Sohu.com Reports Fourth Quarter and Fiscal Year 2009 Unaudited Financial Results

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

Feb 01, 2010, 02:15 ET from Sohu.com Inc.

BEIJING, Feb. 1 /PRNewswire-Asia/ -- 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.

    (Logo: http://www.newscom.com/cgi-bin/prnh/20100201/CNM013LOGO )

    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
     Email: ir@contact.sohu.com

     Ms. Cathy Li
     Ogilvy Financial, Beijing
     Tel:   +86-10-8520-6104
     Email: cathy.li@ogilvy.com

    In the United States:
     Ms. Jessica Barist Cohen
     Ogilvy Financial, New York
     Tel:   +1-646-460-9989
     Email: jessica.cohen@ogilvypr.com


                                   SOHU.COM INC.
                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                (UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

                               Three Months Ended         Twelve Months Ended
                          Dec. 31,    Sep. 30,  Dec. 31,  Dec. 31,  Dec. 31,
                            2009        2009      2008      2009      2008
    Revenues:
       Advertising
        Brand
         advertising   $    45,876 $    48,502 $ 45,024 $  177,073 $ 169,268
        Sponsored
         search              2,929       2,292    1,625      8,552     6,669
          Subtotal of
           advertising
           revenues         48,805      50,794   46,649    185,625   175,937
       Online games         70,698      68,684   58,390    267,585   201,845
       Wireless and
        others              16,328      17,107   16,533     62,029    51,269
           Total
            revenues       135,831     136,585  121,572    515,239   429,051

    Cost of revenues:
       Advertising
        Brand
         advertising
         (includes
         share-based
         compensation
         expense of $141,
         $149, $308, $787
         and $1,200,
         respectively)      16,238      15,418   15,266     59,451    59,443
        Sponsored search
         (includes
         share-based
         compensation
         expense of $1,
         $19, $3, $26
         and $19,
         respectively)       3,079       2,728    1,916     10,370     6,816
          Subtotal of
           cost of
           advertising
           revenues         19,317      18,146   17,182     69,821    66,259
       Online games
        (includes share-
        based compensation
        expense of $57,
        $169, $4, $324
        and $14,
        respectively)        5,419       4,713    4,374     17,505    14,567
       Wireless and others
        (includes share-
        based compensation
        expense of $0, $11,
        $1, $12 and $5,
        respectively)        9,097      10,331    8,677     36,069    26,488
          Total cost of
           revenues         33,833      33,190   30,233    123,395   107,314

    Gross profit           101,998     103,395   91,339    391,844   321,737

    Operating expenses:
       Product development
        (includes share-
        based compensation
        expense of $1,952,
        $2,204, $1,580,
        $8,729 and $6,749,
        respectively)       14,461      14,531   14,424     56,943    49,713
       Sales and marketing
        (includes share-
        based compensation
        expense of $96,
        $152, $174, $747
        and $896,
        respectively)       25,405      25,457   19,500     93,498    84,691
       General and
        administrative
        (includes
        share-based
        compensation
        expense of
        $1,687, $1,780,
        $321, $6,694 and
        $1,737,
        respectively)        8,801      10,721    7,535     36,624    22,695
       Amortization of
        intangible assets       93          93      200        388       796
          Total operating
           expenses         48,760      50,802   41,659    187,453   157,895

    Operating profit        53,238      52,593   49,680    204,391   163,842

    Other income (expense)     239          40      (54)       342      (535)
    Interest income and
     exchange difference     1,136       1,469    1,221      5,001     4,288
    Income before
     income tax expense     54,613      54,102   50,847    209,734   167,595

    Income tax expense
     (benefit)              12,168       7,022   (5,745)    33,745     9,009
    Income from
     continuing
     operations             42,445      47,080   56,592    175,989   158,586
    Gain (Loss) from
     discontinued
     e-commerce
     operations                 --          --       (0)       446        (0)
    Net income              42,445      47,080   56,592    176,435   158,586
      Less: Net
       income(loss)
       attributable to
       the noncontrolling
       interest             10,096       9,726      (33)    28,602       (51)
    Net income
     attributable to
     Sohu.com Inc.          32,349      37,354   56,625    147,833   158,637

    Basic net income
     per share
     attributable to
     Sohu.com Inc.     $      0.84 $      0.97 $   1.48  $    3.86  $   4.16

    Shares used in
     computing basic
     net income
     per share
     attributable to
     Sohu.com Inc.          38,317      38,410   38,311     38,294    38,168

    Diluted net income
     per share
     attributable to
     Sohu.com Inc.     $      0.76 $      0.88 $   1.45 $     3.57  $   4.06

    Shares used in
     computing diluted
     net income
     per share
     attributable to
     Sohu.com Inc.          38,920      39,082   39,090     38,969    39,117



                                  SOHU.COM INC.
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                          (UNAUDITED, IN THOUSANDS)

                                              As of Dec. 31,   As of Dec. 31,
                                                   2009             2008

    ASSETS
    Current assets:
      Cash and cash equivalents            $        563,782 $        314,425
      Accounts receivable, net                       46,610           36,869
      Prepaid and other current assets               10,781           27,551
        Total current assets                        621,173          378,845
    Fixed assets, net                               115,088           76,237
    Goodwill                                         55,555           55,555
    Intangible assets, net                            7,933            5,654
    Restricted cash                                      --            2,671
    Other assets, net                                28,524            2,914
    Total assets                           $        828,273 $        521,876

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities:
      Accounts payable                     $          4,602 $          4,339
      Accrued liabilities to suppliers and
       agents                                        41,103           33,054
      Receipts in advance and deferred
       revenue                                       36,944           31,446
      Tax payables                                   21,953           18,892
      Other accrued liabilities                      45,895           43,051
       Total current liabilities                    150,497          130,782

    Shareholders' equity:
      Sohu.com Inc. shareholders' equity            609,781          385,946
      Noncontrolling interest                        67,995            5,148
       Total shareholders' equity                   677,776          391,094

         Total liabilities and
          shareholders' equity             $        828,273 $        521,876



                                  SOHU.COM INC.
        RECONCILIATIONS TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
                                 OF OPERATIONS
                (UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

        NON-GAAP NET INCOME EXCLUDING SHARE-BASED COMPENSATION EXPENSE

                                             Three Months Ended Dec. 31, 2009
                                                      Non-GAAP
                                              GAAP   Adjustments (a) Non-GAAP
    Advertising revenues                     $48,805        $--       $48,805
      Less: Cost of advertising revenues      19,317       (142)       19,175
      Advertising gross profit               $29,488       $142       $29,630
      Advertising gross margin                   60%                      61%

    Online games revenues                    $70,698        $--       $70,698
      Less: Cost of online games revenues      5,419        (57)        5,362
      Online games gross profit              $65,279        $57       $65,336
      Online games gross margin                  92%                      92%

    Wireless and others revenues             $16,328        $--       $16,328
      Less: Cost of wireless and others
       revenues                                9,097         --         9,097
      Wireless and others gross profit        $7,231        $--        $7,231
      Wireless and others gross margin           44%                      44%

    Total revenues                          $135,831        $--      $135,831
      Less: Total cost of revenues            33,833       (199)       33,634
      Gross profit                          $101,998       $199      $102,197
      Gross margin                               75%                      75%

    Operating expenses                       $48,760    $(3,735)      $45,025
    Operating profit                         $53,238     $3,934       $57,172
      Operating margin                           39%                      42%

    Income tax expense(benefit)              $12,168    $(3,927)       $8,241

    Net income before Non-Controlling
     Interest                                $42,445     $7,861       $50,306

    Net income attributable to Sohu.com
     Inc.                                    $32,349     $6,996       $39,345
    Diluted net income per share
     attributable to Sohu.com Inc.             $0.76                    $0.92
    Shares used in computing diluted net
     income per share attributable to
     Sohu.com Inc.                            38,920                   38,957


                                             Three Months Ended Sep. 30, 2009
                                                      Non-GAAP
                                              GAAP   Adjustments (a) Non-GAAP
    Advertising revenues                     $50,794        $--       $50,794
      Less: Cost of advertising revenues      18,146       (168)       17,978
      Advertising gross profit               $32,648       $168       $32,816
      Advertising gross margin                   64%                      65%

    Online games revenues                    $68,684        $--       $68,684
      Less: Cost of online games revenues      4,713       (169)        4,544
      Online games gross profit              $63,971       $169       $64,140
      Online games gross margin                  93%                      93%

    Wireless and others revenues             $17,107        $--       $17,107
      Less: Cost of wireless and others
       revenues                               10,331        (11)       10,320
      Wireless and others gross profit        $6,776        $11        $6,787
      Wireless and others gross margin           40%                      40%

    Total revenues                          $136,585        $--      $136,585
      Less: Total cost of revenues            33,190       (348)       32,842
      Gross profit                          $103,395       $348      $103,743
      Gross margin                               76%                      76%

    Operating expenses                       $50,802    $(4,136)      $46,666
    Operating profit                          52,593     $4,484       $57,077
     Operating margin                            39%                      42%

    Income tax expense(benefit)               $7,022        $--        $7,022

    Net income before Non-Controlling
     Interest                                $47,080     $4,484       $51,564

    Net income attributable to Sohu.com
     Inc.                                    $37,354     $3,567       $40,921
    Diluted net income per share
     attributable to Sohu.com Inc.             $0.88                    $0.96
    Shares used in computing diluted net
     income per share attributable to
     Sohu.com Inc.                            39,082                   39,129


                                             Three Months Ended Dec. 31, 2008
                                                      Non-GAAP
                                              GAAP   Adjustments (a) Non-GAAP
    Advertising revenues                     $46,649        $--       $46,649
      Less: Cost of advertising revenues      17,182       (311)       16,871
      Advertising gross profit               $29,467       $311       $29,778
      Advertising gross margin                   63%                      64%

    Online games revenues                    $58,390        $--       $58,390
      Less: Cost of online games revenues      4,374         (4)        4,370
      Online games gross profit              $54,016         $4       $54,020
      Online games gross margin                  93%                      93%

    Wireless and others revenues             $16,533        $--       $16,533
      Less: Cost of wireless and others
       revenues                                8,677         (1)        8,676
      Wireless and others gross profit        $7,856         $1        $7,857
      Wireless and others gross margin           48%                      48%

    Total revenues                          $121,572        $--      $121,572
      Less: Total cost of revenues            30,233       (316)       29,917
      Gross profit                           $91,339       $316       $91,655
      Gross margin                               75%                      75%

    Operating expenses                       $41,659    $(2,075)      $39,584
    Operating profit                         $49,680     $2,391       $52,071
      Operating margin                           41%                      43%

    Income tax expense(benefit)              $(5,745)       $--       $(5,745)

    Net income before Non-Controlling
     Interest                                $56,592     $2,391       $58,983

    Net income attributable to Sohu.com
     Inc.                                    $56,625     $2,391       $59,016
    Diluted net income per share
     attributable to Sohu.com Inc.             $1.45                     $1.5
    Shares used in computing diluted net
     income per share attributable to
     Sohu.com Inc.                            39,090                   39,281


    Note:
    (a) To eliminate the impact of share-based awards as measured using the
        fair value method.
    (b) Certain amounts from prior periods have been reclassified to conform
        with current period presentation.



                                  SOHU.COM INC.
            RECONCILIATIONS TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
                                 OF OPERATIONS
                (UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

            NON-GAAP NET INCOME EXCLUDING SHARE-BASED COMPENSATION EXPENSE

                                           Twelve Months Ended Dec. 31, 2009
                                                     Non-GAAP
                                             GAAP   Adjustments (a) Non-GAAP
    Advertising revenues                   $185,625        $--      $185,625
      Less: Cost of advertising revenues     69,821       (813)       69,008
      Advertising gross profit             $115,804       $813      $116,617
      Advertising gross margin                  62%                      63%

    Online games revenues                  $267,585        $--      $267,585
      Less: Cost of online games revenues    17,505       (324)       17,181
      Online games gross profit            $250,080       $324      $250,404
      Online games gross margin                 93%                      94%

    Wireless and others revenues            $62,029        $--       $62,029
      Less: Cost of wireless and others
       revenues                              36,069        (12)       36,057
      Wireless and others gross profit      $25,960        $12       $25,972
      Wireless and others gross margin          42%                      42%

    Total revenues                         $515,239        $--      $515,239
      Less: Total cost of revenues          123,395     (1,149)      122,246
      Gross profit                         $391,844     $1,149      $392,993
      Gross margin                              76%                      76%

    Operating expenses                     $187,453   $(16,170)     $171,283
    Operating profit                       $204,391    $17,319      $221,710
      Operating margin                          40%                      43%

    Income tax expense                      $33,745    $(3,927)      $29,818

    Net income before Non-Controlling
     Interest                              $176,435    $21,246      $197,681

    Net income attributable to Sohu.com
     Inc.                                  $147,833    $18,012      $165,845
    Diluted net income per share
     attributable to Sohu.com Inc.            $3.57                    $3.98
    Shares used in computing diluted net
     income per share attributable to
     Sohu.com Inc.                           38,969                   39,051


                                            Twelve Months Ended Dec. 31, 2008
                                                      Non-GAAP
                                              GAAP   Adjustments (a) Non-GAAP
    Advertising revenues                    $175,937       $--       $175,937
      Less: Cost of advertising revenues      66,259    (1,219)        65,040
      Advertising gross profit              $109,678    $1,219       $110,897
      Advertising gross margin                   62%                      63%

    Online games revenues                   $201,845       $--       $201,845
      Less: Cost of online games revenues     14,567       (14)        14,553
      Online games gross profit             $187,278       $14       $187,292
      Online games gross margin                  93%                      93%

    Wireless and others revenues             $51,269       $--        $51,269
      Less: Cost of wireless and others
       revenues                               26,488        (5)        26,483
      Wireless and others gross profit       $24,781        $5        $24,786
      Wireless and others gross margin           48%                      48%

    Total revenues                          $429,051       $--       $429,051
      Less: Total cost of revenues           107,314    (1,238)       106,076
      Gross profit                          $321,737    $1,238       $322,975
      Gross margin                               75%                      75%

    Operating expenses                      $157,895   $(9,382)      $148,513
    Operating profit                        $163,842   $10,620       $174,462
      Operating margin                           38%                      41%

    Income tax expense                        $9,009       $--         $9,009

    Net income before Non-Controlling
     Interest                               $158,586   $10,620       $169,206

    Net income attributable to Sohu.com
     Inc.                                   $158,637   $10,620       $169,257
    Diluted net income per share
     attributable to Sohu.com Inc.             $4.06                    $4.29
    Shares used in computing diluted net
     income per share attributable to
     Sohu.com Inc.                            39,117                   39,417


    Note:
    (a) To eliminate the impact of share-based awards as measured using the
        fair value method.
    (b) Certain amounts from prior periods have been reclassified to conform
        with current period presentation.

SOURCE Sohu.com Inc.



RELATED LINKS

http://www.sohu.com


http://corp.sohu.com