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Total Revenues Up 25% Year-on-Year to US$127.1 Million, Exceeding High End of Company Guidance;
Non-GAAP Fully Diluted EPS of US$0.90, Exceeding High End of Company Guidance by US 5 Cents
BEIJING, CHINA, July 27, 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 second quarter ended June 30, 2009.
Second Quarter Highlights
- The ninth quarter of record high total revenues out of the past ten quarters. Total revenues of US$127.1 million, up 25% year-on-year, exceeding high end of company guidance.
- Brand advertising revenues of US$43.6 million, up 5% year-on-year and 12% quarter-on-quarter, within company guidance.
- Online game revenues reached record US$66.6 million, up 39% year-on-year and 8% quarter-on-quarter, exceeding high end of company guidance by US$1.6 million.
- Before deducting the share of net income pertaining to the Non-Controlling Interest in Changyou, non-GAAP net income for the second quarter of 2009 was $49.0 million, exceeding the high end of company guidance of $46.0 million, up 16% year-on-year and 4% quarter-on-quarter.
- After deducting the share of net income pertaining to the Non-Controlling Interest in Changyou, GAAP net income attributable to Sohu.com Inc. for the second quarter of 2009 was $30.9 million, or US 79 cents per fully diluted share. Non-GAAP net income attributable to Sohu.com Inc. for the second quarter of 2009 was $35.2 million, or US 90 cents per fully diluted share, exceeding the high end of company guidance of $33.0 million, or US 85 cents per fully diluted share, by US 5 cents.
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 quarter of solid financial results from a unique combination of our two core businesses, our portal business and online game business. Even in this weak economic environment, our portal business continues to show modest growth and a strong ability to grab market share. Our ongoing investment in branding, content offering, and technological products has continued to strengthen our leading position as one of the most powerful mainstream media platforms in China.
“Our online game business delivered another quarter of record revenues and as a strong defensive play in a difficult economic environment it continues to be an ideal complement to our portal business. We are resolute in our efforts to build the online game business for the long-term by utilizing Changyou’s game development platform, player feedback system and strong R&D capabilities to deliver quality games that improve the user experience. We remain confident that this focus and growing user base, will allow our online game business to maintain its upward momentum.”
Dr. Zhang continued, “As we continue to execute on our strategy, we expect ongoing synergies between our portal business and our online game business to secure long-term and sustainable growth for Sohu.”
Commenting on Sohu’s brand advertising business, Ms. Belinda Wang, Sohu.com
co-president and chief marketing officer, added, “Despite tough year-on-year
comparisons from heavy ad spending leading up to the 2008 Beijing Olympic Games,
brand advertising revenues grew at 5% year-on-year, demonstrating that our
continual investments in branding, content offering and technological products
are paying off. On the advertising business front, advertisers have begun to
deploy their budgets in response to signs of economic recovery in China and
increasingly look toward internet media as a cost-effective alternative to
advertising in traditional media. Our strong user growth, robust media platform
and continually evolving technologies make Sohu well-positioned to capitalize on
these trends.”
Second Quarter Financial Results
Revenues
Total revenues for the second quarter ended June 30, 2009 were US$127.1 million, representing an increase of 10% sequentially and an increase of 25% year-on-year.
Brand advertising revenues for the second quarter of 2009 totaled US$43.6 million, representing a sequential increase of 12% and a year-on-year increase of 5%.
Online game revenues for the second quarter of 2009 were US$66.6 million, representing an increase of 8% sequentially and 39% year-on-year.
Wireless revenues for the second quarter of 2009 were US$15.0 million, an increase of 12% sequentially and 63% year-on-year. The increase in wireless revenues was mainly because the Company promoted its products through a greater number of channels.
Gross Margin
Gross margin was 77% in the second quarter of 2009, compared to 76% in the first quarter of 2009, and 76% in the second quarter of 2008. Non-GAAP gross margin for the second quarter of 2009 was 78%, compared with 76% in both the first quarter of 2009 and the second quarter of 2008.
Brand advertising gross margin for the second quarter was 68%, compared with 65% in the first quarter of 2009 and 67% in the second quarter of 2008. Non-GAAP brand advertising gross margin for the second quarter of 2009 was 68%, compared with 65% in the first quarter of 2009 and 67% in the second quarter of 2008.
Online game gross margin for the second quarter of 2009 was 94%, unchanged from the first quarter of 2009 and up from 93% in the second quarter of 2008. Non-GAAP online game gross margin in the second quarter of 2009 was also 94%, unchanged from the first quarter of 2009 and up from 93% in the second quarter of 2008.
Wireless gross margin for the second quarter of 2009 was 45%, compared with 43% in the first quarter of 2009 and 40% in the second quarter of 2008. Non-GAAP wireless gross margin for the second quarter of 2009 was 45%, compared to 43% in the first quarter of 2009 and 40% in the second quarter of 2008.
Operating Expenses
For the second quarter of 2009, Sohu's operating expenses totaled US$49.8 million. Non-GAAP operating expenses totaled US$43.5 million, up 21% from US$36.1 million for the first quarter of 2009 and up 23% year-on-year. The quarter-on-quarter increase reflects higher sales and marketing expenses in the second quarter of 2009. The year-on-year increase was primarily due to an increase in salaries and compensation expenses as a result of increased headcounts, an increase in marketing expenses for Sohu’s branding, and an increase in professional fees.
Operating Margin
Non-GAAP operating profit margin was 43% for the second quarter of 2009, compared to 45% in the previous quarter and 41% in the second quarter of 2008.
Income Tax Expense
For the second quarter of 2009, income tax expense was $8.0 million, compared to $6.6 million in the previous quarter.
In the second quarter of 2009, the Company recorded an income tax adjustment of $1.2 million. Excluding such adjustment, the effective tax rate for the second quarter was 14%.
Net Income
Before deducting the share of net income pertaining to the Non-Controlling
Interest in Changyou, GAAP net income for the second quarter of 2009 was $42.3
million, a decrease of 5% quarter-on-quarter and an increase of 5% year-on-year.
Non-GAAP net income for the second quarter of 2009 was $49.0 million, exceeding
the high end of company guidance of $46.0 million, up 4% quarter-on-quarter and
16% year-on-year.
After deducting the share of net income pertaining to the
Non-Controlling Interest in Changyou, GAAP net income attributable to Sohu.com
Inc. for the second quarter of 2009 was $30.9 million, or US 79 cents per fully
diluted share. Non-GAAP net income attributable to Sohu.com Inc. for the second
quarter of 2009 was $35.2 million, or US 90 cents per fully diluted share,
exceeding the high end of company guidance of $33.0 million or US 85 cents per
fully diluted share, by US 5 cents.
Cash
Balance
The Company continued to maintain a debt-free balance sheet and a strong cash position of US$546.7 million as of June 30, 2009.
Stock Repurchase Program
For the second quarter of 2009, no shares were repurchased under the US$150 million share repurchase program approved by the Company’s Board of Directors in October 2008. As of June 30, 2009, approximately 500,000 shares had been repurchased under this program for a total consideration of US$20 million.
Second Quarter Online Game Results
Operations
Aggregate registered accounts for Changyou’s MMORPGs as of June 30, 2009 increased 9% quarter-on-quarter and 53% year-on-year to 69.1 million.
Aggregate active paying accounts (“APA”) for Changyou’s MMORPGs increased 5% quarter-on-quarter and 32% year-on-year to 2.39 million.
Average revenue per user (“ARPU”) for Changyou’s MMORPGs increased 4% sequentially and 6% year-on-year to RMB186, which Changyou believes is within a range that is relatively affordable for the majority of Chinese game players.
Aggregate peak concurrent users (“PCU”) for Changyou’s MMORPGs was approximately 950,000, a decrease of 2% quarter-on-quarter and an increase of 23% year-on-year.
Revenue
Revenues from game operations for the second quarter of 2009 increased 9% quarter-on-quarter and 42% year-on-year to US$64.9 million. The increases were mainly due to user base expansion and higher APA, which reflect the growing popularity of Changyou’s online games.
Overseas licensing revenues for the second quarter of 2009 decreased 27% quarter-on-quarter and 23% year-on-year to US$1.7 million. The decreases were largely the result of greater competition in mature overseas markets.
Ms. Carol Yu, co-president and CFO of Sohu.com, commented, “This quarter was the ninth quarter out of the past ten quarters we achieved record total revenues, a significant achievement given the challenging global economic backdrop over the past several months. We were especially encouraged to see modest growth in our brand advertising business despite the weak economy. In addition, Changyou, our MMORPG subsidiary and one of our crowning achievements, again posted record revenue growth. Our results this quarter demonstrate our ability to achieve balanced growth across different parts of our business, which is a testament to the execution capabilities of our knowledgeable and experienced management team.”
Business Outlook
Sohu estimates total revenues for the
third quarter of 2009 to be between US$133.5 million and US$137.5 million, with
advertising revenues of US$49.5 million to US$51.5 million.
Sohu estimates
brand advertising revenues for the third quarter of 2009 to be between US$48.0
million and US$50.0 million.
Sohu estimates online game revenues for the
third quarter of 2009 to be between US$67.0 million and US$69.0 million.
Sohu estimates non-GAAP net income for the third quarter of 2009, before
deducting the share of non-GAAP net income pertaining to the Non-Controlling
Interest in Changyou, to be between US$50.0 million to US$52.0 million. After
deducting the share of non-GAAP net income pertaining to the Non-Controlling
Interest in Changyou, Sohu estimates non-GAAP net income for the third quarter
of 2009 to be between US$36.0 million to US$38.0 million and non-GAAP fully
diluted earnings per share for the third quarter of 2009 to be between US 92
cents and US 97 cents.
Assuming no new grants of share-based awards, Sohu
estimates share-based compensation expense for the third quarter of 2009 to be
between $4.0 million and $5.0 million, which includes Changyou’s share-based
compensation expense for the third quarter of 2009 estimated to be between $3.5
million and $4.0 million. Considering Sohu’s share in Changyou, the estimated
impact of this expense is expected to reduce Sohu's fully diluted earnings per
share for the third quarter of 2009 under US GAAP by US 7 cents to US 9
cents.
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 (“SFAS 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 commissions and bonuses 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 the 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
GAAP.
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 that 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,
and first half of 2009 which could continue through the remainder of 2009, the
uncertain regulatory landscape in the People's Republic of China, fluctuations
in Sohu's quarterly operating results, EPS dilution resulting from Changyou’s
initial public offering, Sohu's historical and possible future losses, and its
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, 2008, and
other filings with the Securities and Exchange Commission.
Conference Call and Webcast
Sohu's management team
will host a conference call today at 8:30 a.m. ET, July 27, 2009 (8:30 p.m. July
27, 2009 Beijing/Hong Kong time). To listen to the conference call, please use
the dial in numbers below:
| US: | +1-866-730-5764 |
| Hong Kong: | +852-3002-1672 |
| International: | +1-857-350-1588 |
Please dial in 10 minutes before the call is scheduled to begin and provide the passcode to join the call. The passcode is “SOHU.”
A replay of the conference call may be accessed by phone at the following number until August 3, 2009:
| International: | +1-617-801-6888 |
| Passcode: | 88741180 |
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 games information portal www.17173.com; the top real estate website www.focus.cn; #1 online alumni club www.chinaren.com; wireless value-added services provider www.goodfeel.com.cn; leading online mapping service provider www.go2map.com; and developer and operator of online games www.changyou.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 wireless value-added services
such as news, information, music, ringtone and picture content sent over mobile
phones. The Company's massively multiplayer online role-playing game (MMORPG)
subsidiary, Changyou.com (NASDAQ: CYOU), currently operates two
massively multiplayer online role-playing games (MMORPGs), Tian Long Ba Bu and
Blade Online. Sohu.com, established by Dr. Charles Zhang, one of China's
internet pioneers, is in its thirteenth year of operation.
For
investor and media inquiries, please contact:
In China:
Mr. James Deng
Senior Finance Director
Sohu.com Inc.
Tel: +86 (10)
6272-6596
E-mail: ir@contact.sohu.com
Ms. Cathy Li
Ogilvy Financial, Beijing
Tel:+86 (10)
8520-6104
E-mail: cathy.li@ogilvy.com
In the United States:
Ms. Jessica Barist Cohen
Ogilvy Financial, New York
Tel:+1 (646)
460-9989
E-mail: jessica.cohen@ogilvypr.com