First Quarter 2008 Total Revenues Reach US$84.8 Million, Exceeding High End
of Company Guidance by US$16.3 Million, Up 156% Year-on-Year and 30%
Quarter-on-Quarter;
First Quarter 2008 Non-GAAP Fully Diluted EPS of US$0.64, Exceeding High
End of Company Guidance by 19 US Cents
BEIJING, April 28 /Xinhua-PRNewswire/ -- 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 first quarter ended March 31, 2008.
First Quarter Highlights
-- Record high total revenues and record high for each revenue category:
brand advertising, advertising, online game, and non-advertising
revenues as well as net income. All such operating parameters exceed
company guidance.
-- Brand advertising revenues of US$33.2 million, up 41% year-on-year and
3% quarter-on-quarter.
-- Advertising revenues of US$34.8 million, up 36% year-on-year and 3%
quarter-on-quarter.
-- Online game revenues of US$41.0 million, up 24 times year-on-year and
71% quarter-on-quarter. In-house developed massive multiplayer online
role-playing game Tian Long Ba Bu ("TLBB") further solidified its
success with revenue up 77% quarter-on-quarter to US$38.9 million.
-- Non-advertising revenues of US$50.1 million, up 570% year-on-year and
58% quarter-on-quarter.
-- Total revenues of US$84.8 million, up 156% year-on-year and 30%
quarter-on-quarter, exceeding the high end of company guidance by
US$16.3 million.
-- Non-GAAP net income (i.e. excluding share-based compensation expenses)
of US$25.1 million or US$0.64 per fully diluted share, exceeding the
high end of guidance by 19 US cents. Non-GAAP net income increased by
261% year-on-year and 48% quarter-on-quarter.
-- GAAP net income of US$21.6 million or US$0.55 per fully diluted share.
GAAP net income increased by 383% year-on-year and 43%
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 the "Reconciliations to
Unaudited Condensed Consolidated Statements of Operations."
Dr. Charles Zhang, Chairman and CEO of Sohu.com, stated, "We are very
pleased with our first quarter of 2008, which was our third consecutive
quarter in which we reported record total revenues and record revenues in
each category, as well as record non-GAAP net income. We believe that these
results are made possible only by our long-term strategic vision regarding
the Chinese Internet space, such as our sponsorship of the 2008 Beijing
Olympics, and by our continued technological development and advancement,
such as with our in-house developed online game Tian Long Ba Bu. All of
these achievements demonstrate the strength and power of the Sohu brand and
our ability to continue to execute on our plan to lead the Chinese Internet
space."
Ms. Belinda Wang, Co-President and Chief Marketing Officer of Sohu.com,
said, "Despite a generally weak season in the industry for the first
quarter of the year, we were able to achieve yet another record in terms of
brand advertising revenues. We can squarely attribute these results to the
continued shifting of advertising from offline to online and the robust
momentum in advertisers' spending as the 2008 Beijing Olympic Games quickly
draw near. And looking ahead at the remainder of 2008, we believe the
growth of our brand advertising business will be even stronger, primarily
driven by the increasing Olympic-related advertising spending and our
growing penetration in the overall market."
Dr. Gong Yu, Chief Operating Officer of Sohu.com, added, "The impact
and the reach of our online reporting abilities across China are
well-respected by the industry, and have further positioned Sohu as one of
the most authoritative and powerful online media sources in China. We have
worked continuously to provide premier content and innovative products to
our users."
First Quarter Financial Results
Total revenues for the first quarter ended March 31, 2008 were US$84.8
million, compared to revenues of US$65.3 million for the fourth quarter
ended December 31, 2007, and US$33.1 million for the first quarter ended
March 31, 2007.
Gross margin for the first quarter of 2008 was 76%, increased from 71%
in the previous quarter and 60% in the same period of 2007. Non-GAAP gross
margin was 76% in the first quarter of 2008, up from 72% in the previous
quarter and 61% in the same period of 2007. The gross margin expansion was
primarily due to the contribution from TLBB.
Net income for the first quarter of 2008 was US$21.6 million or US$0.55
per fully diluted share. Non-GAAP net income for first quarter of 2008 was
US$25.1 million or US$0.64 per fully diluted share. This compares to
non-GAAP net income of US$17.0 million or US$0.43 per fully diluted share
for the fourth quarter of 2007 and US$7.0 million or US$0.18 per fully
diluted share for the first quarter of 2007.
Advertising revenues for the first quarter of 2008 totaled US$34.8
million, a 3% quarter-on-quarter increase and a 36% year-on-year increase.
Advertising revenues, consisting of US$33.2 million in brand advertising
and US$1.6 million in sponsored search, accounted for 41% of total revenues
in the first quarter of 2008. Brand advertising revenues for the first
quarter of 2008 increased 3% quarter-on-quarter and 41% year-on-year.
Sponsored search revenues for the first quarter of 2008 were up 5%
quarter-on-quarter and down 23% year-on-year. Advertising gross margin for
the first quarter of 2008 was 63%, flat with the previous quarter and up
from 62% in the first quarter of 2007. Non-GAAP advertising gross margin
for the first quarter of 2008 was 64%, flat with the previous quarter and
the first quarter of 2007.
For the first quarter of 2008, Sohu's non-advertising revenues, which
are derived mainly from online game and wireless value-added services, were
US$50.1 million, representing 59% of total revenues. Online game revenues
for first quarter of 2008 increased 71% quarter-on-quarter and 24 times
year-on-year. Wireless revenue increased 17% quarter-on-quarter and 54%
year-on-year. Non-advertising gross margin was 85%, compared to 79% in the
previous quarter and 52% in first quarter of 2007. Non-GAAP non-advertising
gross margin was 85%, compared to 79% in the previous quarter and 52% in
first quarter of 2007. Those increases were due to the contribution from
TLBB.
For first quarter of 2008, Sohu's operating expenses totaled US$34.0
million. Non-GAAP operating expenses totaled US$30.8 million, up 3% from
the previous quarter and up 125% year-on-year. The year-on-year increase
was primarily due to continued investment in product development, marketing
expenses for Sohu branding and TLBB, as well as an increase in bonuses to
reward employees for their contribution to good results.
For first quarter of 2008, income tax expense was US$ 9.2 million,
compared to US$0.7 million for the previous quarter and US$0.3 million for
the same period last year.
On January 1, 2008, the newly introduced Corporate Income Tax Laws,
which unify the statutory income tax rate of enterprises in China to 25%,
became effective. On April 14, 2008, relevant governmental regulatory
authorities released qualification criteria, application procedures and
assessment processes for "New Technology Enterprises," which will be
entitled to a favorable statutory tax rate of 15%. Solicitation of actual
applications has not yet commenced, however. In addition, there are still
divergent views on whether there will be any preconditions for allowing
grandfather treatment for the unexpired tax holidays of New Technology
Enterprises previously qualified under the old tax laws as of December 31,
2007. Due to uncertainties on (a) whether any of Sohu's major operating
entities in China will eventually be approved for New Technology Enterprise
status and (b) whether theses entities will be able to enjoy grandfather
treatment for their unexpired tax holidays unconditionally, for the first
quarter of 2008, Sohu has accounted for its income tax based on the
statutory tax rate of 25%, assuming that it would not enjoy any of the
preferential tax treatment mentioned above. Sohu will account for lower tax
charges in future quarters if and when confirmation is received from the
Chinese tax authorities that any of these operating entities is entitled to
be taxed at preferential rates.
Ms. Carol Yu, Co-President and CFO of Sohu.com, commented, "Sohu's
outstanding results for the first quarter were driven largely by our focus
on innovation, the execution of our strategic goals, and our desire to grow
our market share and be the leading Internet provider in China. Considering
the growing Chinese Internet population and Sohu's strategic vision, we
believe that we will continue to enjoy material growth of our businesses in
2008 and beyond. We clearly have the vision and necessary disciplines in
place to continue to return value to our shareholders."
Business Outlook
Sohu estimates total revenues for the second quarter of 2008 to be
between US$93 million to US$96 million, with advertising revenues of US$40
million to US$41 million and non-advertising revenues of US$53 million to
US$55 million.
Sohu estimates brand advertising revenues for the second quarter of
2008 to be between US$38.5 million to US$39.5 million.
Sohu estimates online game revenues for the second quarter of 2008 to
be between US$43 million to US$45 million.
Sohu estimates non-GAAP fully diluted earnings per share for the second
quarter of 2008 to be between US$0.72 and US$0.75, assuming statutory
income tax rate for our major operating entities in China to be 25%.
Assuming no new grants of share-based awards, Sohu estimates
share-based compensation expense for the second quarter of 2008 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 second quarter of 2008, under US GAAP, by US$0.05 to US$0.06.
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.
In those quarters prior to April 1, 2007, most of costs and expenses
for the game department were related to product development and research.
Accordingly, Sohu recorded all such costs and expenses in product
development expenses in its statements of operations. Beginning April 1,
2007, in order to better present operation results to enhance comparability
with industry peers, Sohu reclassified expenses related to game operations,
mainly salary and benefits of game masters, from product development
expense to cost of online game revenues. To conform with current period
presentations, the relevant amounts for prior periods have been
reclassified. Such reclassification amounted to US$275,000 for the three
months ended March 31, 2007.
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 ET,
April 28, 2008 (or 8:00 PM, April 28, 2008 Beijing/Hong Kong time). To
listen to the conference call, please use the dial in numbers below:
USA Toll Number: 1-800-240-4186
International: 1-303-262-2142
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: 11112454#
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 http://www.sohu.com; interactive search engine http://www.sogou.com; #1
online alumni club http://www.chinaren.com; #1 games information portal
http://www.17173.com; the top real estate website http://www.focus.cn; wireless
value-added services provider http://www.goodfeel.com.cn; and leading online
mapping service provider http://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.comhttp://corp.sohu.com
SOHU.COM INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Three Months Ended
Mar. 31, Dec. 31, Mar. 31,
2008 2007 2007
Revenues:
Advertising
Brand advertising $33,155 $32,166 $23,527
Sponsored search 1,614 1,532 2,086
Subtotal of advertising revenues 34,769 33,698 25,613
Non-advertising
Online game 40,955 23,961 1,617
Wireless 8,593 7,341 5,576
Others 506 342 280
Subtotal of non-advertising
revenues 50,054 31,644 7,473
Total revenues 84,823 65,342 33,086
Cost of revenues:
Advertising
Brand advertising (includes
share-based compensation
expense under SFAS 123(R) of
$309, $363 and $412,
respectively) 11,252 11,049 8,144
Sponsored search (includes
share-based compensation
expense under SFAS 123(R)
of $6, $6 and $19,
respectively) 1,520 1,353 1,578
Subtotal of advertising
cost of revenues 12,772 12,402 9,722
Non-advertising
Online game (includes
stock-based compensation
expense under SFAS 123 (R)
of $5, $4 and $16,
respectively) 3,208 2,765 869
Wireless 3,931 3,238 2,610
Others (includes share-
based compensation
expense under SFAS 123(R)
of $2, $2 and $4,
respectively) 381 530 99
Subtotal of non-advertising
cost of revenues 7,520 6,533 3,578
Total cost of revenues 20,292 18,935 13,300
Gross profit 64,531 46,407 19,786
Operating expenses:
Product development
(includes share-based
compensation expense
under SFAS 123(R) of
$2,263, $612 and $780,
respectively) 11,479 8,395 4,679
Sales and marketing
(includes share-based
compensation expense
under SFAS 123(R) of
$280, $319 and $447,
respectively) 16,140 17,186 7,290
General and administrative
(includes share-based
compensation expense
under SFAS 123(R) of $645,
$579 and $806,
respectively) 6,185 5,746 3,358
Amortization of intangibles 196 202 379
Total operating expenses 34,000 31,529 15,706
Operating profit 30,531 14,878 4,080
Other income (expense) 43 552 (120)
Interest income and exchange difference 166 359 769
Income before income tax expense 30,740 15,789 4,729
Income tax expense (9,185) (720) (282)
Income from continuing operations 21,555 15,069 4,447
Minority Interests 8 5 12
Net income from continuing operations 21,563 15,074 4,459
(Loss) gain from discontinued
E-commerce operations (1) (2) 7
Net income $21,562 $15,072 $4,466
Basic net income per share $0.57 $0.40 $0.12
Shares used in computing
basic net income per share 37,759 37,589 36,722
Diluted net income per share $0.55 $0.39 $0.12
Shares used in computing
diluted net income per share 39,037 39,034 38,986
SOHU.COM INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
As of Mar. 31, As of Dec. 31,
2008 2007
(Audited)
ASSETS
Cash and cash equivalents $160,391 $122,706
Accounts receivable, net 36,193 27,058
Prepaid and other current assets 10,012 7,551
Fixed assets, net 68,356 65,027
Goodwill 55,550 55,542
Intangible assets, net 6,575 7,041
Restricted cash 3,260 4,324
Other assets, net 2,986 1,268
$343,323 $290,517
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $92,610 $71,607
Zero coupon convertible senior notes 6 6
Total liabilities 92,616 71,613
Minority interests 2,207 7
Shareholders' equity 248,500 218,897
$343,323 $290,517
SOHU.COM INC.
RECONCILIATIONS TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NON-GAAP NET INCOME EXCLUDING SHARE-BASED COMPENSATION EXPENSE
Three Months Ended Mar. 31, 2008
Non-GAAP
GAAP Adjustments Non-GAAP
Advertising revenues $34,769 $- $34,769
Less: Cost of advertising revenues 12,772 (315)(a) 12,457
Advertising gross profit $21,997 $315 $22,312
Advertising gross margin 63% 64%
Non-advertising revenues $50,054 $- $50,054
Less: Cost of non-advertising
revenues 7,520 (7)(a) 7,513
Non-advertising gross profit $42,534 $7 $42,541
Non-advertising gross margin 85% 85%
Total revenues $84,823 $- $84,823
Less: Total cost of revenues 20,292 (322)(a) 19,970
Gross profit $64,531 $322 $64,853
Gross margin 76% 76%
Operating expenses $34,000 $(3,188)(a) $30,812
Net income $21,562 $3,510 $25,072
Diluted net income per share $0.55 $0.64
Shares used in computing diluted
net income per share 39,037 39,220
Three Months Ended Dec. 31, 2007
Non-GAAP
GAAP Adjustments Non-GAAP
Advertising revenues $33,698 $- $33,698
Less: Cost of advertising revenues 12,402 (369)(a) 12,033
Advertising gross profit $21,296 $369 $21,665
Advertising gross margin 63% 64%
Non-advertising revenues $31,644 $- $31,644
Less: Cost of non-advertising
revenues 6,533 (6)(a) 6,527
Non-advertising gross profit $25,111 $6 $25,117
Non-advertising gross margin 79% 79%
Total revenues $65,342 $- $65,342
Less: Total cost of revenues 18,935 (375)(a) 18,560
Gross profit $46,407 $375 $46,782
Gross margin 71% 72%
Operating expenses $31,529 $(1,510)(a) $30,019
Net income $15,072 $1,885 $16,957
Diluted net income per share $0.39 $0.43
Shares used in computing diluted
net income per share 39,034 39,237
Three Months Ended Mar. 31, 2007
Non-GAAP
GAAP Adjustments Non-GAAP
Advertising revenues $25,613 $- $25,613
Less: Cost of advertising revenues 9,722 (431)(a) 9,291
Advertising gross profit $15,891 $431 $16,322
Advertising gross margin 62% 64%
Non-advertising revenues $7,473 $- $7,473
Less: Cost of non-advertising
revenues 3,578 (20)(a) 3,558
Non-advertising gross profit $3,895 $20 $3,915
Non-advertising gross margin 52% 52%
Total revenues $33,086 $- $33,086
Less: Total cost of revenues 13,300 (451)(a) 12,849
Gross profit $19,786 $451 $20,237
Gross margin 60% 61%
Operating expenses $15,706 $(2,033)(a) $13,673
Net income $4,466 $2,484 $6,950
Diluted net income per share $0.12 $0.18
Shares used in computing diluted
net income per share 38,986 39,582
Note:
(a) To eliminate share-based compensation expense as measured using the
fair value method under SFAS 123(R).
SOURCE Sohu.com
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Related links:
http://corp.sohu.com
http://www.sogou.com http://www.chinaren.com
http://www.17173.com http://www.goodfeel.com.cn
http://www.go2map.com
CONTACT:
Erin Sheng of Sohu.com, Manager, Investor
Relations and Corporate Communications, +86-10-6272-6596,
ir@contact.sohu.comhttp://corp.sohu.com
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