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First Quarter 2008 Total Revenues Reach US$84.8
Million, Exceeding
High End of Company Guidance by US$16.3 million,
Up 156% Year-on-Year and 30% Quarter-on-Quarter;
First Quarter 2008 Non-GAAP Fully Diluted EPS
of
US$0.64, Exceeding High End of Company Guidance
by 19 US Cents
BEIJING, CHINA, April
28, 2008
– Sohu.com Inc. (NASDAQ: SOHU), China's leading online
media, communications, search, online games and mobile
value-added services company, today reported unaudited financial results for the
first quarter ended March
31, 2008.
First Quarter Highlights
- 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.
- Brand advertising revenues of US$33.2
million, up 41% year-on-year and 3%
quarter-on-quarter.
- Advertising revenues of US$34.8 million, up
36% year-on-year and 3% quarter-on-quarter.
- 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.
- Non-advertising revenues of US$50.1 million,
up 570% year-on-year and 58% quarter-on-quarter.
- 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.
- 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.
- 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.
- 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
First Quarter Financial
Results
Total
revenues for the first quarter ended March 31, 2008 were US$84.8
million, compared to revenues of US$65.3 million for the fourth quarter ended
December 31, 2007, and US$33.1 million for the first quarter ended March 31,
2007.
Gross
margin for the first quarter
of 2008 was 76%,
increased
from 71% in the previous quarter and 60% in the same period of 2007. Non-GAAP gross margin was 76% in the
first quarter of 2008, up from 72% in the previous quarter and 61% in
the same period of
2007. The gross margin
expansion was primarily due to the contribution from TLBB.
Net income for the first quarter of 2008 was US$21.6 million or US$0.55 per fully diluted share. Non-GAAP net income for first quarter of 2008 was US$25.1 million or US$0.64 per fully diluted share. This compares to non-GAAP net income of US$17.0 million or US$0.43 per fully diluted share for the fourth quarter of 2007 and US$7.0 million or US$0.18 per fully diluted share for the first quarter of 2007.
Advertising
revenues for the first quarter of 2008 totaled US$34.8 million, a 3%
quarter-on-quarter increase and a 36%
year-on-year increase. Advertising revenues, consisting of US$33.2 million in
brand advertising and US$1.6 million in sponsored search, accounted for 41% of
total revenues in the first quarter of 2008. Brand advertising revenues for the
first quarter of 2008 increased 3% quarter-on-quarter and 41%
year-on-year. Sponsored
search revenues for the first quarter of 2008 were up 5% quarter-on-quarter and
down 23% year-on-year. Advertising gross margin for the first
quarter of 2008 was 63%, flat
with the previous quarter and up from 62% in the first quarter of 2007. Non-GAAP advertising gross margin for the
first quarter of 2008 was 64%, flat with the previous quarter and the first
quarter of 2007.
For the
first quarter of 2008, Sohu's non-advertising revenues, which are derived mainly
from online game and wireless value-added services, were US$50.1 million,
representing 59% of total revenues. Online game
revenues for first quarter of 2008 increased 71% quarter-on-quarter and
24
For first quarter of 2008, Sohu's operating expenses totaled US$34.0 million. Non-GAAP operating expenses totaled US$30.8 million, up 3% from the previous quarter and up 125% year-on-year. The year-on-year increase was primarily due to continued investment in product development, marketing expenses for Sohu branding and TLBB, as well as an increase in bonuses to reward employees for their contribution to good results.
For first quarter of 2008, income tax expense was US$ 9.2 million, compared to US$0.7 million for the previous quarter and US$0.3 million for the same period last year.
On January 1, 2008, the newly introduced Corporate Income
Tax Laws, which unify the statutory income tax rate of enterprises in
Ms.
Business Outlook
Sohu
estimates total revenues for the
second
quarter of 2008 to be between US$93
million
to US$96
million, with advertising revenues of US$40
million to US$41
million and non-advertising revenues of US$53
million to US$55
million.
Sohu
estimates brand advertising revenues for the second quarter of 2008 to be
between US$38.5
million to US$39.5
million.
Sohu
estimates online game revenues for the second quarter of 2008 to
be between US$43
million to US$45
million.
Sohu
estimates non-GAAP fully diluted earnings per share for the second
quarter of 2008 to be between US$0.72 and US$0.75, assuming statutory income tax
rate for our major operating entities in
Assuming
no new grants of share-based awards, Sohu estimates share-based compensation
expense for the second quarter of 2008 to be between US$2.0 million
and US$2.5 million.
The estimated impact of this
expense is expected to reduce Sohu's fully diluted earnings per share for the
second quarter of 2008, under US GAAP, by US$0.05 to 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. 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. 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
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 those quarters prior to April 1, 2007, most of costs and expenses for the game department were related to product development and research. Accordingly, Sohu recorded all such costs and expenses in product development expenses in its statements of operations. Beginning April 1, 2007, in order to better present operation results to enhance comparability with industry peers, Sohu reclassified expenses related to game operations, mainly salary and benefits of game masters, from product development expense to cost of online game revenues. To conform with current period presentations, the relevant amounts for prior periods have been reclassified. Such reclassification amounted to US$275,000 for the three months ended March 31, 2007.
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, online games and wireless
services (most wireless revenues are collected from a few mobile network
operators)
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, 2007, and
other filings with the Securities and Exchange
Commission.
Conference Call and Webcast
Sohu's management team will host a
conference call today at 8:00 AM ET, April 28, 2008 (or 8:00 PM, April 28, 2008
Beijing/Hong Kong time). To listen
to the conference call, please use the dial in numbers
below:
International:
1- 303-262-2142
A replay of the call will be available for
two weeks following the call and can be accessed by dialing the numbers below:
International:
1- 303-590-3000
PASSCODE: 11112454#
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. The company
operates two massive multi-player online role-playing games, namely Tian Long Ba
Bu and Blade Online, and a casual game platform. Sohu also offers
wireless value-added services such as news, information, music, ringtone and
picture content sent over mobile phones. Sohu.com, established by Dr. Charles
Zhang, one of
Sohu.com
Contact Information
Erin Sheng
Manager
Investor Relations and
Corporate Communications
Tel: +86 10 6272 6596
E-mail:
ir@contact.sohu.com
http://corp.sohu.com