SOHU.COM Inc. News
Sohu.com Reports Second Quarter 2008 Unaudited Financial Results
Second Quarter Highlights
— Record high total revenues and record high for each revenue category: brand advertising, advertising, online games, and non-advertising revenues as well as net income. All such operating parameters exceed company guidance.
— Brand advertising revenues of
— Advertising revenues of
— Online games revenues of
— Non-advertising revenues of
— Total revenues of
— Non-GAAP net income (i.e. excluding share-based compensation expenses) of
— GAAP net income of
— 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 "Reconciliations to Unaudited Condensed Consolidated Statements of Operations."
"We are very pleased with our strong performance this quarter," said Dr.
Ms.
Dr. Gong Yu, Chief Operating Officer of Sohu.com, added, "During the second quarter, Sohu continued its strategy of offering high-quality content. These initiatives and improvements all add up to our profound progress in increasing new users and user 'stickiness', which has reinforced Sohu's leading position among China Internet companies. As the Internet Content Sponsor for the
Second Quarter Financial Results
Total revenues for the second quarter ended
Gross margin of 76% for the second quarter of 2008, was flat with the previous quarter and up from 61% in the same period of 2007. Non-GAAP gross margin was 76% in the second quarter of 2008, flat with the previous quarter and up from 62% in the same period of 2007. The year-on-year gross margin expansion was mainly from the contribution of TLBB.
Net income for the second quarter of 2008 was
Advertising revenues for the second quarter of 2008 totaled
Advertising gross margin for the second quarter of 2008 was 64%, up from 63% in the previous quarter and up from 62% in the second quarter of 2007. Non-GAAP advertising gross margin for the second quarter of 2008 was 65%, up from 64% in the previous quarter and 64% in the second quarter of 2007.
For the second quarter of 2008, Sohu's non-advertising revenues, which are derived mainly from online games and wireless value-added services, were
For the second quarter of 2008, Sohu's operating expenses totaled
For the second quarter of 2008, income tax expense was
In the first quarter of 2008, Sohu accounted for its PRC income tax based at a statutory tax rate of 25%. Given Sohu's technological centric business with strong research and development capabilities, in the second quarter, we were informed by the relevant tax bureau that some of our operating entities will be entitled to certain tax holidays and will be subject to 0% income tax rate for full year 2008 and 12.5% for 2009 through 2011. Accordingly, in the second quarter, Sohu adopted a 0% income tax rate for these entities and reversed a
Ms.
Business Outlook
Sohu estimates total revenues for the third quarter 2008 to be between
Sohu estimates brand advertising revenues for the third quarter of 2008 to be between
Sohu estimates online games revenues for the third quarter of 2008 to be between
Sohu estimates non-GAAP fully diluted earnings per share for the third quarter of 2008 to be between
Assuming no new grants of share-based awards, Sohu estimates share-based compensation expense for the third quarter of 2008 to be between
Plan for Confidential Filing of Draft Registration Statement for IPO of Changyou.com*
Sohu also announced today that it plans to submit on a confidential basis to the U.S. Securities and Exchange Commission (the "SEC") a draft registration statement for a possible initial public offering (or "IPO") of American Depositary Shares (or "ADSs") representing ordinary shares of Changyou.com Limited (or "Changyou"), a recently-organized
Sohu's and Changyou's purposes for conducting the IPO, if commenced, include allowing Sohu to focus principally on its core online media, communications, search, and mobile value-added services businesses, and providing Changyou a sharper focus on the online games business and related strategic opportunities, with Sohu remaining Changyou's majority shareholder.
The IPO is expected to commence as market conditions permit, and is subject to Changyou's filing with the SEC a registration statement on Form F-1 in compliance with the U.S. Securities Act of 1933, as amended (or the "Securities Act"), and the SEC's declaring such registration statement effective.
*This announcement is being made pursuant to and in accordance with Rule 135 under the Securities Act. As required by Rule 135, this announcement is not intended to, and does not, constitute an offer of any securities for sale.
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 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
On
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
Conference Call and Webcast
Sohu's management team will host a conference call today at
USA Toll Number: 1-800-257-7063
International: 1-303-262-2141
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: 11116974#
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
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
Sohu.com Contact Information Erin Sheng Manager Investor Relations and Corporate Communications Tel: +86 10 6272 6596 E-mail: ir@contact.sohu.com http://corp.sohu.com SOHU.COM INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Three Months Ended Six Months Ended ————————————- ————————— Jun. 30, Mar. 31, Jun. 30, Jun. 30, Jun. 30, 2008 2008 2007 2008 2007 ———— ———— ———— ———— ———— Revenues: Advertising Brand advertising $41,691 $33,155 $26,632 $74,846 $50,159 Sponsored search 1,693 1,614 1,747 3,307 3,833 ———— ———— ———— ———— ———— Subtotal of advertising revenues 43,384 34,769 28,379 78,153 53,992 ———— ———— ———— ———— ———— Non-advertising Online games 47,896 40,955 3,825 88,851 5,442 Wireless 9,166 8,593 6,588 17,759 12,164 Others 1,534 506 196 2,040 476 ———— ———— ———— ———— ———— Subtotal of non- advertising revenues 58,596 50,054 10,609 108,650 18,082 ———— ———— ———— ———— ———— Total revenues 101,980 84,823 38,988 186,803 72,074 Cost of revenues: Advertising Brand advertising (includes share-based compensation expense under SFAS 123(R) of $295, $309, $415, $604 and $827, respectively) 13,907 11,252 9,287 25,159 17,431 Sponsored search (includes share-based compensation expense under SFAS 123(R) of $6, $6, $22, $12 and $41, respectively) 1,605 1,520 1,383 3,125 2,961 ———— ———— ———— ———— ———— Subtotal of advertising cost of revenues 15,512 12,772 10,670 28,284 20,392 ———— ———— ———— ———— ———— Non-advertising Online games (includes stock-based compensation expense under SFAS 123(R) of $5, $5, $15, $10 and $31, respectively) 3,505 3,208 1,401 6,713 2,270 Wireless 5,480 3,931 3,175 9,411 5,785 Others (includes share-based compensation expense under SFAS 123(R) of $2, $2, $4, $4 and $8, respectively) 378 381 132 759 231 ———— ———— ———— ———— ———— Subtotal of non-advertising cost of revenues 9,363 7,520 4,708 16,883 8,286 ———— ———— ———— ———— ———— Total cost of revenues 24,875 20,292 15,378 45,167 28,678 Gross profit 77,105 64,531 23,610 141,636 43,396 Operating expenses: Product development (includes share-based compensation expense under SFAS 123(R) of $1,228, $2,263, $741, $3,491 and $1,521, respectively) 10,798 11,479 5,494 22,277 10,173 Sales and marketing (includes share-based compensation expense under SFAS 123(R) of $228, $280, $438, $508 and $885, respectively) 21,408 16,140 9,457 37,548 16,747 General and administrative (includes share-based compensation expense under SFAS 123(R) of $394, $645, $761, $1,039 and $1,567, respectively) 4,827 6,185 3,414 11,012 6,772 Amortization of intangibles 199 196 310 395 689 ———— ———— ———— ———— ———— Total operating expenses 37,232 34,000 18,675 71,232 34,381 ———— ———— ———— ———— ———— Operating profit 39,873 30,531 4,935 70,404 9,015 Other (expense) income (575) 43 (120) (532) (240) Interest income and exchange difference 1,480 166 1,057 1,646 1,826 ———— ———— ———— ———— ———— Income before income tax expense 40,778 30,740 5,872 71,518 10,601 Income tax expense (577) (9,185) (163) (9,762) (445) ———— ———— ———— ———— ———— Income from continuing operations 40,201 21,555 5,709 61,756 10,156 Minority interests (12) 8 18 (4) 30 ———— ———— ———— ———— ———— Net income from continuing operations 40,189 21,563 5,727 61,752 10,186 Loss from discontinued E-commerce operations - (1) (20) (1) (13) ———— ———— ———— ———— ———— Net income $40,189 $21,562 $5,707 $61,751 $10,173 ======== ======== ======== ======== ======== Basic net income per share $1.05 $0.57 $0.15 $1.63 $0.28 ======== ======== ======== ======== ======== Shares used in computing basic net income per share 38,108 37,759 36,903 37,934 36,813 ======== ======== ======== ======== ======== Diluted net income per share $1.02 $0.55 $0.15 $1.57 $0.27 ======== ======== ======== ======== ======== Shares used in computing diluted net income per share 39,429 39,037 39,130 39,234 39,059 ======== ======== ======== ======== ======== SOHU.COM INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) As of Jun. As of Dec. 30, 2008 31, 2007 —————— —————— (Unaudited) (Audited) ASSETS Cash and cash equivalents $225,983 $122,706 Accounts receivable, net 36,643 27,058 Prepaid and other current assets 21,422 7,551 Fixed assets, net 74,955 65,027 Goodwill 55,554 55,542 Intangible assets, net 6,022 7,041 Restricted cash 2,835 4,324 Other assets, net 3,228 1,268 —————— —————— $426,642 $290,517 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $3,984 $2,667 Accrued liabilities to suppliers and agents 29,819 23,741 Receipts in advance and deferred revenue 24,435 14,139 Tax payables 19,805 6,850 Other accrued liabilities 38,464 24,216 —————— —————— Total liabilities 116,507 71,613 Minority interests 2,985 7 Shareholders' equity 307,150 218,897 —————— —————— $426,642 $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 Jun. 30, 2008 ——————————————————- Non-GAAP GAAP Adjustments(a) Non-GAAP ————- ———————- ————- Advertising revenues $43,384 - $43,384 Less: Cost of advertising revenues 15,512 (301) 15,211 ————- ———————- ————- Advertising gross profit $27,872 $301 $28,173 ========= =============== ========= Advertising gross margin 64% 65% ========= ========= Non-advertising revenues $58,596 - $58,596 Less: Cost of non-advertising revenues 9,363 (7) 9,356 ————- ——————— ————- Non-advertising gross profit $49,233 $7 $49,240 ========= =============== ========= Non-advertising gross margin 84% 84% ========= ========= Total revenues $101,980 - $101,980 Less: Total cost of revenues 24,875 (308) 24,567 ————- ———————- ————- Gross profit $77,105 $308 $77,413 ========= =============== ========= Gross margin 76% 76% ========= ========= Operating expenses $37,232 $(1,850) $35,382 ========= =============== ========= Net income $40,189 $2,158 $42,347 ========= =============== ========= Diluted net income per share $1.02 $1.07 ========= ========= Shares used in computing diluted net income per share 39,429 39,540 ========= ========= Three Months Ended Mar. 31, 2008 ——————————————————- Non-GAAP GAAP Adjustments(a) Non-GAAP ————- ———————- ————- Advertising revenues $34,769 - $34,769 Less: Cost of advertising revenues 12,772 (315) 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) 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) 19,970 ————- ———————- ————- Gross profit $64,531 $322 $64,853 ========= =============== ========= Gross margin 76% 76% ========= ========= Operating expenses $34,000 $(3,188) $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 Jun. 30, 2007 ——————————————————- Non-GAAP GAAP Adjustments(a) Non-GAAP ————- ———————- ————- Advertising revenues $28,379 - $28,379 Less: Cost of advertising revenues 10,670 (437) 10,233 ————- ———————- ————- Advertising gross profit $17,709 $437 $18,146 ========= =============== ========= Advertising gross margin 62% 64% ========= ========= Non-advertising revenues $10,609 - $10,609 Less: Cost of non-advertising revenues 4,708 (19) 4,689 ————- ———————- ————- Non-advertising gross profit $5,901 $19 $5,920 ========= =============== ========= Non-advertising gross margin 56% 56% ========= ========= Total revenues $38,988 - $38,988 Less: Total cost of revenues 15,378 (456) 14,922 ————- ———————- ————- Gross profit $23,610 $456 $24,066 ========= =============== ========= Gross margin 61% 62% ========= ========= Operating expenses $18,675 $(1,940) $16,735 ========= =============== ========= Net income $5,707 $2,396 $8,103 ========= =============== ========= Diluted net income per share $0.15 $0.21 ========= ========= Shares used in computing diluted net income per share 39,130 39,675 ========= ========= 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 Six Months Ended Jun. 30, 2008 ——————————————————- Non-GAAP GAAP Adjustments(a) Non-GAAP ————- ———————- ————- Advertising revenues $78,153 - $78,153 Less: Cost of advertising revenues 28,284 (616) 27,668 ————- ———————- ————- Advertising gross profit $49,869 $616 $50,485 ========= =============== ========= Advertising gross margin 64% 65% ========= =============== ========= Non-advertising revenues $108,650 - $108,650 Less: Cost of non-advertising revenues 16,883 (14) 16,869 ————- ———————- ————- Non-advertising gross profit $91,767 $14 $91,781 ========= =============== ========= Non-advertising gross margin 84% 84% ========= =============== ========= Total revenues $186,803 - $186,803 Less: Total cost of revenues 45,167 (630) 44,537 ————- ———————- ————- Gross profit $141,636 $630 $142,266 ========= =============== ========= Gross margin 76% 76% ========= =============== ========= Operating expenses $71,232 $(5,038) $66,194 ========= =============== ========= Net income $61,751 $5,668 $67,419 ========= =============== ========= Diluted net income per share $1.57 $1.71 ========= =============== ========= Shares used in computing diluted net income per share 39,234 39,381 ========= =============== ========= Six Months Ended Jun. 30, 2007 ——————————————————- Non-GAAP GAAP Adjustments(a) Non-GAAP ————- ———————- ————- Advertising revenues $53,992 - $53,992 Less: Cost of advertising revenues 20,392 (868) 19,524 ————- ———————- ————- Advertising gross profit $33,600 $868 $34,468 ========= =============== ========= Advertising gross margin 62% 64% ========= =============== ========= Non-advertising revenues $18,082 - $18,082 Less: Cost of non-advertising revenues 8,286 (39) 8,247 ————- ———————- ————- Non-advertising gross profit $9,796 $39 $9,835 ========= =============== ========= Non-advertising gross margin 54% 54% ========= =============== ========= Total revenues $72,074 - $72,074 Less: Total cost of revenues 28,678 (907) 27,771 ————- ———————- ————- Gross profit $43,396 $907 $44,303 ========= =============== ========= Gross margin 60% 61% ========= =============== ========= Operating expenses $34,381 $(3,973) $30,408 ========= =============== ========= Net income $10,173 $4,880 $15,053 ========= =============== ========= Diluted net income per share $0.27 $0.39 ========= =============== ========= Shares used in computing diluted net income per share 39,059 39,629 ========= =============== ========= Note: (a) To eliminate share-based compensation expense as measured using the fair value method under SFAS 123(R).
SOURCE Sohu.com Inc.
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