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Fourth Quarter of 2009:
Total Revenues of US$135.8 Million; Up 12% Year-over-Year;
Non-GAAP Fully Diluted EPS of US$0.92, Within Group Guidance
Fiscal Year 2009:
Record Total Revenues of US$515.2 Million; Up 20% Year-over-Year;
Non-GAAP Net Income before Non-Controlling Interest of US$197.7 Million; Up 17% Year-over-Year;
Cash Balance of US$563.8 Million; An Increase of US$249.4 Million from Fiscal Year 2008
BEIJING, CHINA, February 1, 2010 ¨C Sohu.com Inc. (NASDAQ: SOHU), China's leading online media, communications, search, online games and mobile value-added services group, today reported unaudited financial results for the fourth quarter and fiscal year ended December 31, 2009.
Fourth Quarter Highlights
Total revenues were US$135.8 million, up 12% year-over-year, in line with the
Group¡¯s guidance.
Brand advertising revenues were US$45.9 million, up 2%
year-over-year and in line with the Group¡¯s guidance.
Online game revenues
reached a record US$70.7 million, up 21% year-over-year and 3%
quarter-over-quarter, in line with the Group¡¯s guidance.
Before deducting
the share of net income pertaining to the Non-Controlling Interest in the
Group¡¯s online game subsidiary Changyou, non-GAAP net income for the fourth
quarter of 2009 was US$50.3 million, in line with the Group¡¯s guidance.
After deducting the share of net income pertaining to the Non-Controlling
Interest in Changyou, on a fully diluted basis, non-GAAP net income for the
fourth quarter of 2009 was US$35.8 million, or US 92 cents per fully diluted
share, in line with the Group¡¯s guidance.
Fiscal Year 2009 Highlights
Record total revenues and record revenues for each category.
Total
revenues reached US$515.2 million, up 20% compared to 2008.
Brand
advertising revenues were US$177.1 million, up 5% compared to 2008.
Online
game revenues reached US$267.6 million, up 33% compared to 2008.
Before
deducting the share of net income pertaining to the Non-Controlling Interest in
Changyou, non-GAAP net income was US$197.7 million, up 17% compared to 2008.
After deducting the share of net income pertaining to the Non-Controlling
Interest in Changyou, on a fully diluted basis, non-GAAP net income was US$155.3
million, or US$3.98 per fully diluted share.
Explanation of the Group¡¯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, commented, ¡°We are pleased to report another quarter of solid financial results built on the accomplishments of an exceptional year which saw us deliver record results along with an enormously successful listing of our MMORPG subsidiary Changyou. Effective business strategies and high-quality products have allowed Sohu to overcome the sluggish economy of 2009 and gain market share in many of our key business segments.
¡°We continue to position ourselves for long-term and sustainable growth through ongoing investments in our two complementary core businesses, namely our portal business and online game business. We believe our emphasis on securing and developing leading internet video content and technologies will drive impressive growth in both users and advertising revenues in 2010. Our persistent efforts in fighting online video piracy have started to bear fruit and have made Sohu the partner of choice for leading global and local media companies. Our online game business also continues to deliver impressive results and progress. While our three healthy and growing existing games continue to deliver solid revenues, our highly anticipated and diverse 2010 pipeline of five games will bring us increasing momentum in the coming quarters. Our second in-house developed game Duke of Mount Deer, one of the most anticipated online games in China, is progressing smoothly.¡±
Commenting on Sohu¡¯s brand advertising business, Ms. Belinda Wang, Co-President and COO, added, ¡°Brand advertising revenues were relatively modest during the fourth quarter, up 2% year-over-year. We expect advertisers to increase their marketing activities in 2010 with events such as the World Cup, Asian Games and World Expo, providing new opportunities for us to showcase our well-established media platform. We are well-positioned to capitalize on the online advertising recovery as brands continue to turn to us for new advertising solutions.¡±
Fourth Quarter Financial Results
Revenues
Total revenues for the fourth quarter ended December 31, 2009 were US$135.8 million, representing a decrease of 1% sequentially and an increase of 12% year-over-year.
Brand advertising revenues for the fourth quarter of 2009 totaled US$45.9 million, representing a sequential decrease of 5% and an increase of 2% year-over-year. Gross brand advertising revenues before business tax for the fourth quarter were US$50.2 million.
Online game revenues for the fourth quarter of 2009 were US$70.7 million, representing increases of 3% sequentially and 21% year-over-year.
Wireless revenues for the fourth quarter of 2009 were US$15.7 million, representing a decrease of 7% sequentially and an increase of 6% year-over-year. The quarter-over-quarter decrease was mainly attributable to China Mobile discontinuing the billing for WAP services in late November.
Gross Margin
Both GAAP and non-GAAP gross margin were 75% in the fourth quarter of 2009, compared with 76% in the third quarter of 2009 and 75% in the fourth quarter of 2008.
Brand advertising gross margin for the fourth quarter of 2009 was 65%, compared with 68% in the third quarter of 2009 and 66% in the fourth quarter of 2008. Non-GAAP brand advertising gross margin for the fourth quarter of 2009 was 65%, compared with 69% in the third quarter of 2009 and 67% in the fourth quarter of 2008.
Both GAAP and non-GAAP online game gross margin in the fourth quarter of 2009 were 92%, compared with 93% in the third quarter of 2009 and 93% in the fourth quarter of 2008.
Both GAAP and non-GAAP wireless gross margin for the fourth quarter of 2009 were 44%, compared with 43% in the third quarter of 2009 and 46% in the fourth quarter of 2008.
Operating Expenses
For the fourth quarter of 2009, Sohu's
operating expenses totaled US$48.8 million. Non-GAAP operating expenses totaled
US$45.0 million, down 4% sequentially from US$46.7 million and up 14%
year-over-year. The year-on-year increase primarily reflects an increase in
marketing expenses.
Operating Margin
Non-GAAP operating profit margin was 42% for the fourth quarter of 2009, compared with 42% in the previous quarter and 43% in the fourth quarter of 2008.
Income Tax Expense
For the fourth quarter of 2009, excluding non-cash income tax expense of US$3.9 million recorded for the tax benefits from share-based awards, non-GAAP income tax expense was US$8.2 million, compared with US$7.0 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 fourth quarter of 2009 was US$42.4 million, down 10% quarter-over-quarter and 25% year-over-year. Non-GAAP net income for the fourth quarter of 2009 was US$50.3 million, down 2% quarter-over-quarter and 15% year-over-year, in line with the Group¡¯s guidance.
After deducting the share of net income pertaining to the Non-Controlling Interest in Changyou, GAAP net income attributable to Sohu for the fourth quarter of 2009 was US$29.4 million, or US 76 cents per fully diluted share. Non-GAAP net income attributable to Sohu for the fourth quarter of 2009 was US$35.8 million, or US 92 cents per fully diluted share, a decrease of 4% quarter-over-quarter, in line with the Group¡¯s guidance.
Cash Balance
The Group continued to maintain a debt-free balance sheet and a strong cash position of US$563.8 million as of December 31, 2009.
Fiscal Year 2009 Financial Results
Revenues
Total revenues for the fiscal year 2009 were US$515.2 million, up 20% compared to 2008.
Brand advertising revenues for the fiscal year 2009 were US$177.1 million, up 5% compared to 2008. Gross brand advertising revenues before business tax for the fiscal year 2009 were US$193.8 million.
Online game revenues for the fiscal year 2009 were US$267.6 million, up 33% compared to 2008. Revenues from game operations for the fiscal year 2009 were US$259.8 million, up 33% compared to 2008. Overseas licensing revenues for the fiscal year 2009 were US$7.8 million, up 8% compared to 2008.
Wireless revenues for the fiscal year 2009 were US$60.8 million, up 29% compared to 2008.
Gross Margin
Both GAAP and non-GAAP gross margin were 76% for the fiscal year 2009, compared to 75% in 2008.
Brand advertising gross margin was 66% for the fiscal year 2009, compared to 65% in 2008. Brand advertising non-GAAP gross margin was 67% for the fiscal year 2009, compared to 66% in 2008.
Online game gross margin was 93% for the fiscal year 2009, compared to 93% in 2008. Online game non-GAAP gross margin was 94% for the fiscal year 2009, compared to 93% in 2008.
Both GAAP and non-GAAP wireless gross margin were 43% for the fiscal year 2009, compared to 48% in 2008.
Operating Expenses
For the fiscal year 2009, Sohu's operating
expenses totaled US$187.5 million. Non-GAAP operating expenses for the fiscal
year 2009 increased 15% to US$171.3 million. The year-over-year increase
primarily reflects an increase in head count and related costs, as well as an
increase in marketing expenses.
Operating Margin
Non-GAAP operating profit margin for the fiscal year 2009 was 43%, compared to 41% in 2008.
Income Tax Expense
For the fiscal year of 2009, excluding non-cash income tax expense of US$3.9 million recorded for the tax benefits from share-based awards, non-GAAP income tax expense was US$29.8 million, compared with US$9.0 million in the previous year.
Net Income
Before deducting the share of net income pertaining to the Non-Controlling Interest in Changyou, GAAP net income for the fiscal year 2009 was US$176.4 million, up 11% compared to 2008; non-GAAP net income for the fiscal year 2009 was US$197.7 million, up 17% compared to 2008.
After deducting the share of net income pertaining to the Non-Controlling Interest in Changyou, GAAP net income for the fiscal year 2009 was US$139.3 million, or US$3.57 per fully diluted share. Non-GAAP net income attributable to Sohu for the fiscal year 2009 was US$155.3 million, or US$3.98 per fully diluted share.
Supplementary Metrics for the Group¡¯s Online Game Results
Fourth Quarter 2009 Operational Results
Aggregate registered accounts for Changyou¡¯s games as of December 31, 2009 increased 8% quarter-over-quarter and 41% year-over-year to 80.9 million.
Aggregate peak concurrent users (¡°PCU¡±) for Changyou¡¯s games was approximately 990,000, an increase of 9% quarter-over-quarter and an increase of 19% year-over-year.
Aggregate active paying accounts (¡°APA¡±) for Changyou¡¯s games was flat quarter-over-quarter and increased 21% year-over-year to 2.4 million.
Average revenue per active paying account (¡°ARPU¡±) for Changyou¡¯s games increased 3% quarter-over-quarter and 1% year-over-year to RMB196, which Changyou believes is within a range that is affordable for the majority of Chinese game players.
Fourth Quarter and Fiscal Year 2009 Revenues
Total revenues for the fourth quarter of 2009 increased 3% quarter-over-quarter and 21% year-over-year to US$70.7 million. Total revenues for the fiscal year 2009 were US$267.6 million, an increase of 33% from US$201.8 million for the fiscal year 2008.
Revenues from game operations for the fourth quarter of 2009 increased 3% quarter-over-quarter and 22% year-over-year to US$68.6 million. The sequential increase primarily reflects the growing popularity of Changyou¡¯s games. The year-over-year increase was mainly due to increased popularity of Changyou¡¯s flagship game, TLBB. Revenues from game operations for the fiscal year 2009 were US$259.8 million, an increase of 33% from US$194.6 million for the fiscal year 2008. The increase was mainly due to increased popularity of Changyou¡¯s flagship game, TLBB.
Overseas licensing revenues for the fourth quarter of 2009 increased 15% quarter-over-quarter and 5% year-over-year to US$2.1 million. Overseas licensing revenues for the fiscal year 2009 were US$7.8 million, an increase of 8% from US$7.2 million for the fiscal year 2008. The increase was mainly due to increased momentum of TLBB in Vietnam and Malaysia.
Stock Repurchase Program
During the fourth quarter of 2009, under the stock repurchase program approved by Board in the third quarter of 2008, Sohu repurchased 751,224 shares common stock at an average price of US$53.26, for total consideration of US$40.0 million.
As of December 31, 2009, Sohu had purchased 1,252,910 Sohu shares in the open market, at an average price of US$47.89 for a total consideration of US$60.0 million.
Ms. Carol Yu, Co-President and CFO of Sohu, commented, ¡°Including our fourth quarter results, Sohu has generated record total revenues in eleven out of the past twelve quarters; an impressive accomplishment considering the challenging economic environment of 2009. We are very pleased with our results in 2009 as we consistently achieved balanced growth across our key businesses. Going forward into 2010, we are confident in our ability to leverage our strong balance sheet and sound business strategies to achieve sustainable growth that will deliver long-term value to our shareholders.¡±
Business Outlook
Sohu estimates total revenues for
the first quarter of 2010 to be between US$123.0 million and US$128.0 million,
with advertising revenues of US$40.0 million to US$42.0 million.
Sohu
estimates brand advertising revenues for the first quarter of 2010 to be between
US$38.0 million and US$40.0 million.
Sohu estimates online game revenues
for the first quarter of 2010 to be between US$70.0 million and US$73.0 million.
Sohu estimates non-GAAP net income for the first quarter of 2010, before
deducting the share of non-GAAP net income pertaining to the Non-Controlling
Interest in Changyou, to be between US$45.0 million to US$47.5 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 first quarter
of 2010 to be between US$31.0 million to US$33.0 million and non-GAAP fully
diluted earnings per share for the first quarter of 2010 to be between US 78
cents and US 83 cents.
Taking into consideration impact of the recent
new grants of share-based awards, Sohu estimates compensation expense and income
tax expense related to share-based awards for the first quarter of 2010 to be
between US$6.5 million and US$7.5 million, which includes Changyou¡¯s share-based
compensation expense for the first quarter of 2010 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 first quarter of 2010 under US GAAP by US 14 cents to
US 16 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 impact of share-based awards granted to employees on the consolidated statements of operations, which consists mainly of share-based compensation expense and non-cash tax benefits from excess tax deductions related to share-based awards. 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 impact of share-based awards from its non-GAAP financial measure is useful for itself and investors. Further, the impact of share-based awards 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 the impact of share-based awards 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, in general, the monthly financial results for internal reporting and any performance measure for commissions and bonuses are based on non-GAAP financial measures that exclude the impact of share-based awards.
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 the impact of share-based awards, is that the impact of share-based awards have been and will continue to be a significant recurring expense in Sohu¡¯s business for the foreseeable future. In order to mitigate these limitations Sohu has 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 that have been 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. Sohu
cautions 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 in 2009, which could continue through 2010, 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 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, February 1, 2010 (9:30 p.m. February 1, 2010 Beijing/Hong Kong time). To listen to the conference call, please use the dial in numbers below:
US:+1-480-629-9724
International:+852-3009-5027
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 February 8, 2010:
International:+852-3056-2777
Passcode:4201220#
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 Group'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 fourteenth 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