rehearsal to “Olympic Torch Relay Cross Mount Everest” through on-site reporting at the 6178 meters high Yuzhu Mountain during the National Day Holiday, have

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further solidified our undisputed position as the “Portal of Choice for the Beijing Olympics”.”

Ms. Belinda Wang, Co-President and Chief Marketing Office of Sohu.com, said, “Fueled by the fast growth of China economy and continued migration of advertisers from offline to online, our brand advertising business continues to ride the tide of a robust market, especially with the Beijing 2008 Olympic Games now less than ten months away. In the third quarter, we delivered record high brand advertising revenue of $29.8 million, representing 42% year-on-year growth. For the first nine months of 2007, brand advertising revenue grew by 40% year-on-year, despite a challenging comparison to 2006 with the FIFA World Cup.”

Dr. Gong Yu, Chief Operating Officer of Sohu.com, added, “On the content side, with increased broadband penetration and continuous improvement of peer-to-peer streaming technology, online video content is now in even higher demand from Internet users. To expand our video services, we have launched a new “TV channel” through strategic partnerships with 49 television stations. Programs from these TV stations are now streamed on Sohu. Such TV clips are nicely integrated into our text-based content and have been well received by our users.” 

Second Quarter Highlights:

Dr. Charles Zhang, Chairman and CEO of Sohu.com, stated, “We are pleased to report outstanding second quarter results for Sohu, exceeding our expectations in each of our revenue categories and earnings. Our dominant advantages surrounding the Beijing 2008 Olympic Games – as official Internet Content Sponsor and operator of beijing2008.cn, exclusive strategic partner of China Interactive Sports, and exclusive Internet Content Partner for Team China – are paying off. Advertising revenue momentum continues to accelerate as our unmatched content strength brings in more users, increased traffic and new advertisers.”

First Quarter Highlights

Dr. Charles Zhang, Chairman and CEO of Sohu, commented, “We are continuing to build on Sohu’s core strengths with another quarter of record brand advertising revenue. This clearly reflects advertisers’ recognition of Sohu’s premier content and the continued expanded user-base brought by our innovation and product enhancements, and the increasing Sohu branding associated with the approach of the Beijing 2008 Olympic Games. For the rest of 2007, our catalysts for brand advertising and online games are strong near-term positives. For the longer-term, we continue to devote our efforts to develop our technology, which we believe has not only enhanced our own business but has created an opportunity for us to continue to be a thought leader in the way new technologies change the Internet industry in China.”