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Record Total Revenues Up 13% Year-on-Year to US$136.6 Million
Non-GAAP Fully Diluted EPS of US$0.96, Close to High End of Company Guidance
BEIJING, CHINA, October 26, 2009 ¨C 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 third quarter ended September 30, 2009.
Third Quarter Highlights
- Total revenues reached record US$136.6 million, up 13% year-on-year, in line with the Company¡¯s guidance.
- Brand advertising revenues were US$48.5 million, in line with the Company¡¯s guidance.
- Online game revenues reached a record US$68.7 million, up 26% year-on-year and 3% quarter-on-quarter, in line with the company guidance.
- Before deducting the share of net income pertaining to the Non-Controlling Interest in Changyou, non-GAAP net income for the third quarter of 2009 was US$51.6 million, close to the high end of the Company¡¯s guidance, up 21% year-on-year and 5% quarter-on-quarter.
- After deducting the share of net income pertaining to the Non-Controlling Interest in Changyou, non-GAAP net income for the third quarter of 2009 was US$37.4 million, or US 96 cents per fully diluted share, close to the high end of the Company¡¯s guidance.
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, ¡°This quarter marks another achievement of record total revenues as we continue successes in both our portal and online game businesses. We are pleased to receive external recognition for the success of our business from Fortune magazine, which ranked us as the third-fastest growing U.S.-listed company in August of this year.¡±
¡°Our investments in branding, online content and advanced technologies are attracting new users and advertisers and are helping us to deliver on our long-term strategy to build China¡¯s leading mainstream media platform,¡± continued Dr. Zhang. ¡°Our online game business also continues to deliver record results. The strong foundation established by the successful performance and increasing popularity of our existing games allows us to strategically license high-quality games and invest in new technologies to further enrich and diversify our game portfolio. We remain confident that our online game business will retain its leadership position while continuing to capture additional market share.¡±
Commenting on Sohu¡¯s brand advertising business, Ms. Belinda Wang, Co-President and Chief Marketing Officer of Sohu.com, added, ¡°Brand advertising revenues over the first nine months of 2009 grew 5.6% year-on-year, despite the global financial crisis and the tough comparison from heavy ad spending pertaining to the 2008 Beijing Olympic Games. As advertisers increasingly demand targeted, cost-effective advertising, they are shifting greater proportions of their advertising budgets to Internet media from traditional advertising. With one of China¡¯s most powerful mainstream media platforms, we are well positioned to benefit from this ongoing trend.¡±
Third Quarter Financial Results
Revenues
Total revenues for the third quarter ended September 30, 2009 were US$136.6 million, representing increases of 7% sequentially and 13% year-on-year.
Brand advertising revenues for the third quarter of 2009 totaled US$48.5 million, representing a sequential increase of 11% and a decrease of 2% year-on-year.
Online game revenues for the third quarter of 2009 were US$68.7 million, representing increases of 3% sequentially and 26% year-on-year.
Wireless revenues for the third quarter of 2009 were US$16.8 million, representing increases of 12% sequentially and 16% year-on-year. The increase in wireless revenues was mainly a result of the Company promoting its products through a greater number of channels.
Gross Margin
Gross margin was 76% in the third quarter of 2009, compared with 77% in the second quarter of 2009 and 74% in the third quarter of 2008. Non-GAAP gross margin for the third quarter of 2009 was 76%, compared with 78% in the second quarter of 2009 and 74% in the third quarter of 2008.
Brand advertising gross margin for the third quarter of 2009 was 68%, compared with 68% in the second quarter of 2009 and 62% in the third quarter of 2008. Non-GAAP brand advertising gross margin for the third quarter of 2009 was 69%, compared with 68% in the second quarter of 2009 and 62% in the third quarter of 2008.
Online game gross margin for the third quarter of 2009 was 93%, compared with 94% in the second quarter of 2009 and 94% in the third quarter of 2008. Non-GAAP online game gross margin in the third quarter of 2009 was also 93%, compared with 94% in the second quarter of 2009 and 94% in the third quarter of 2008.
Wireless gross margin for the third quarter of 2009 was 43%, compared with 45% in the second quarter of 2009 and 51% in the third quarter of 2008. Non-GAAP wireless gross margin for the third quarter of 2009 was 43%, compared with 45% in the second quarter of 2009 and 51% in the third quarter of 2008.
Operating Expenses
For the third quarter of 2009, Sohu's operating expenses totaled US$50.8 million. Non-GAAP operating expenses totaled US$46.7 million, up 7% sequentially from US$43.5 million and up 9% year-on-year. The quarter-on-quarter and year-on-year increases primarily reflect increases in salaries and compensation expenses as a result of increased headcount and an increase in professional fees.
Operating Margin
Non-GAAP operating profit margin was 42% for the third quarter of 2009, compared with 43% in the previous quarter and 38% in the third quarter of 2008.
Income Tax Expense
For the third quarter of 2009, income tax expense was US$7.0 million, compared with US$8.0 million in the previous quarter.
Net Income
Before deducting the share of net income pertaining to the Non-Controlling Interest in Changyou, GAAP net income for the third quarter of 2009 was US$47.1 million, up 11% quarter-on-quarter and 17% year-on-year. Non-GAAP net income for the third quarter of 2009 was US$51.6 million, up 5% quarter-on-quarter and 21% year-on-year, in line with the Company¡¯s guidance.
After deducting the share of net income pertaining to the Non-Controlling Interest in Changyou, GAAP net income for the third quarter of 2009 was US$34.4 million, or US 88 cents per fully diluted share. Non-GAAP net income for the third quarter of 2009 was US$37.4 million, or US 96 cents per fully diluted share, an increase of 6% quarter-on-quarter, in line with the Company¡¯s guidance.
Cash Balance
The Company continued to maintain a debt-free balance sheet and a strong cash position of US$596.4 million as of September 30, 2009.
Stock Repurchase Program
For the third 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 September 30, 2009, approximately 500,000 shares had been repurchased under this program for a total consideration of US$20 million.
Supplementary Metrics for the Company¡¯s Third Quarter Online Game Results
Operations
Aggregate registered accounts for Changyou¡¯s games as of September 30, 2009 increased 9% quarter-on-quarter and 46% year-on-year to 75.1 million.
Aggregate active paying accounts (¡°APA¡±) for Changyou¡¯s games increased 1% quarter-on-quarter and 20% year-on-year to 2.4 million.
Aggregate average revenue per active paying account (¡°ARPU¡±) for Changyou¡¯s games increased 2% quarter-on-quarter and 7% year-on-year to RMB190, which Changyou believes is within a range that is affordable for the majority of Chinese game players.
Aggregate peak concurrent users (¡°PCU¡±) for Changyou¡¯s games was approximately 910,000, a decrease of 4% quarter-on-quarter and an increase of 18% year-on-year.
Revenue
Total online game revenues for the third quarter of 2009 increased 3% quarter-on-quarter and 26% year-on-year to US$68.7 million.
Revenues from game operations for the third quarter of 2009 increased 3% quarter-on-quarter and 29% year-on-year to US$66.9 million. The increases were mainly due to increased popularity of Changyou¡¯s flagship game, TLBB.
Overseas licensing revenues for the third quarter of 2009 increased 9% quarter-on-quarter and decreased 33% year-on-year to US$1.8 million. The sequential increase was mainly due to increased momentum of TLBB in Vietnam and Malaysia. The year-on-year decrease was largely the result of greater competition in mature online game markets abroad.
Ms. Carol Yu, Co-President and CFO of Sohu.com, commented, ¡°Our complementary businesses generated record total revenues for the tenth out of the past eleven quarters as our leading mainstream media platform captures increasing market share. By remaining focused on our key strategies, we have been able to maintain our growth momentum over the first nine months of 2009, an impressive accomplishment given our very strong results in 2008 due to the Beijing Olympic Games. We are confident in the future of our business and we continue to actively pursue effective ways to leverage our strong balance sheet and leading market position to provide additional long-term value to our shareholders.¡±
Business Outlook
Sohu estimates total revenues for the
fourth quarter of 2009 to be between US$134.5 million and US$138.5 million, with
advertising revenues of US$48.0 million to US$50.0 million.
Sohu estimates
brand advertising revenues for the fourth quarter of 2009 to be between US$45.0
million and US$47.0 million.
Sohu estimates online game revenues for the
fourth quarter of 2009 to be between US$69.0 million and US$71.0 million.
Sohu estimates non-GAAP net income for the fourth quarter of 2009,
before deducting the share of non-GAAP net income pertaining to the
Non-Controlling Interest in Changyou, to be between US$49.5 million to US$51.5
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
fourth quarter of 2009 to be between US$35.0 million to US$37.0 million and
non-GAAP fully diluted earnings per share for the fourth quarter of 2009 to be
between US 90 cents and US 95 cents.
Assuming no new grants of share-based
awards, Sohu estimates share-based compensation expense for the fourth quarter
of 2009 to be between US$3.5 million and US$4.5 million, which includes
Changyou¡¯s share-based compensation expense for the fourth quarter of 2009
estimated to be between US$3.0 million and US$3.5 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 fourth quarter of 2009 under US
GAAP by US 6 cents to US 8 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. 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 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 Sohu¡¯s 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 interim 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 Sohu¡¯s 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 three quarters 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 at 8:30 a.m. ET, October 26, 2009
(8:30 p.m. October 26, 2009 Beijing/Hong Kong time). To listen to the conference
call, please use the dial in numbers below:
US: +1-800-901-5248
Hong Kong: +852-3002-1672
International:
+1-617-786-4512
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 November 2, 2009:
International: +1-617-801-6888
Passcode:69550498
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 three MMORPGs, Tian
Long Ba Bu, Blade Online and Blade Hero 2. 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