Sohu.com Reports Third Quarter 2010 Unaudited Financial Results

Record Total Revenues of US$164.1 Million, Up 20% Year-over-Year, Exceeding High End of Group Guidance by US$6.1 Million;

GAAP Net Income before Non-Controlling Interest Up 15% Year-over-Year to US$54.0 Million, Non-GAAP Net Income before Non-Controlling Interest Up 19% Year-over-Year to US$61.3 Million, Exceeding High End of Group Guidance by US$4.8 Million;

GAAP Fully Diluted EPS of US$1.01, Non-GAAP Fully Diluted EPS of US$1.16, Exceeding High End of Group Guidance by 11US cents

Oct 25, 2010, 01:21 ET from Sohu.com Inc.

BEIJING, Oct. 25 /PRNewswire-Asia-FirstCall/ -- Sohu.com Inc. (Nasdaq: SOHU), China's leading online media, communications, search, online games and wireless value-added services group, today reported unaudited financial results for the third quarter ended September 30, 2010.

Third Quarter 2010 Highlights (1)

  • Record high total revenues and record high revenues for brand advertising, search and online games. All such operating parameters exceeded high end of Group guidance.
  • Total revenues were US$164.1 million, up 20% year-on-year, and 12% quarter-over-quarter.
  • Brand advertising revenues were US$59.1 million, up 22% year-over-year and 11% quarter-over-quarter.
  • Search revenues reached US$5.4 million, up 134% year-over-year and 38% quarter-over-quarter.  
  • Online game revenues reached US$85.6 million, up 25% year-over-year and 10% quarter-over-quarter.
  • Before deducting the share of net income pertaining to the Non-Controlling Interest, GAAP net income for the third quarter of 2010 was US$54.0 million, up 15% year-over-year and 19% quarter-over-quarter. Non-GAAP net income was US$61.3 million, up 19 % year-over-year and up 17% quarter-over-quarter, exceeding high end of Group guidance.
  • After deducting the share of net income pertaining to the Non-Controlling Interest, GAAP net income was US$38.7 million, up 12%  year-over-year and 24% quarter-over-quarter,  or US$1.01 per fully diluted share, and non-GAAP net income was US$45.2 million, up 21% year-over-year and quarter-over-quarter, or US$ 1.16 per fully diluted share, exceeding high end of Group guidance.

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Dr. Charles Zhang, Chairman and CEO of Sohu.com, commented, "I'm pleased to report that we had a record quarter, with strong growth in each of our major business segments.  Online video, our potential future revenue driver, is gaining significant traction as we add high-definition content and leverage the synergies of the Sohu platform to make our video products even more attractive to both users and advertisers. Also we believed that the introduction of strategic investors to our Sogou search business leaves our search business in a more competitive position and offers great promise for future collaboration and services with China's largest e-commerce website."  

"Our largest business segment, online games, powered by the successful release of new expansion packs for our proprietary flagship product and the launch of new licensed games, once again achieved solid results. The results also demonstrated the merits of using feedback to direct research and development efforts in our games. We continue to invest in employee recruitment and training. We are positive on the outlook of the industry and look to bring more proprietary games to market with an expanded team of talented engineers."

Commenting on Sohu's brand advertising business, Ms. Belinda Wang, Co-President and COO, said, "Our brand advertising business also set new records in the third quarter. Our expanding group of advertising partners is taking advantage of strong economic conditions in China along with particular strength in each of their end markets.  More specifically, they are looking to us to help maximize their advertising spending based on our significant investments in our online platform and other value-added solutions.

Third Quarter Financial Results

Revenues

Total revenues for the third quarter ended September 30, 2010 were US$164.1 million, up 20% year-over-year and 12% quarter-over-quarter.

Brand advertising revenues for the third quarter of 2010 totaled a record high of US$59.1 million, up 22% year-over-year and 11% quarter-over-quarter.

Search revenues for the third quarter of 2010 were US$5.4 million, up 134% year-over-year and 38% quarter-over-quarter.

Online game revenues for the third quarter of 2010 were US$85.6 million, up 25% year-over-year and 10% quarter-over-quarter.

Wireless revenues for the third quarter of 2010 were US$13.6 million, down 19% year-over-year and up 23% quarter-over-quarter.

Gross Margin

Gross margin was 74% for the third quarter of 2010, compared with 73% in the second quarter of 2010 and 76% in the third quarter of 2009. Non-GAAP gross margin for the third quarter of 2010 was 74%, compared with 74% in the second quarter of 2010 and 76% in the third quarter of 2009.

Brand advertising gross margin for the third quarter of 2010 was 61%, compared with 58% in the second quarter of 2010 and 68% in the third quarter of 2009. Non-GAAP brand advertising gross margin for the third quarter of 2010 was 62 %, compared with 60% in the second quarter of 2010 and 69% in the third quarter of 2009.

Online game gross margin for the third quarter of 2010 was 90%, compared with 91% in the second quarter of 2010 and 93% in the third quarter of 2009. Non-GAAP online game gross margin for the third quarter of 2010 was 90%, compared with 91% in the second quarter of 2010 and 93% in the third quarter of 2009.

Wireless gross margin for the third quarter of 2010 was 46%, compared with 48% in the second quarter of 2010 and 43% in the third quarter of 2009. Non-GAAP wireless gross margin for the third quarter of 2010 was 46%, compared with 48% in the second quarter of 2010 and 43% in the third quarter of 2009.

Operating Expenses

For the third quarter of 2010, Sohu's operating expenses totaled US$55.6 million. Non-GAAP operating expenses totaled US$50.1 million, down 1% sequentially from US$50.8 million and up 7% year-over-year.

Operating Margin

Operating margin was 40% for the third quarter of 2010, compared with 35% in the second quarter of 2010 and 39% in the third quarter of 2009. Non-GAAP operating margin was 44% for the third quarter of 2010, compared with 39% in the previous quarter and 42% in the third quarter of 2009.

Income Tax Expense

For the third quarter of 2010, excluding non-cash income tax expense of US$0.7 million recorded for tax benefits from share-based awards, non-GAAP income tax expense was US$10.6 million, compared with US$5.7 million in the previous quarter.

Net Income

Before deducting the share of net income pertaining to the Non-Controlling Interest, GAAP net income for the third quarter of 2010 was US$54.0 million, up 15% year-over-year and 19% quarter-over-quarter. Non-GAAP net income for the third quarter of 2010 was US$61.3 million, up 19% year-over-year and 17% quarter-over-quarter, exceeding Group guidance by US$4.8 million.

After deducting the share of net income pertaining to the Non-Controlling Interest, GAAP net income for the third quarter of 2010 was US$38.7 million, or US$1.01 per fully diluted share. Non-GAAP net income for the third quarter of 2010 was US$45.2 million, or US$1.16 per fully diluted share, an increase of 21% quarter-over-quarter, exceeding Group guidance.

Cash Balance

Sohu group continued to maintain a debt-free balance sheet and a strong cash position of US$534.7 million as of September 30, 2010.

Ms. Carol Yu, Co-President and CFO of Sohu, commented, "We achieved a strong third quarter with record revenues in each of our major business categories, and strong growth in our operations.  The strategic investment from Alibaba gives our search business a great opportunity to compete and capture market share.  The financing proceeds would fund the future development of Sogou business. And Sohu Group's healthy operating cash flows, strong balance sheet, and growing platform point the way for us to further expand and deliver long-term value to our shareholders."

Supplementary Information for Online Game Business

Operational Results

Aggregate registered accounts for Changyou's games(2) as of September 30, 2010 increased 7% quarter-over-quarter and 40% year-over-year to 105.2 million.

Aggregate peak concurrent users ("PCU") for Changyou's games was approximately 980,000, a decrease of 14% quarter-over-quarter and an increase of 14% year-over-year.

Aggregate active paying accounts ("APA") for Changyou's games was approximately 2.61 million, a decrease of 6% quarter-over-quarter and an increase of 9% year-over-year.

ARPU for Changyou's games increased 16% quarter-over-quarter and 13% year-over-year to RMB214, which is consistent with Changyou's intention to have ARPU within a range that keeps Changyou's games affordable for the majority of game players in China.

Revenues

Total revenues for the third quarter of 2010 increased 10% quarter-over-quarter and 25% year-over-year to US$85.6 million.

Revenues from game operations for the third quarter of 2010 increased 11% quarter-over-quarter and 25% year-over-year to US$83.6 million. The increases were mainly due to the continued popularity of TLBB, in China and higher spending from game players.

Overseas licensing revenues for the third quarter of 2010 decreased 7% quarter-over-quarter and increased 11% year-over-year to US$2.0 million. The sequential decrease was mainly the result of greater competition in mature online game markets abroad. The year-over-year increase was largely due to increased momentum of TLBB in Vietnam and Malaysia.

Recent Business Developments

Closing of Minority Strategic Investment in Sogou

On October 22, 2010, Sohu's online search subsidiary Sogou Inc. completed the sale of newly-issued Series A Preferred Shares to Alibaba Investment Limited, a private investment subsidiary of Alibaba Group Holding Limited, China Web Search (HK) Limited, an investment vehicle of Yunfeng Fund, LP, and Photon Group Limited, the investment fund of Sohu's Chairman and Chief Executive Officer Dr. Charles Zhang, for $15 million, $9 million, and $24 million, respectively, that represent approximately 10%, 6% and 16%, respectively, of the outstanding share capital of Sogou on a fully-diluted basis. Sohu and Sogou have established a share incentive program for Sogou management and key employees as well as certain members of Sohu's executive management. Sohu will retain approximately 53% of Sogou on a fully-diluted basis, and intends in any event to retain a majority of the outstanding share capital of Sogou on a fully-diluted basis.

Open Beta Testing of Immortal Faith

On September 9, 2010, Changyou began open beta testing of Immortal Faith, Changyou's first 2D mythical massively multi-player online role-playing game ("MMORPG"). Set against a backdrop of a number of ancient Chinese myths and folk tales, the game allows players to battle demons and assist deities in the conquest of various fairy kingdoms found in Chinese mythology. The game allows users to experience the life journey of becoming immortal by participating in the specially designed fighting modes and utilizing the game's featured dynamic fighting moves.

Business Outlook

For the fourth quarter of 2010, Sohu estimates:

  • Total revenues to be between US$163 million and US$168 million, with advertising revenues of US$64 million to US$66 million.
  • Brand advertising revenues to be between US$58 million and US$60 million.
  • Online game revenues to be between US$86 million and US$89 million.
  • Non-GAAP net income before deducting the share of non-GAAP net income pertaining to the Non-Controlling Interest to be between US$59 million and US$61.5 million.
  • Non-GAAP net income after deducting the share of non-GAAP net income pertaining to the Non-Controlling Interest to be between US$43 million and US$45 million
  • Non-GAAP fully diluted earnings per share to be between US$1.10 and US$1.15.
  • Compensation expense and income tax expense related to share-based awards, assuming no new grants of share-based awards, to be between US$7.5 million and US$8.5 million, which includes Changyou's share-based compensation expense for the fourth quarter of 2010, which is expected to be between US$1.5 million and US$2.0 million. Considering Sohu's share in Changyou, the estimated impact of this expense under US GAAP is expected to reduce Sohu's fully diluted earnings per share for the fourth quarter of 2010 by 19 US cents to 22 US cents.

(1)  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."  

(2)  Comprises the following games operated in China: Tian Long Ba Bu ("TLBB"), Blade Online, Blade Hero 2, Da Hua Shui Hu, Zhong Hua Ying Xiong and Immortal Faith.

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, income tax expense, 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 in 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 has been and will continue to be a significant recurring expense in Sohu's business for the foreseeable future. In order to mitigate these limitations 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 derived from Sohu's unaudited interim financial statements prepared in accordance with GAAP.

Safe Harbor Statement

This announcement contains forward-looking statements. It is currently expected that the Business Outlook will not be updated until release of Sohu's next quarterly earnings announcement; however, Sohu reserves right to update its Business Outlook at any time for any reason. Statements that are not historical facts, including statements about Sohu's beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, the current global financial and credit markets crisis and its potential impact on the Chinese economy, the slower growth the Chinese economy experienced during the latter half of 2008 and in 2009, which could recur in the future, the uncertain regulatory landscape in the People's Republic of China, fluctuations in Sohu's quarterly operating results, and Sohu'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, 2009, and other filings with the Securities and Exchange Commission.

Conference Call and Webcast

Sohu's management team will host a conference call on October 25, 2010 (8:30 p.m. Beijing/Hong Kong time, October 25, 2010) at 8:30 a.m. U.S. Eastern Time.

The dial-in details for the live conference call are:

US Toll-Free:

+1-877-941-2927

International:

+1-480-629-9722

Hong Kong:

+852-3009-5027

Passcode:

SOHU

Please dial in 10 minutes before the call is scheduled to begin and provide the pass code to join the call.

A telephone replay of the call will be available after the conclusion of the conference call at 11:00 a.m. Eastern Time on October 25 through November 8, 2010. The dial-in details for the telephone replay are:

International:

+852-3056-2777

Passcode:

4374336

The live webcast and archive of the conference call will be available on the Investor Relations section of Sohu's website 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 engine. Sohu also offers wireless value-added services such as news, information, music, ringtone and picture content sent over mobile phones. The Company's massively multiplayer online role-playing game (MMORPG) subsidiary, Changyou.com (Nasdaq: CYOU), currently operates six online games, including Tian Long Ba Bu, one of the most popular online games in China, and the licensed Blade Online, Blade Hero 2, Da Hua Shui Hu, Zhong Hua Ying Xiong and Immortal Faith. 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:

Ms. Li Mei

Sohu.com Inc.

Tel:+86 (10) 6272-6596

E-mail: ir@contact.sohu.com  

Mr. Chen Yuan Yuan

Christensen

Tel:+86 (10) 5971-2001

E-mail: ychen@ChristensenIR.com

In the United States:

Mr. Jeff Bloker

Christensen

Tel: +1 (480) 614-3003

E-mail: jbloker@ChristensenIR.com

SOHU.COM INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Three Months Ended

Nine Months Ended

Sep. 30, 2010

Jun. 30, 2010

Sep. 30, 2009

Sep. 30, 2010

Sep. 30, 2009

Revenues:

 Advertising

   Brand advertising

$

59,083

$

53,162

$

48,502

$

151,757

$

131,197

   Sponsored search

5,367

3,891

2,292

12,092

5,623

     Subtotal of advertising revenues

64,450

57,053

50,794

163,849

136,820

 Online games

85,623

77,721

68,684

235,416

196,887

 Wireless and others

13,991

11,323

17,107

40,350

45,701

     Total revenues

164,064

146,097

136,585

439,615

379,408

Cost of revenues:

 Advertising

   Brand advertising  (includes share-based compensation expense of $1,022, $1,204, $149, $3,193 and $646, respectively)

23,256

22,256

15,418

62,795

43,213

   Sponsored search (includes share-based compensation expense of $1, $1, $19, $3 and $25, respectively)

3,803

3,507

2,728

10,223

7,291

     Subtotal of cost of advertising revenues

27,059

25,763

18,146

73,018

50,504

 Online games (includes share-based compensation expense of $40, $43, $169, $150 and $267, respectively)

8,537

7,008

4,713

20,929

12,086

 Wireless and others (includes share-based compensation expense of $0, $0, $11, $0 and $12, respectively)

7,580

6,150

10,331

20,976

26,972

     Total cost of revenues

43,176

38,921

33,190

114,923

89,562

Gross profit

120,888

107,176

103,395

324,692

289,846

Operating expenses:

 Product development  (includes  share-based compensation expense of  $2,238, $2,218, $2,204, $6,901 and $6,777, respectively)

19,454

16,881

14,531

51,853

42,482

 Sales and marketing (includes share-based compensation expense of $1,271, $1,176, $152, $3,402 and $651, respectively)

25,410

29,606

25,457

78,025

68,093

 General and administrative (includes share-based compensation expense of $1,989, $1,811, $1,780, $5,893 and $5,007, respectively)

10,619

9,384

10,721

29,886

27,823

   Amortization of intangible assets

163

139

93

410

295

     Total operating expenses

55,646

56,010

50,802

160,174

138,693

Operating profit

65,242

51,166

52,593

164,518

151,153

Other (expense) / income

(939)

(330)

40

(1,294)

103

Interest income and exchange difference

1,050

958

1,469

3,207

3,865

Income before income tax expense

65,353

51,794

54,102

166,431

155,121

Income tax expense

11,340

6,329

7,022

25,632

21,577

Income from continuing operations

54,013

45,465

47,080

140,799

133,544

Gain from discontinued e-commerce operations

446

Net income

54,013

45,465

47,080

140,799

133,990

   Less: Net income attributable to the noncontrolling interest

13,004

12,012

9,726

36,146

18,506

Net income attributable to Sohu.com Inc.

41,009

33,453

37,354

104,653

115,484

Basic net income per share attributable to Sohu.com Inc.

$

1.08

$

0.88

$

0.97

$

2.77

$

3.02

Shares used in computing basic net income per share attributable to Sohu.com Inc.

37,896

37,822

38,410

37,832

38,286

Diluted net income per share attributable to Sohu.com Inc.

$

1.01

$

0.82

$

0.88

$

2.55

$

2.82

Shares used in computing diluted net income per share attributable to Sohu.com Inc.

38,377

38,289

39,082

38,370

38,985

SOHU.COM INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED, IN THOUSANDS)

As of Sep. 30, 2010

As of Dec. 31, 2009

ASSETS

Current assets:

Cash and cash equivalents

$

534,662

$

563,782

Investment in debt securities

74,615

Accounts receivable, net

70,102

46,610

Prepaid and other current assets

19,866

10,781

Total current assets

699,245

621,173

Fixed assets, net

119,207

115,088

Goodwill

67,736

55,555

Intangible assets, net

13,478

7,933

Restricted cash

Prepaid non-current assets

138,992

26,207

Other assets, net

7,963

2,317

Total assets

$

1,046,621

$

828,273

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

7,475

$

4,602

Accrued liabilities to suppliers and agents

57,907

41,103

Receipts in advance and deferred revenue

49,555

36,944

Accrued salary and benefits

31,258

28,860

Tax payables

24,044

21,953

Other accrued liabilities

22,986

17,035

Total current liabilities

$

193,225

$

150,497

Contingent consideration

1,343

Total liabilities

$

194,568

$

150,497

Commitments and contingencies

Shareholders' equity:

Sohu.com Inc. shareholders' equity

738,236

609,781

Noncontrolling interest

113,817

67,995

Total shareholders' equity

$

852,053

$

677,776

Total liabilities and shareholders' equity

$

1,046,621

$

828,273

SOHU.COM INC.

RECONCILIATIONS TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NON-GAAP NET INCOME EXCLUDING IMPACT OF SHARE-BASED AWARDS

Three Months Ended Sep. 30, 2010

Three Months Ended Jun. 30, 2010

Three Months Ended Sep. 30, 2009

GAAP

Non-GAAP Adjustments

(a)

Non-GAAP

GAAP

Non-GAAP Adjustments

(a)

Non-GAAP

GAAP

Non-GAAP Adjustments

(a)

Non-GAAP

Advertising revenues

$

64,450

64,450

$

57,053

$

$

57,053

$

50,794

$

$

50,794

Less: Cost of advertising revenues

27,059

(1,023)

26,036

25,763

(1,205)

24,558

18,146

(168)

17,978

Advertising gross profit

$

37,391

1,023

38,414

$

31,290

$

1,205

$

32,495

$

32,648

$

168

$

32,816

Advertising gross margin

58%

60%

55%

57%

64%

65%

Online games revenues

$

85,623

85,623

$

77,721

$

$

77,721

$

68,684

$

$

68,684

Less: Cost of online games revenues

8,537

(40)

8,497

7,008

(43)

6,965

4,713

(169)

4,544

Online games gross profit

$

77,086

40

77,126

$

70,713

$

43

$

70,756

$

63,971

$

169

$

64,140

Online games gross margin

90%

90%

91%

91%

93%

93%

Wireless and others revenues

$

13,991

13,991

$

11,323

$

$

11,323

$

17,107

$

$

17,107

Less: Cost of wireless and others revenues

7,580

7,580

6,150

6,150

10,331

(11)

10,320

Wireless and others gross profit

$

6,411

6,411

$

5,173

$

$

5,173

$

6,776

$

11

$

6,787

Wireless and others gross margin

46%

46%

46%

46%

40%

40%

Total revenues

$

164,064

164,064

$

146,097

$

$

146,097

$

136,585

$

$

136,585

Less: Total cost of revenues

43,176

(1,063)

42,113

38,921

(1,248)

37,673

33,190

(348)

32,842

Gross profit

$

120,888

1,063

121,951

$

107,176

$

1,248

$

108,424

$

103,395

$

348

$

103,743

Gross margin

74%

74%

73%

74%

76%

76%

Operating expenses

$

55,646

(5,498)

50,148

$

56,010

$

(5,205)

$

50,805

$

50,802

$

(4,136)

$

46,666

Operating profit

$

65,242

6,561

71,803

$

51,166

$

6,453

$

57,619

$

52,593

4,484

57,077

Operating margin

40%

44%

35%

39%

39%

42%

Income tax expense / (benefit)

$

11,340

(733)

10,607

$

6,329

$

(624)

$

5,705

$

7,022

7,022

Net income before Non-Controlling Interest

$

54,013

7,294

61,307

$

45,465

$

7,077

$

52,542

$

47,080

4,484

51,564

Net income attributable to Sohu.com Inc. for basic net  income per share

$

41,009

6,780

47,789

$

33,453

$

6,511

$

39,964

$

37,354

$

3,567

$

40,921

Net income attributable to Sohu.com Inc. for diluted  net income per share  (b)

$

38,654

6,498

45,152

$

31,265

$

6,187

$

37,452

$

34,405

$

3,001

$

37,406

Diluted net income per share attributable to Sohu.com Inc.

$

1.01

1.16

$

0.82

$

0.96

$

0.88

0.96

Shares used in computing diluted net income per share attributable to Sohu.com Inc.

38,377

39,019

38,289

39,037

39,082

39,129

Note:

(a)     To eliminate the impact of share-based awards as measured using the fair value method.

(b)     To adjust Sohu's economic interest in Changyou under the treasury stock method.

SOHU.COM INC.

RECONCILIATIONS TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NON-GAAP NET INCOME EXCLUDING IMPACT OF SHARE-BASED AWARDS

Nine Months Ended Sep. 30, 2010

Nine Months Ended Sep. 30, 2009

GAAP

Non-GAAP Adjustments

(a)

Non-GAAP

GAAP

Non-GAAP Adjustments

(a)

Non-GAAP

Advertising revenues

$

163,849

163,849

$

136,820

$

$

136,820

Less: Cost of advertising revenues

73,018

(3,196)

69,822

50,504

(671)

49,833

Advertising gross profit

$

90,831

3,196

94,027

$

86,316

$

671

$

86,987

Advertising gross margin

55%

57%

63%

64%

Online games revenues

$

235,416

235,416

$

196,887

$

$

196,887

Less: Cost of online games revenues

20,929

(150)

20,779

12,086

(267)

11,819

Online games gross profit

$

214,487

150

214,637

$

184,801

$

267

$

185,068

Online games gross margin

91%

91%

94%

94%

Wireless and others revenues

$

40,350

40,350

$

45,701

$

$

45,701

Less: Cost of wireless and others revenues

20,976

20,976

26,972

(12)

26,960

wireless and others gross profit

$

19,374

19,374

$

18,729

$

12

$

18,741

wireless and others gross margin

48%

48%

41%

41%

Total revenues

$

439,615

439,615

$

379,408

$

$

379,408

Less: Total cost of revenues

114,923

(3,346)

111,577

89,562

(950)

88,612

Gross profit

$

324,692

3,346

328,038

$

289,846

$

950

$

290,796

Gross margin

74%

75%

76%

77%

Operating expenses

$

160,174

(16,196)

143,978

$

138,693

$

(12,435)

$

126,258

Operating profit

$

164,518

19,542

184,060

$

151,153

13,385

164,538

Operating margin

37%

42%

40%

43%

Income tax expense

$

25,632

(1,888)

23,744

$

21,577

21,577

Net income before Non-Controlling Interest

$

140,799

21,430

162,229

$

133,990

13,385

147,375

Net income attributable to Sohu.com Inc. for basic net  income per share

$

104,653

19,515

124,168

$

115,484

11,016

126,500

Net income attributable to Sohu.com Inc. for diluted  net income per share  (b)

$

97,846

18,527

116,373

$

109,876

9,611

119,487

Diluted net income per share attributable to Sohu.com Inc.

$

2.55

2.98

$

2.82

3.06

Shares used in computing diluted net income per share attributable to Sohu.com Inc.

38,370

39,045

38,985

39,082

Note: (a)To eliminate the impact of share-based awards as measured using the fair value method. (b)To adjust Sohu's economic interest in Changyou under the treasury stock method. (c)Certain amounts from  prior periods have been reclassified to conform with current period presentation.

SOURCE Sohu.com Inc.



RELATED LINKS

http://corp.sohu.com