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BEIJING, CHINA, February 5, 2007 – Sohu.com Inc. (NASDAQ: SOHU), China's
leading online media, search and mobile value-added services company, today
reported unaudited financial results for the fourth quarter and fiscal year
ended December 31, 2006.
Business Highlights
Highlights For Fourth Quarter
2006
- Record brand advertising revenues of US$22.0 million, up 30%
year-on-year and 5% quarter-on-quarter, meeting the high end of company
guidance
- Record advertising revenues of US$24.9 million, up 23%
year-on-year and 4% quarter-on-quarter, meeting company guidance
-
Non-advertising revenues of US$9.4 million, up 1% year-on-year and down 18%
quarter-on-quarter
- Total revenues of US$34.4 million, up 16% year-on-year
and down 3% quarter-on-quarter, meeting company guidance
- Non-GAAP net
income (i.e. excluding share-based compensation expenses) of US$8.1 million or
US$0.21 per fully diluted share, meeting company guidance
- GAAP net income
of US$6.1 million or US$0.16 per fully diluted share
- 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 “Reconciliation to Unaudited Condensed Consolidated Statements of
Operations.”
Highlights For Fiscal Year 2006
- Record brand
advertising revenues of US$79.0 million, up 35% year-on-year
- Record
advertising revenues of US$91.8 million, up 29% year-on-year
-
Non-advertising revenues of US$42.5 million, up 26% year-on-year
- Record
total revenues of US$134.2 million, up 28% year-on-year
- Fiscal 2006
non-GAAP net income of US$32.8 million or US$0.85 per fully diluted share
-
Fiscal 2006 GAAP net income of US$25.9 million or US$0.68 per fully diluted
share
Dr. Charles Zhang, Chairman and CEO of Sohu, commented, “Our visionary
leadership has enabled us to re-engineer Sohu into a technological-focused
company. Accomplishments to date have been extraordinary, such as our
peers-to-peers streaming technology for both live broadcasting and
video-on-demand, as well as the just-launched Sogou 3.0. Our outstanding
research and development team will continue to bring even more powerful and
impressive products to market in 2007 and attract an even wider audience to
Sohu’s premier matrix of websites. I have full confidence that our competitive
advantage in technology will solidify Sohu’s leadership position in the China
Internet space, especially in the brand advertising market.”
Fourth Quarter Financial Results
Total revenues for
fourth quarter ended December 31, 2006 totaled US$34.4 million, compared to
revenues of US$35.4 million for third quarter ended September 30, 2006, and
US$29.7 million for fourth quarter ended December 31, 2005. Gross margin of 63%
in fourth quarter of 2006 decreased from 65% in the previous quarter and 68% in
the same period of 2005. Non-GAAP gross margin of 65% in fourth quarter of 2006
was approximately equivalent to 66% in the previous quarter and down from 68% in
the same period of 2005.
Net income for fourth quarter of 2006 was US$6.1 million or US$0.16 per fully
diluted share. Non-GAAP net income for fourth quarter of 2006 was US$8.1 million
or US$0.21 per fully diluted share. This compares to non-GAAP net income of
US$8.5 million or US$0.22 per fully diluted share for the previous quarter and
US$8.9 million or US$0.23 per fully diluted share for fourth quarter of 2005.
Advertising revenues for fourth quarter of 2006 totaled US$24.9 million, a
23% year-on-year improvement and a 4% increase quarter-on-quarter. Advertising
revenues, consisting of US$22.0 million in brand advertising and US$2.9 million
in sponsored search, accounted for 73% of total revenues in fourth quarter of
2006. Brand advertising revenues for fourth quarter of 2006 were US$22.0
million, an increase of 30% year-on-year and 5% quarter-on-quarter. Sponsored
search revenues for fourth quarter of 2006 were US$2.9 million, down 14 %
year-on-year and up 3% quarter-on quarter. Advertising gross margin was 65%,
down from 69% in the previous quarter and 74% in fourth quarter of 2005.
Advertising non-GAAP gross margin was 66%, down from 71% in the previous quarter
and lower than 74% in fourth quarter of 2005. Gross margins decline were
primarily due to an increase in content costs, increased headcount, and higher
bandwidth and server depreciation costs.
For the fourth quarter of 2006, Sohu's non-advertising revenues, which
are derived mainly from wireless value-added services, and online games,
increased by 1% year-on-year and decreased 18% quarter-on-quarter to
US$9.4 million, representing 27% of total revenues. The decrease was
mainly due to the full quarter impact of the implementation of double
confirmations on SMS monthly subscriptions and the further strengthening
of billing policies and procedures of certain provincial mobile network
operators. Non-advertising gross margin improved to 60% compared to
56% in previous quarter and 55% in fourth quarter of 2005. Non-advertising
non-GAAP gross margin improved to 60% compared to 57% in previous quarter
and 55% in fourth quarter of 2005. Improved gross margins were primarily
due to an increased margin for online games and an increase in wireless
gross margin due to improved control of content costs.
For the fourth quarter, Sohu's operating expenses totaled US$16.1 million.
Non-GAAP operating expenses totaled US$14.5 million, a decrease of 6% from
previous quarter and up 4% year-on-year. The quarter-on-quarter decrease was
mainly due to a decrease in bad debt expenses and professional fee, while the
year-on-year increase was due to the Company’s increased investment in research
and development, increased marketing expenses on branding, and an increase in
headcount and salaries.
Fiscal Year 2006 Financial Results
Total revenues for
fiscal year 2006 totaled US$134.2 million, a 28% increase over fiscal year 2005
revenues of US$104.5 million. Gross margin was 65% in fiscal 2006, down from 69%
in fiscal 2005. Non-GAAP gross margin was 66% in fiscal 2006, down from 69% in
fiscal 2005.
Advertising revenues for fiscal year 2006 totaled US$91.8 million, up 29%
from US$70.9 million in fiscal 2005. Brand advertising revenues grew 35%,
attributable to China’s robust online advertising market and heightened activity
related to the World Cup last summer, whereas sponsored search revenues grew 3%
year-on-year.
In fiscal 2006, Sohu's non-advertising revenues totaled US$42.5 million, up
26% from US$33.7 million in fiscal 2005.
Net income for fiscal 2006 was US$25.9 million or US$0.68 per fully diluted
share. Non-GAAP net income in fiscal 2006 was US$32.8 million or US$0.85 per
fully diluted share compared to net income of US$29.8 million or US$0.77 per
fully diluted share in fiscal 2005.
As of December 31, 2006, Sohu's cash, cash equivalents and investments in
marketable debt securities balance was US$129.7 million, compared to US$120.0
million and US$133.1 million as of September 30, 2006 and December 31, 2005,
respectively.
Ms. Carol Yu, Co-president and CFO of Sohu.com, stated“Our primary
focus continues to be on our core advertising business, which contributed
68% of our total revenues for fiscal year 2006. Our outlook remains
bullish, especially during the run-up to the 2008 Olympics. Our most
enviable role as Internet Sponsor of the Beijing 2008 Olympics is the
most important differentiating factor between Sohu and other Internet
companies.”
Management Promotions
Sohu announced the following
executive management promotions, effective today:
·Ms. Belinda Wang, Senior Vice President of Sales and Marketing since
September 2005, was promoted to Co-president and Chief Marketing Officer.
Belinda joined Sohu in 1999 and now leads Sohu’s brand advertising sales and
marketing efforts. Belinda has been instrumental in developing the online
advertising market in China;
·Ms. Carol Yu, Chief Financial Officer of Sohu
since March 2004, was appointed to the additional position of Co-president.
Carol brings over 20 years of management, finance, accounting and investment
banking experience to Sohu; and
·Dr. Yu Gong, Senior Vice President of
Focus.cn and Wireless since September 2005, was promoted to Chief Operating
Officer. Dr. Gong joined Sohu in 2003 when Focus.cn, a leading real estate
website where Dr. Gong was President and CEO, was acquired by Sohu.
Business Outlook
Sohu estimates total revenues for first
quarter 2007 to be between US$32.0 million to US$34.0 million, with advertising
revenues of US$25.0 million to US$26.0 million and non-advertising revenues of
US$7.0 million to US$8.0 million. Sohu estimates brand advertising revenues for
the first quarter 2007 to be between US$22.5 million to US$23.0 million.
Assuming no effect of the new accounting standards FIN 48 “Accounting for
Uncertainty in Income Taxes” which was effective on January 1, 2007, Sohu
estimates non-GAAP fully diluted earnings per share for the first quarter of
2007 to be between US$0.18 and US$0.20.
Assuming no new grants of share-based awards, Sohu estimates the share-based
compensation expense for the first quarter of 2007 to be between US$2.3 million
and US$2.4 million. The estimated impact of this expense is expected to reduce
Sohu's fully diluted earnings per share for the first quarter of 2007, under US
GAAP, by US$0.06.
Non-GAAP Disclosure
To supplement the unaudited
consolidated financial statements presented in accordance with United States
Generally Accepted Accounting Principles (“GAAP”), Sohu’s management uses
non-GAAP measures of cost of revenues, operating expenses, net income and net
income per share, which are adjusted from results based on GAAP to exclude the
compensation cost of share-based awards granted to employees under Statement of
Financial Accounting Standard 123R, effective from January 1, 2006. These
measures should be considered in addition to results prepared in accordance with
GAAP, but should not be considered a substitute for, or superior to, GAAP
results.
Sohu's management believes excluding the share-based compensation expense
from its non-GAAP financial measure is useful for itself and investors because
it makes a more meaningful comparison of Sohu’s current results of operations to
those of prior periods. Further, the amount of share-based compensation expense
cannot be anticipated by management and business line leaders and these expenses
were not built into the annual budgets and quarterly forecasts, which have been
the basis for information Sohu provides to analysts and investors as guidance
for future operating performance. As share-based compensation expense does not
involve any upfront or subsequent cash outflow, Sohu does not factor this in
when evaluating and approving expenditures or when determining the allocation of
its resources to its business segments. As a result, the monthly financial
results for internal reporting and any performance measure for commission and
bonus are based on non-GAAP financial measures that exclude share-based
compensation expense.
The non-GAAP financial measures are provided to enhance the investors’
overall understanding of Sohu’s current financial performance and prospects for
the future. A limitation of using non-GAAP cost of revenues, operating expenses,
net income and net income per share, excluding share-based compensation
expenses, is that the share-based compensation charge has been and will continue
to be a significant recurring expense in our business for the foreseeable
future. In order to mitigate these limitations we have provided specific
information regarding the GAAP amounts excluded from each non-GAAP measure. The
accompanying tables include details on the reconciliation between GAAP financial
measures that are most directly comparable to the non-GAAP financial measures we
have presented.
Notes to Financial Information
Financial information in
this press release other than the information indicated as being non-GAAP is
extracted from Sohu's unaudited financial statements prepared in accordance with
generally accepted accounting principles in the United States.
Prior to July 1, 2005, the Company had included all of its website operating
costs in cost of revenues of brand advertising. Beginning July 1, 2005, in order
to improve the measurement of performance of each segment, the Company began
allocating website operating cost to cost of revenues of each segment based on
actual usage. Accordingly, the Company reclassified cost of revenues amongst
each segment for previous periods presented to conform with current period
classification.
On June 20, 2006, Sohu discontinued its own e-commerce platform of physical
consumer goods. While processing the disposal of its e-commerce business, Sohu
is reporting the related business activities as discontinued operations. Sohu’s
income statement separates out discontinued operations for both current and
prior periods in order to focus on continuing operations and provide a
consistent basis for comparing financial performance over time.
In addition, in January 2006, the Company reclassified software and domain
names from other assets to intangible assets for better presentation. To conform
with the current year presentation, the relevant amounts as of December 31, 2005
have been reclassified. Such reclassification has increased the net balance of
intangible assets and decreased the net balance of other assets as of December
31, 2005 by US$3.0 million.
Safe Harbor Statement
This announcement contains
forward-looking statements. It is currently expected the Business Outlook will
not be updated until release of Sohu's next quarterly earnings announcement;
however, Sohu reserves right to update its Business Outlook at any time for any
reason.
Statements that are not historical facts, including statements about our
beliefs and expectations, are forward-looking statements. These statements are
based on current plans, estimates and projections, and therefore you should not
place undue reliance on them. Forward-looking statements involve inherent risks
and uncertainties. We caution you that a number of important factors could cause
actual results to differ materially from those contained in any forward-looking
statement. Potential risks and uncertainties include, but are not limited to,
the uncertain regulatory landscape in the People's Republic of China,
fluctuations in Sohu’s quarterly operating results, Sohu's historical and
possible future losses and limited operating history, and the company's reliance
on online advertising sales, wireless services (most wireless revenues are
collected from a few mobile network operators), and online games for its
revenues. Further information regarding these and other risks is included in
Sohu's annual report on Form 10-K for the year ended December 31, 2005,
Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, and
other filings with the Securities and Exchange Commission.
Conference Call
Sohu's management team will host a
conference call today at 8:00 PM EST, February 5, 2007 (or 9:00 AM Beijing/Hong
Kong time, February 6, 2007) following the quarterly results announcement.
To listen to the conference call, please use the dial in numbers
below:
SOUTH CHINA Toll Free Number: +10 800 120 0045
NORTH CHINA Toll
Free Number: +10 800 712 0045
HONG KONG Toll Number: +800 908710
USA Toll
Number: +1 800 475 3716/ +1 719 457 2728
A replay of the call will be
available for two weeks following the call and can be accessed by dialing the
numbers below:
USA Toll Number: +1 888 203 1112
International: +1 719 457
0820
PASSCODE: 7288429
The conference call will be available on webcast live and available for
replay at: http://corp.sohu.com/.
About Sohu.com
Sohu.com Inc. (NASDAQ: SOHU) is China's
premier online brand and indispensable to the daily life of millions of Chinese,
providing a network of web properties and community based/web 2.0 products which
offer the vast Sohu user community a broad array of choices regarding
information, entertainment and communication. Sohu has built one of the most
comprehensive matrices of Chinese language web properties and proprietary search
engines, consisting of the mass portal and leading online media destination
www.sohu.com; interactive search engine www.sogou.com; #1 online alumni club
www.chinaren.com; #1 games information portal www.17173.com; the top real estate
website www.focus.cn; wireless value-added services provider
www.goodfeel.com.cn; and leading online mapping service provider
www.go2map.com.
Sohu corporate services consist of brand advertising on its matrix of
websites as well as paid listing and bid listing on its in-house developed
search directory and engines. Sohu also offers two types of consumer services.
Sohu offers wireless value-added services such as news, information, music,
ringtone and picture content sent over mobile phones. The company also operates
a massively multi-player online role-playing game and a casual game platform.
Sohu.com, established by Dr. Charles Zhang, one of China's Internet pioneers, is
in its eleventh year of operation.
Sohu.com Contact Information
Jessica Zhang
Senior
Manager
Investor Relations and Corporate Communications
Tel: +86 10 6272
6596
E-mail:
ir@contact.sohu.com
http://corp.sohu.com
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