omniture

Sohu.Com Reports First Quarter 2009 Unaudited Financial Results

2009-05-04 14:50 1704

Total Revenues up 36% Year-on-Year to US$115.7 Million, Exceeding High End of Company Guidance;

Non-GAAP Net Income up 87% Year-on-Year to US$46.9 Million;

Non-GAAP Fully Diluted EPS of US$1.20, Exceeding High End of Company Guidance by US 10 Cents

(Logo: http://www.prnasia.com/sa/2009/06/09/200906091518.jpg )

BEIJING, May 4 /PRNewswire-Asia/ -- Sohu.com Inc. (Nasdaq: SOHU), China's leading online media, communications, search, online games and mobile value-added services company, today reported unaudited financial results for the first quarter ended March 31, 2009.

First Quarter Highlights

-- Total revenues of US$115.7 million, up 36% year-on-year, exceeding high

end of company guidance.

-- Brand advertising revenues of US$39.1 million, up 18% year-on-year,

within company guidance.

-- Online game revenues of record US$61.6 million, up 50% year-on-year and

up 6% quarter-on-quarter, exceeding high end of company guidance by

US$1.6 million.

-- For online game business, aggregate peak concurrent users ("PCU") for

both MMORPGs(1) increased 16% quarter-on-quarter and 47% year-on-year

to 970,000. Aggregate active paying accounts ("APA") for both MMORPGs

increased 14% quarter-on-quarter and 50% year-on-year to 2.27 million.

-- GAAP net income of US$44.6 million or US$1.15 per fully diluted share.

GAAP net income was 2.1 times that of first quarter 2008. GAAP net

income included US$33.5 million of GAAP net income contributed by

online game business with a 15% quarter-on-quarter increase or a 120%

year-on-year increase.

-- Non-GAAP net income (i.e., excluding share-based compensation expense)

of US$46.9 million, or US$1.20 per fully diluted share, exceeding the

high end of company guidance of US$1.10 by US 10 cents. Non-GAAP net

income increased 87% year-on-year. Non-GAAP net income included

US$34.4 million of Non-GAAP net income contributed by online game

business with a 13% quarter-on-quarter increase or a 100% year-on-year

increase.

-- Non-GAAP operating margin of 45%, up from 43% in the fourth quarter of

2008 and 40% in the first quarter of 2008.

(1) MMORPGs include Tian Long Ba Bu and Blade Online.

Explanation of the Company'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.com, commented, "We are pleased to report another quarter of solid financial results, which further proves the combination of our two core businesses, namely our portal business and online game business, can enable Sohu to deliver sustainable growth through various economic cycles. Our online game business has been more resilient to the weak economic conditions and continues to show strong growth momentum. This more than offsets any temporary impact on our portal business brought by the economic weakness in China.

"For Sohu's portal business, as always, we are extremely focused on our long-term strategic vision to make Sohu one of the most powerful mainstream media platforms in China. With some indications of the potential recovery of the overall economy underway, we believe a modest macro environment provides great media-driven opportunities for Sohu. Bolstered by a rapidly growing Internet population, we will put to use our unparalleled media platform to further strengthen our position as a leading Internet company in China in 2009."

"Success of our online game business has been one of our proud achievements. In a short period of two years, Sohu's online game business was developed from nascency to become one of the top massively multiplayer online role-playing game (MMORPG) operators in China. Its success was further endorsed by the spin-off and initial public offering of MMORPG subsidiary Changyou.com (NASDAQ: CYOU) on April 2, 2009. Changyou's public debut was one of the most successful IPOs in the US markets in nearly 12 months. The successful IPO provides Changyou with the platform and resources to become a leading company in the MMORPG industry, and enables Changyou to compete head to head with first tier players.

Dr. Zhang continued, "Going forward, Sohu and Changyou will continue to enjoy the same synergies as before. Sohu provides Changyou with advertising resources on the Sohu portal and its verticals, especially China's largest gaming portal 17173.com, marketing and promotion of Changyou's games through the use of Sohu's web domains, single user-ID system and base of more than 250 million registered users, as well as Sohu's strong brand recognition and user platforms. Meanwhile, Changyou continues to bring users to Sohu portal."

Commenting on Sohu's brand advertising business, Ms. Belinda Wang, Co-President and Chief Marketing Officer of Sohu.com, said, "Although the general advertising and media industry have been shadowed by weak economic conditions and advertisers remain cautious about their advertising spending, Internet as a group will continue to gain market share from other offline media. Despite a difficult economic environment, Sohu's continuous efforts and investment in branding, sales and marketing initiatives, technology and content offering will continue to pay off."

First Quarter Financial Results

Revenues

Total revenues for the first quarter ended March 31, 2009 were US$115.7 million, representing a decrease of 5% sequentially and increase of 36% year-on-year.

Brand advertising revenues for the first quarter of 2009 totaled US$39.1 million, down 13% quarter-on-quarter seasonally but up 18% year-on-year.

Online game revenues for the first quarter of 2009 were US$61.6 million with an increase of 6% quarter-on-quarter and 50% year-on-year. The increases were mainly attributable to an increase in Tian Long Ba Bu ("TLBB") revenues as a result of user base expansion and enhanced user loyalty, as well as increased revenues from Blade Online ("BO").

Gross Margin

Gross margin was 76% in the first quarter of 2009, up from 75% in the fourth quarter of 2008, and equivalent to 76% in the first quarter of 2008. Non-GAAP gross margin for the first quarter of 2009 was also 76%, up from 75% in the fourth quarter of 2008, and equivalent to 76% in the first quarter of 2008.

Brand advertising gross margin for the first quarter of 2009 was 65%, compared with 66% in the fourth quarter of 2008 and 66% in the first quarter of 2008. Non-GAAP brand advertising gross margin for the first quarter of 2009 was 65%, compared with 67% in both the fourth quarter of 2008 and the first quarter of 2008.

Online game gross margin for the first quarter of 2009 was 94%, up from 93% in the fourth quarter of 2008 and 92% in the first quarter of 2008. Non-GAAP non-advertising gross margin for the first quarter of 2009 was 85%, up from 83% in the fourth quarter of 2008 and at the same level as in the first quarter of 2008.

Operating Expenses

For the first quarter of 2009, Sohu's operating expenses totaled US$38.1 million. Non-GAAP operating expenses totaled US$36.1 million, down 9% from US$39.6 million for the fourth quarter of 2008 and up 17% year-on-year. The quarter-on-quarter decrease was primarily attributable to lower sales commission and bonuses in the first quarter of 2009. The year-on-year increase was primarily due to continued investment in product development, marketing expenses for Sohu's branding initiatives and an increase in salaries and bonuses.

Operating Margin

Non-GAAP operating margin for the first quarter of 2009 was 45%, up from 43% in the fourth quarter of 2008 and 40% during the first quarter of 2008.

Income Tax Expense

For the first quarter of 2009, income tax expense was $6.6 million, and the effective tax rate was 13%, as compared to 5% for the full year 2008.

Net Income

GAAP net income for the first quarter of 2009 was US$44.6 million or US$1.15 per fully diluted share. Non-GAAP net income for the first quarter of 2009 was US$46.9 million or US$1.20 per fully diluted share.

GAAP net income contributed by online game business for the first quarter of 2009 was US$33.5 million, a 15% increase quarter-on-quarter and 120% year-on-year. Non-GAAP net income contributed by online game business was US$34.4 million, a 13% increase quarter-on-quarter and 100% year-on-year.

Cash Balance

The Company continued to maintain a debt free balance sheet and a strong cash position of US$373.2 million as of March 31, 2009.

In addition, the Company's cash balance will reflect a deposit of US$ 128.3 million of net proceeds from the successful IPO of Changyou.com completed in early April 2009.

Stock Repurchase Program

For the first quarter of 2009, no shares were repurchased under the US$150 million share repurchase program approved by the Company's Board of Directors in October 2008. As of April 30th, under this program, approximately 500,000 shares were repurchased for a total consideration of US$20 million.

First Quarter Online Game Results

Operations

Aggregate PCU for both MMORPGs increased 16% quarter-on-quarter and 47% year-on-year to 970,000, while PCU for Tian Long Ba Bu ("TLBB"), Changyou's in-house-developed, martial-arts-style game, increased 19% quarter-on-quarter and 48% year-on-year to 875,000 following the release of Changyou's "Legend of the Shadow" expansion pack on March 26, 2009. Registered accounts of TLBB as of March 31, 2009 increased 12% quarter-on-quarter and 80% year-on-year to 50.1 million.

Aggregate APA for both MMORPGs increased 14% quarter-on-quarter and 50% year-on-year to 2.27 million, while APA for TLBB increased 16% quarter-on-quarter and 52% year-on-year to 2.11 million.

Average revenue per user ("ARPU") for both MMORPGs decreased 8% quarter-on-quarter and 7% year-over-year to RMB179, while ARPU for TLBB decreased 9% quarter-on-quarter and 12% year-on-year to RMB176. The decrease was mainly a result of Changyou's strategic decision to maintain TLBB ARPU at a level that is comfortable for the majority of Chinese game players with the goal of fostering a healthy in-game environment so as to further extend lifecycle of the game.

Revenue

Revenues from game operations increased 5% quarter-on-quarter and 46% year-on-year to US$59.3 million. The increases were mainly due to the higher APA, which reflects the growing popularity of Changyou's online games. Revenues from game operations include those generated from TLBB, which increased 6% quarter-on-quarter and 41% year-on-year to US$54.4 million and revenues for Blade Online, which increased 2% quarter-on-quarter and 139% year-on-year to US$5.0 million. Overseas licensing revenues increased 14% quarter-on-quarter and 493% year-on-year to US$2.3 million. Changyou began licensing TLBB to Vietnam in August 2007, and Hong Kong and Taiwan in April 2008. The quarter-on-quarter increase was primarily due to the successful launch and user acceptance of expansion packs in overseas markets during the first quarter of 2009.

Ms. Carol Yu, Co-President and CFO of Sohu.com, commented, "Our first quarter results showcase Sohu's ability to deliver impressive year-over-year growth despite widespread weakness in the economy. I would also like to take this opportunity to thank all Sohu shareholders and the investment community for their support in the Changyou IPO process. As Changyou's majority shareholder, holding approximately 68.5% of the total outstanding equity interest and controlling approximately 80.8% of the total voting power, Sohu will continue to provide strong leadership and support to bolster Changyou's sharpened focus on the MMORPG business, and be a long term beneficiary of Changyou's performance in years to come."

Business Outlook

Sohu estimates total revenues for the second quarter of 2009 to be between US$121 million and US$125 million, with advertising revenues of US$43.5 million to US$45.5 million and non-advertising revenues of US$77.5 million to US$79.5 million.

Sohu estimates brand advertising revenues for the second quarter of 2009 to be between US$42 million and US$44 million.

Sohu estimates online game revenues for the second quarter of 2009 to be between US$63 million and US$65 million.

Sohu estimates non-GAAP net income for the second quarter of 2009, before deducting the share of net income pertaining to the Non-Controlling Interest in Changyou, to be between US$44 million to US$46 million. After deducting the share of net income pertaining to the Non-Controlling Interest in Changyou, Sohu estimates non-GAAP net income for the second quarter of 2009, to be between US$31 million to US$33 million and non-GAAP fully diluted earnings per share for the second quarter of 2009 to be between $0.80 and $0.85.

Assuming no new grants of share-based awards, Sohu estimates share-based compensation expense for the second quarter of 2009 to be between $6.0 million and $7.0 million, which includes Changyou's share-based compensation expense for the second quarter of 2009 estimated to be between $5.5 million and $6.0 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 second quarter of 2009, under US GAAP, by $0.10 to $0.13.

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 commissions and bonuses 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 expense, 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 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 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 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 first quarter of 2009 which could continue through the remainder of 2009, the uncertain regulatory landscape in the People's Republic of China, fluctuations in Sohu's quarterly operating results, EPS dilution resulting from Changyou's initial public offering, Sohu's historical and possible future losses, and the 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 today at 8:30 AM EDT, May 4, 2009 (or 8:30 PM, May 4, 2009 Beijing/Hong Kong time). To listen to the conference call, please use the dial in numbers below:

USA Toll Number: 1-877-941-1427

International: 1-480-629-9664

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: 1-800-406-7325

International: 1-303-590-3030

PASSCODE: 4064940#

The conference call will be available on webcast live and available for replay at: http://corp.sohu.com/ .

About Sohu.com

Sohu.com Inc. (NASDAQ: SOHU) is China's premier online brand and indispensable to the daily life of millions of Chinese, providing a network of web properties and community based/web 2.0 products which offer the vast Sohu user community a broad array of choices regarding information, entertainment and communication. Sohu has built one of the most comprehensive matrices of Chinese language web properties and proprietary search engines, consisting of the mass portal and leading online media destination http://www.sohu.com ; interactive search engine http://www.sogou.com ; #1 games information portal http://www.17173.com ; the top real estate website http://www.focus.cn ; #1 online alumni club http://www.chinaren.com; wireless value-added services provider http://www.goodfeel.com.cn ; leading online mapping service provider http://www.go2map.com ; and developer and operator of MMORPGs http://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. The Company's MMORPG subsidiary, Changyou, currently operates two MMORPGs, Tian Long Ba Bu and Blade Online. Sohu also offers wireless value-added services such as news, information, music, ringtone and picture content sent over mobile phones. Sohu.com, established by Dr. Charles Zhang, one of China's internet pioneers, is in its thirteenth year of operation.

For more information, please contact:

Sohu.com Contact Information

James Deng

Senior Finance Director

Tel: +86-10-6272-6596

Email: xiufengdeng@sohu-inc.com

Helen Zhang

Director

Investor Relations and Corporate Communications

Tel: +86-10-6272-6969

Email: ir@contact.sohu.com

Web: http://corp.sohu.com

-- TABLES TO FOLLOW --

SOHU.COM INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Three Months Ended

Mar. 31, Dec. 31, Mar. 31,

2009 2008 2008

Revenues:

Advertising

Brand advertising $39,074 $45,024 $33,155

Sponsored search 1,562 1,625 1,614

Subtotal of advertising revenues 40,636 46,649 34,769

Non-advertising

Online game 61,607 58,390 40,955

Wireless 13,378 14,804 8,593

Others 117 1,729 506

Subtotal of non-advertising revenues 75,102 74,923 50,054

Total revenues 115,738 121,572 84,823

Cost of revenues:

Advertising

Brand advertising (includes

share-based compensation expense

under SFAS 123(R) of $236,

$308 and $309, respectively) 13,730 15,266 11,252

Sponsored search (includes

share-based compensation expense

under SFAS 123(R) of $3, $3 and

$6, respectively) 2,298 1,916 1,520

Subtotal of cost of advertising

revenues 16,028 17,182 12,772

Non-advertising

Online game (includes stock-based

compensation expense under SFAS 123(R)

of $8, $4 and $5, respectively) 3,436 4,374 3,208

Wireless 7,643 8,063 3,931

Others (includes share-based

compensation expense under SFAS 123(R)

of $0, $1 and $2, respectively) 486 614 381

Subtotal of cost of non-advertising

revenues 11,565 13,051 7,520

Total cost of revenues 27,593 30,233 20,292

Gross profit 88,145 91,339 64,531

Operating expenses:

Product development (includes

share-based compensation expense under

SFAS 123(R) of $1,274, $1,580 and

$2,263, respectively) 13,314 14,424 11,479

Sales and marketing (includes

share-based compensation expense under

SFAS 123(R) of $285, $174 and $280,

respectively) 16,826 19,500 16,140

General and administrative (includes

share-based compensation expense under

SFAS 123(R) of $481, $321 and $645,

respectively) 7,894 7,535 6,185

Amortization of intangible assets 74 200 196

Total operating expenses 38,108 41,659 34,000

Operating profit 50,037 49,680 30,531

Other income (expense) 1 (54) 43

Interest income and exchange difference 1,122 1,221 166

Income before income tax expense 51,160 50,847 30,740

Income tax expense (benefit) 6,586 (5,745) 9,185

Income from continuing operations 44,574 56,592 21,555

Loss from discontinued e-commerce

operations -- -- (1)

Net income 44,574 56,592 21,554

Less: Net income attributable to the

noncontrolling interest (21) (33) (8)

Net income attributable to Sohu.com Inc. $44,595 $56,625 $21,562

Basic net income per share attributable to

Sohu.com Inc. $1.17 $1.48 $0.57

Shares used in computing basic net income

per share attributable to Sohu.com Inc. 38,162 38,311 37,759

Diluted net income per share attributable

to Sohu.com Inc. $1.15 $1.45 $0.55

Shares used in computing diluted net

income per share attributable to

Sohu.com Inc. 38,851 39,090 39,037

SOHU.COM INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(IN THOUSANDS)

As of Mar 31, As of Dec. 31,

2009 2008

ASSETS

Current assets:

Cash and cash equivalents $373,166 $314,425

Accounts receivable, net 43,782 36,869

Prepaid and other current assets 15,414 27,551

Total current assets 432,362 378,845

Fixed assets, net 76,225 76,237

Goodwill 55,555 55,555

Intangible assets, net 5,410 5,654

Restricted cash 375 2,671

Other assets, net 2,847 2,914

Total assets $572,774 $521,876

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable $4,202 $4,339

Accrued liabilities to suppliers and

agents 29,762 33,054

Receipts in advance and deferred revenue 29,129 31,446

Tax payables 25,505 18,892

Other accrued liabilities 44,416 43,051

Total current liabilities 133,014 130,782

Equity

Sohu.com Inc. shareholders' equity 433,917 385,946

Noncontrolling interest 5,843 5,148

Total equity 439,760 391,094

Total liabilities and equity $572,774 $521,876

SOHU.COM INC.

RECONCILIATIONS TO CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

NON-GAAP NET INCOME EXCLUDING SHARE-BASED COMPENSATION EXPENSE

Three Months Ended Mar. 31, 2009

Non-GAAP

GAAP Adjustments(a) Non-GAAP

Advertising revenues $ 40,636 $ -- $ 40,636

Less: Cost of advertising

revenues 16,028 (239) 15,789

Advertising gross profit $ 24,608 $ 239 $ 24,847

Advertising gross margin 61% 61%

Non-advertising revenues $ 75,102 $ -- $ 75,102

Less: Cost of

non-advertising revenues 11,565 (8) 11,557

Non-advertising gross

profit $ 63,537 $ 8 $ 63,545

Non-advertising gross

margin 85% 85%

Total revenues $115,738 $ -- $115,738

Less: Total cost of

revenues 27,593 (247) 27,346

Gross profit $ 88,145 $ 247 $ 88,392

Gross margin 76% 76%

Operating expenses $ 38,108 $(2,040) $ 36,068

Operating profit 50,037 2,287 52,324

Operating margin 43% 45%

Net income attributable to

Sohu.com Inc. $ 44,595 $ 2,287 $ 46,882

Diluted net income per

share attributable to

Sohu.com Inc. $ 1.15 $ 1.20

Shares used in computing

diluted net income per

share attributable to

Sohu.com Inc. 38,851 39,020

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%

Non-advertising revenues $ 74,923 $ -- $ 74,923

Less: Cost of

non-advertising revenues 13,051 (5) 13,046

Non-advertising gross profit $ 61,872 $ 5 $ 61,877

Non-advertising gross margin 83% 83%

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%

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 $ 1.50

Shares used in computing

diluted net income per

share attributable to

Sohu.com Inc. 39,090 39,281

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

Operating profit 30,531 3,510 34,041

Operating margin 36% 40%

Net income attributable to

Sohu.com Inc. $ 21,562 $ 3,510 $ 25,072

Diluted net income per share

attributable to Sohu.com

Inc. $ 0.55 $ 0.64

Shares used in computing

diluted net income per

share

attributable to Sohu.com

Inc. 39,037 39,220

Note: 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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