BEIJING, CHINA, May 1, 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 first quarter
ended March 31, 2007.
First Quarter Highlights
· Record brand advertising revenues of US$23.5 million, up 41% year-on-year
and 7% quarter-on-quarter, exceeding company guidance.
· Record advertising revenues of US$25.6 million, up 27% year-on-year
and 3% quarter-on-quarter, meeting company guidance.
· Non-advertising revenue of US$7.5 million, down 27% year-on-year and
21% quarter-on-quarter, meeting company guidance.
· Total revenues of US$33.1 million, up 9% year-on-year and down 4%
quarter-on-quarter, meeting company guidance.
· Non-GAAP net income (i.e. excluding share-based compensation expenses)
of US$7.0 million or US$0.18 per fully diluted share, meeting company
· GAAP net income of US$4.5 million or US$0.12 per fully diluted share.
· Sohu made significant progress on the integration of Sohu products
and registration systems by implementing “Sohu Passport”, a new service
that facilitates complete integration of all Sohu web properties and
seamless surfing of most products within the Sohu family under a single
· On April 4, 2007, Sohu’s in-house developed massive multiplayer online
role-playing game, Tian Long Ba Bu (TLBB), entered into final closed
beta testing with initial success. TLBB will start its open beta testing
on May 9, 2007.
· 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.”
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.”
First Quarter Financial Results
Total revenues for first quarter ended March 31, 2007 totaled US$33.1
million, compared to revenues of US$34.4 million for fourth quarter
ended December 31, 2006, and US$30.4 million for first quarter ended
March 31, 2006.
Gross margin of 61% in first quarter of 2007 decreased from 63% in
the previous quarter and 67% in the same period of 2006. Non-GAAP gross
margin was 62% in the first quarter of 2007, down from 65% in the previous
quarter and 68% in the same period of 2006.
Net income for first quarter of 2007 was US$4.5 million or US$0.12
per fully diluted share. Non-GAAP net income for first quarter of 2007
was US$7.0 million or US$0.18 per fully diluted share. This compares
to non-GAAP net income of US$8.1 million or US$0.21 per fully diluted
share for fourth quarter 2006 and US$7.8 million or US$0.20 per fully
diluted share for first quarter of 2006.
Advertising revenues for first quarter of 2007 totaled US$25.6 million,
a 27% year-on-year increase and a 3% quarter-on-quarter increase. Advertising
revenues, consisting of US$23.5 million in brand advertising and US$2.1
million in sponsored search, accounted for 77% of total revenues in
the first quarter of 2007. Brand advertising revenues for first quarter
of 2007 increased 7% quarter-on-quarter and 41% year-on-year. Sponsored
search revenues for first quarter of 2007 decreased 29% quarter-on quarter
and 40% year-on-year. Advertising gross margin for first quarter of
2007 was 62%, down from 65% in the previous quarter and 73% in the first
quarter of 2006. Non-GAAP advertising gross margin for first quarter
of 2007 was 64%, down from 66% in the previous quarter and 75% in the
first quarter of 2006. The declines in gross margin were primarily due
to the increase in content costs, bandwidth and server depreciation
For the first quarter of 2007, Sohu's non-advertising revenues, which
are derived mainly from wireless value-added services and online games,
were US$7.5 million, representing 23% of total revenues. Non-advertising
gross margin was 56% compared to 60% in the previous quarter and 55%
in first quarter of 2006. Non-GAAP non-advertising gross margin was
56% compared to 60% in the previous quarter and 55% in the first quarter
of 2006. The decline in non-advertising gross margin was primarily due
to the decreased mix of higher margin revenues, a decrease in gross
margin of certain wireless products and the increased server depreciation
costs for our existing game.
For first quarter of 2007, Sohu's operating expenses totaled US$16.0
million. Non-GAAP operating expenses totaled US$13.9 million, a decrease
of 4% from the previous quarter and up 9% year-on-year. The quarter-on-quarter
decrease was mainly due to the decrease of our marketing expenses, while
the year-on-year increase was primarily due to our increased re-investment
in R&D for technology projects and product development, and increased
marketing expenses for branding.
As of March 31, 2007, Sohu's balance of cash, cash equivalents and
investments in marketable debt securities was US$97.5 million, compared
to US$129.7 million and US$137.5 million as of December 31, 2006 and
March 31, 2006, respectively. The reduction in cash, cash equivalents
and investments in marketable debt securities was due to the company’s
purchase of its Beijing headquarters at a purchase price of approximately
$35.3 million, in January 2007.
Ms. Carol Yu, Co-president and CFO of Sohu.com, stated, “We are pleased
with the financial results we achieved in the first quarter of 2007.
Although it was a seasonally weak quarter, our brand advertising revenue
reached a historical record and exceeded our guidance. Our investments
in premium video content, corporate branding and new products have started
to pay off. With the increasing momentum from the rapidly approaching
Beijing 2008 Olympics Games and our new online game TLBB, which will
be contributing to our results in the second half of 2007, we are well
positioned to have a good year.”
Sohu estimates total revenues for the second quarter of 2007 to be
between US$35.5 million to US$37.5 million, with advertising revenues
of US$26.5 million to US$27.5 million and non-advertising revenues of
US$9 million to US$10 million. Sohu estimates brand advertising revenues
for the second quarter of 2007 to be between US$24.5 million to US$25.0
Sohu expects to invest approximately $1 million for server depreciation
costs, bandwidth and marketing of our new online game, TLBB, for the
second quarter of 2007. Sohu estimates non-GAAP fully diluted earnings
per share for the second quarter of 2007 to be between US$0.17 and US$0.19.
Assuming no new grants of share-based awards, Sohu estimates share-based
compensation expense for the second 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 second
quarter of 2007, under US GAAP, by US$0.06.
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
Sohu’s management believes excluding the share-based compensation expense
from its non-GAAP financial measure is useful for itself and investors.
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.
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
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, 2006, and other filings with the Securities and Exchange
Sohu's management team will host a conference call on the same day
at 8:00 PM EST, May 1, 2007 (or 8:00 AM, May 2, 2007 Beijing/Hong Kong
time) following the quarterly results announcement.
To listen to the conference call, please use the dial in numbers below:
USA Toll Number: 1-800-238-9007
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
The conference call will be available on webcast live and available
for replay at: http://corp.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
Sohu.com Contact Information
Investor Relations and Corporate Communications
Tel: +86 10 6272 6596