Fourth Quarter of
2008:
Total Revenues Reach
US$121.6 Million; Up
86% Year-on-Year;
Non-GAAP Net Income of US$59.0 Million;
3.5 Times that of Fourth Quarter 2007;
Non-GAAP Fully Diluted EPS of US$1.50; 3.5 Times that of Fourth Quarter
2007;
Fiscal Year
2008:
Total Revenues Reach US$429.1
Million; 2.3 Times that of Fiscal Year
2007;
Non-GAAP Net Income of US$169.3 Million;
3.9 Times that of Fiscal Year 2007;
Non-GAAP Fully Diluted EPS of US$4.29;
3.8 Times that of Fiscal Year
2007;
Cash Balance of US$314.4 Million; An
Increase of US$191.7 Million over Fiscal Year
2007
BEIJING, CHINA, February
9, 2009
– 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 fourth quarter and fiscal year ended December 31,
2008.
Fourth Quarter Highlights
- Sixth consecutive quarter of record total
revenues and record net income.
- Brand advertising revenues of US$45.0
million, up 40% year-on-year.
- Advertising revenues of US$46.6 million, up
38% year-on-year.
- Online game revenues of US$58.4 million, 2.4
times that of fourth quarter 2007 and up 7% quarter-on-quarter. In-house developed massive multiplayer
online role-playing game Tian Long Ba Bu (“TLBB”) generated revenues of US$53.5
million, up 5% quarter-on-quarter and 2.4 times that of fourth quarter 2007.
- Non-advertising
revenues of US$75.0 million, 2.4 times that of fourth quarter 2007 and up 8%
quarter-on-quarter.
- Total revenues of
US$121.6 million, up 86% year-on-year.
- GAAP net income of US$56.6 million or US$1.45
per fully diluted
share. GAAP net income was
3.8 times that of fourth
quarter
2007 and
increased 41%
quarter-on-quarter.
- Non-GAAP net income (i.e., excluding
share-based compensation expense) of US$59.0 million, or US$1.50
per fully diluted
share, exceeding the high end of company guidance of US$1.25 by US$0.25. Non-GAAP net income was
3.5 times that of fourth quarter 2007 and increased by 38%
quarter-on-quarter.
Excluding income tax adjustments of US$6.0 million in the
fourth quarter,
non-GAAP net income would have been US$53.0 million, or US$1.35 per fully
diluted share, representing 24% quarter-on-quarter growth and
exceeding the high end of Company guidance by US$0.10.
- Non-GAAP operating margin of 43%, compared with 38% in the third
quarter. Non-GAAP net margin excluding the
income tax adjustments of US$6.0 million increased to 44% for the fourth
quarter, compared with
35% in the third
quarter.
Fiscal Year
2008 Highlights
- Record total revenues and record revenues
for each category and record net income.
- Brand advertising revenues of US$169.3
million, up 51% year-on-year.
- Advertising revenues of US$175.9 million, up
48% year-on-year.
- Online game revenues of US$201.8 million,
4.8 times that of fiscal year 2007. TLBB generated revenue of US$188.9 million,
5.4 times that of fiscal year 2007.
- Non-advertising
revenues of US$253.1 million, 3.6 times that of fiscal year 2007.
- Total revenues of
US$429.1 million, 2.3 times that of fiscal year 2007.
- GAAP net income of US$158.6 million or US$4.06 per fully
diluted share. GAAP net income
was 4.5 times
that of fiscal year 2007.
- Non-GAAP net income of US$169.3 million, or
US$4.29 per fully diluted share. Non-GAAP net income was 3.9 times that of fiscal
year
2007.
- Cash balance of
US$314.4 million as of December 31, 2008, compared with US$122.7 million on
December 31, 2007.
- Non-GAAP operating margin for the full year 2008
of 41%, compared with 22% in
fiscal year
2007.
Non-GAAP net margin increased to 39% for 2008, compared with 23% in
fiscal year
2007.
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
Dr. Zhang continued, “TLBB achieved
7% revenue growth quarter-on-quarter in Mainland
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.”
Fourth Quarter Financial Results
Total
revenues for the fourth quarter ended December 31, 2008 were US$121.6
million, compared with revenues
of US$120.7 million for the third quarter of 2008, and US$65.3 million for the
fourth quarter
of 2007.
Gross margin increased to 75% in the fourth quarter of 2008, up from 74% in the third quarter of 2008, and up from 71% in the fourth quarter of 2007. Non-GAAP gross margin for the fourth quarter of 2008 was also 75%, up from 74% in the third quarter of 2008, and up from 72% in the fourth quarter of 2007.
GAAP net income for the fourth quarter of 2008 was US$56.6 million or US$1.45 per fully diluted share. Non-GAAP net income for fourth quarter of 2008 was US$59.0 million or US$1.50 per fully diluted share. This compared with non-GAAP net income of US$42.8 million or US$1.08 per fully diluted share for the third quarter of 2008 and US$17.0 million or US$0.43 per fully diluted share for the fourth quarter of 2007. Excluding tax adjustments of US$6.0 million in the fourth quarter, non-GAAP net income would have been US$53.0 million or US$1.35 per fully diluted share.
On
January 1, 2008,
new Chinese corporate income tax laws went into effect. During the second
quarter 2008, Sohu’s subsidiaries engaged in online game business in
For Sohu’s subsidiaries in China engaged in the Company’s portal business, for the first three quarters of 2008, Sohu assumed that no tax benefits would apply and accounted for income tax expenses based on the statutory tax rate of 25%, due to uncertainty regarding (a) whether they would qualify as a New High Technology Enterprise under the new law, and (b) whether they would be entitled to grandfather treatment to recognize remaining tax holidays under the previous legislation. Accordingly, income taxes totaling $11.0 million were accrued during the first three quarters of 2008. In December 2008, those subsidiaries were reaffirmed as having qualified as New High Technology Enterprises under the new law. Therefore, during the fourth quarter of 2008, the $11.0 million of income tax accruals were reversed and no income taxes were recorded for those subsidiaries for that period.
Additionally,
in the fourth quarter of 2008, Sohu accrued a 5% withholding income tax of
approximately US$5.0 million in relation to certain dividends declared by one of
the Company’s subsidiaries in
As a result, income tax adjustments for the fourth quarter 2008 totaled a reversal of US$6.0 million and net income increased accordingly.
Advertising revenues for the fourth quarter of 2008 totaled US$46.6 million, a 9% seasonal decrease compared with the third quarter of 2008 and a 38% increase compared with the fourth quarter of 2007. Advertising revenues, consisting of US$45.0 million of brand advertising and US$1.6 million of sponsored search, accounted for 38% of total revenues in the fourth quarter of 2008.
Advertising gross margin for the fourth quarter of 2008 was 63%, up from 59% in the previous quarter and flat with the fourth quarter of 2007. Non-GAAP advertising gross margin for the fourth quarter of 2008 was 64%, up from 60% in the previous quarter and flat compared with the fourth quarter of 2007.
For the fourth quarter of 2008, Sohu’s non-advertising revenues, which are derived mainly from online games and wireless value-added services, were US$74.9 million, or 62% of total revenues. Online game revenues were US$58.4 million, an increase of 7% quarter-on-quarter and 2.4 times that of fourth quarter 2007, due to the continued strong performance of TLBB and successful revitalization of Blade Online. Wireless revenues were US$14.8 million, a quarter-on-quarter increase of 2% and twice that of fourth quarter 2007. We remain cautious about the wireless-related regulatory and business environment in 2009.
Both GAAP and Non-GAAP non-advertising gross margin for the fourth quarter of 2008 was 83%, down slightly from 84% in the third quarter of 2008 and up from 79% in the fourth quarter of 2007.
For the fourth quarter of 2008, Sohu's operating expenses totaled US$41.7 million. Non-GAAP operating expenses totaled US$39.6 million, down 7% from US$42.7 million for the third quarter of 2008 and up 32% year-on-year. The year-on-year increase was primarily due to continued investment in product development, marketing expenses for Sohu’s branding initiatives as well as an increase in bonuses to reward employees for their contribution to Sohu’s strong performance.
Fiscal Year 2008 Financial
Results
Total
revenues for fiscal year 2008 were US$429.1 million, 2.3
times that of
fiscal year
2007
revenues of US$188.9 million. Gross margin was 75% in fiscal year
2008,
compared with 66% in fiscal year
2007.
Non-GAAP gross margin was 75% in fiscal year
2008,
an
increase
from 67% in fiscal year
2007.
Advertising
revenues for fiscal year 2008 totaled US$175.9 million, up 48% from US$119.2
million in fiscal year
2007.
Advertising revenues consisted of US$169.3 million in brand advertising and
US$6.6
million in sponsored search. Brand
advertising revenues increased 51% year-on-year, primarily
as a result of successful
execution of the Company’s Olympic strategy.
In
fiscal year
2008,
Sohu’s non-advertising revenues totaled US$253.1 million, 3.6
times
US$69.7 million in fiscal year
2007. Online game revenues of US$201.8
million for fiscal year
2008
were
4.8 times
US$42.1
million in fiscal
year 2007. TLBB generated revenue of US$188.9
million in fiscal year
2008
compared with US$35.2 million in
fiscal
year
2007. Blade Online generated revenue of
US$12.9 million in fiscal
year 2008
compared with revenue of US$6.9 million in fiscal
year 2007.
Wireless revenues of US$47.0 million in fiscal
year 2008
increased 79% over US$26.3 million in fiscal
year 2007.
GAAP
net income for fiscal year
2008
totaled US$158.6 million or US$4.06 per fully diluted share.
Non-GAAP net income for fiscal
year
2008
totaled US$169.3 million or US$4.29 per fully diluted share as compared with
non-GAAP net income of US$43.7 million and US$1.12 per fully diluted share for
fiscal year
2007.
Non-GAAP operating margin for fiscal year
2008 was 41%, up from 22% in fiscal year 2007. Non-GAAP net margin was 39%,
compared with 23% in fiscal year 2007.
Under the US$150 million share repurchase
program approved by our Board of Directors in October 2008, we purchased 501,686
shares in the open market during the fourth quarter, at an average price of
US$39.86 and total consideration of US$20 million. These purchases speak to
management’s great confidence in Sohu’s business and growth prospects. Sohu will
continue to execute this program on an opportunistic basis in
2009.
Ms. Carol Yu, Co-President and CFO of
Sohu.com, commented, “We believe that the results for fiscal year 2008 speak for
themselves, with revenues of 2.3 times 2007 revenues, non-GAAP net income 3.9
times that of 2007, non-GAAP operating margin expansion to 41% in 2008 from 22%
in 2007, and our cash balance increasing by US$191.7 million during 2008. These results also speak for our belief
that management will have the ability to capture opportunities as they arise
notwithstanding the more challenging economic environment expected in
2009.”
Business
Outlook
Sohu
estimates total revenues for the
first
quarter of 2009 to be between US$111.5
million
and US$115.5
million, with advertising revenues of US$40.5
million
to US$42.5
million
and non-advertising revenues of US$71.0
million
to US$73.0
million.
Sohu
estimates brand advertising revenues for the first quarter of 2009 to be between
US$39.0
million
and US$41.0
million.
Sohu
estimates online game revenues for the first quarter of 2009 to
be between US$58.0
million
and US$60.0
million.
Sohu
estimates non-GAAP fully diluted earnings per share for the first quarter of
2009 to be between US$1.05 and
US$1.10.
Assuming no new grants of share-based awards, Sohu estimates share-based compensation expense for the first quarter of 2009 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 first quarter of 2009, under US GAAP, by US$0.05 to US$0.06.
Sohu anticipates the preferential tax rate for 2009 to be in the low-teens for both its portal business and online game business.
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 expense 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.
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 current
global financial and credit markets crisis and its potential impact on
the Chinese economy, the slower growth the Chinese economy
experienced during the latter half of 2008, which could continue into 2009,
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 7:00 AM EST, February 9, 2009 (or 8:00 PM, February 9, 2009 Beijing/Hong Kong time). To listen to the conference call, please use the dial in numbers below:
International:
1-303-262-2137
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: 11124161#
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
Helen Zhang
Director
Investor Relations and Corporate Communications
Tel: +86 10 6272
6969
E-mail: ir@contact.sohu.com
http://corp.sohu.com