 |
Second Quarter 2008 Total Revenues Reach US$102.0
million, Exceeding
High End of Company Guidance by US$6.0 million,
Up 162% Year-on-Year and 20%
Quarter-on-Quarter;
Second Quarter 2008 Non-GAAP Fully Diluted EPS
of
US$1.07, Exceeding High End of Company Guidance by
32 US Cents, up 417% Year-on-Year and 68% Quarter-on-Quarter.
BEIJING, CHINA, July
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
second quarter ended June
30, 2008.
Second Quarter Highlights
- 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.
- 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.
- Advertising revenues of US$43.4 million, up
53% year-on-year and 25% quarter-on-quarter.
- 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.
- Non-advertising revenues of US$58.6 million,
up 452% year-on-year and 17% quarter-on-quarter.
- 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.
- 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.
- 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.
- 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.”
“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.”
Second Quarter Financial
Results
Total revenues for the second quarter ended June 30, 2008 were US$102.0 million, compared to revenues of US$84.8 million for the first quarter ended March 31, 2008, and US$39.0 million for the second quarter ended June 30, 2007.
Gross margin of 76% for the second quarter of 2008, was flat with the previous quarter and up from 61% in the same period of 2007. Non-GAAP gross margin was 76% in the second quarter of 2008, flat with the previous quarter and up from 62% in the same period of 2007. The year-on-year gross margin expansion was mainly from the contribution of TLBB.
Net income for the second quarter of 2008 was US$40.2 million or US$1.02 per fully diluted share. Non-GAAP net income for second quarter of 2008 was US$42.3 million or US$1.07 per fully diluted share. This compares to non-GAAP net income of US$25.1 million or US$0.64 per fully diluted share for the first quarter of 2008 and US$8.1 million or US$0.21 per fully diluted share for the second quarter of 2007.
Advertising revenues for the second quarter of 2008 totaled US$43.4 million, a 25% quarter-on-quarter increase and a 53% year-on-year increase. Advertising revenues, consisting of US$41.7 million in brand advertising and US$1.7 million in sponsored search, accounted for 43% of total revenues in the second quarter of 2008. Brand advertising revenues for the second quarter of 2008 increased 26% quarter-on-quarter and 57% year-on-year.
Advertising gross margin for the second quarter of 2008 was 64%, up from 63% in the previous quarter and up from 62% in the second quarter of 2007. Non-GAAP advertising gross margin for the second quarter of 2008 was 65%, up from 64% in the previous quarter and 64% in the second quarter of 2007.
For the second quarter of 2008, Sohu's non-advertising revenues, which are derived mainly from online games and wireless value-added services, were US$58.6 million, representing 57% of total revenues. Online games revenues for second quarter of 2008 were US$47.9 million, increasing 17% quarter-on-quarter and 11.5 times year-on-year, reflecting the growth of TLBB since its commercial launch in May 2007. Wireless revenues were US$9.2 million, increasing 7% quarter-on-quarter and 39% year-on-year. Non-advertising gross margin was 84%, down from 85% in the previous quarter and up from 56% in second quarter of 2007. Non-GAAP non-advertising gross margin was 84%, down from 85% in the previous quarter and up from 56% in second quarter of 2007. The year-on-year increase was mainly due to the contribution of TLBB.
For the second quarter of 2008, Sohu's operating expenses totaled US$37.2 million. Non-GAAP operating expenses totaled US$35.4 million, up 15% from the previous quarter and up 111% year-on-year. The year-on-year increase was primarily due to continued investments in product development, marketing expenses for Sohu branding, as well as an increase in bonuses to reward employees for their contribution to Sohu’s good results. The quarter-on-quarter increase was mainly due to Olympic-related marketing spending.
For the second quarter of 2008, income tax expense was US$0.6 million, compared to US$9.2 million for the previous quarter and US$0.2 million for the same period last year.
In the first quarter of 2008, Sohu accounted for its PRC income tax based at a statutory tax rate of 25%. Given Sohu’s technological centric business with strong research and development capabilities, in the second quarter, we were informed by the relevant tax bureau that some of our operating entities will be entitled to certain tax holidays and will be subject to 0% income tax rate for full year 2008 and 12.5% for 2009 through 2011. Accordingly, in the second quarter, Sohu adopted a 0% income tax rate for these entities and reversed a US$4.1 million related income tax provision that was made in the first quarter of 2008. We expect our overall effective PRC income tax rate for the rest of 2008 to be in the low teens.
Ms. Carol Yu, Co-President and CFO of Sohu.com,
commented, “The second quarter of 2008 marks the fourth consecutive quarter in
which we reported record total revenue and record total net income. These set of results speak for
themselves about the Company’s strategy and management’s execution
capabilities.”
Business Outlook
Sohu
estimates total revenues for the
third
quarter 2008 to be between US$112
million
to US$116
million, with advertising revenues of US$48.5
million to US$50.5
million and non-advertising revenues of US$63.5
million to US$65.5
million.
Sohu
estimates brand advertising revenues for the third quarter of 2008 to be between
US$47
million and
US$49
million.
Sohu
estimates online games revenues for the third quarter of 2008 to
be between US$51.5
million and
US$53.5
million.
Sohu
estimates non-GAAP fully diluted earnings per share for the third quarter of
2008 to be between US$1.00 and
US$1.05.
Assuming no new grants of share-based awards, Sohu estimates share-based compensation expense for the third quarter of 2008 to be between US$2.5 million and US$3 million. The estimated impact of this expense is expected to reduce Sohu's fully diluted earnings per share for the third quarter of 2008, under US GAAP, by US$0.06 to US$0.07.
Plan for Confidential Filing of Draft
Registration Statement for IPO of
Changyou.com*
Sohu also announced today that it plans to submit on a confidential basis to the U.S. Securities and Exchange Commission (the “SEC”) a draft registration statement for a possible initial public offering (or “IPO”) of American Depositary Shares (or “ADSs”) representing ordinary shares of Changyou.com Limited (or “Changyou”), a recently-organized Cayman Islands company that is the Company’s online games business subsidiary. The number and dollar amount of ADSs proposed to be offered and sold have not yet been determined.
Sohu’s and Changyou’s purposes for conducting the IPO, if commenced, include allowing Sohu to focus principally on its core online media, communications, search, and mobile value-added services businesses, and providing Changyou a sharper focus on the online games business and related strategic opportunities, with Sohu remaining Changyou’s majority shareholder.
The IPO is expected to commence as market conditions permit, and is subject to Changyou’s filing with the SEC a registration statement on Form F-1 in compliance with the U.S. Securities Act of 1933, as amended (or the “Securities Act”), and the SEC’s declaring such registration statement effective.
*This announcement is being made pursuant to
and in accordance with Rule 135 under the Securities Act. As required by Rule
135, this announcement is not intended to, and does not, constitute an offer of
any securities for sale.
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. 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 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 time.
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, 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 EST, July 28, 2008 (or 8:00 PM, July 28, 2008
Beijing/Hong Kong time). To listen
to the conference call, please use the dial in numbers
below:
USA Toll Number:
1-800-257-7063
International: 1-303-262-2141
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:
1-800-405-2236
International: 1-303-590-3000
PASSCODE: 11116974#
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 China's Internet pioneers, is in its twelfth year of operation.
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