Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT PURSUANT TO

SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): October 27, 2008

 

 

SOHU.COM INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   0-30961   98-0204667

(State or other jurisdiction

of incorporation

  (Commission File Number)  

(I.R.S. Employer

Identification No.)

Level 12, Sohu.com Internet Plaza

No. 1 Unit Zhongguancun East Road, Haidian District

Beijing 100084

People’s Republic of China

(011) 8610-6272-6666

(Address, including zip code, of registrant’s principal executive offices

and registrant’s telephone number, including area code)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 2.02. Results of Operations and Financial Condition

On October 27, 2008, the registrant announced its unaudited financial results for the quarter ended September 30, 2008. A copy of the press release issued by the registrant regarding the foregoing is filed herewith as Exhibit 99.1 and is incorporated herein by reference.

 

Item 8.01. Other Events

On October 27, 2008, the registrant also announced that its Board of Directors has approved a stock repurchase program of up to US$150 million of the registrant’s outstanding shares of common stock until the end of 2009. A copy of the press release issued by the registrant regarding the foregoing is filed herewith as Exhibit 99.2 and is incorporated herein by reference.

Safe Harbor Statement

This current report on 8-K contains forward-looking statements. 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, our historical and possible future losses, limited operating history, uncertain regulatory landscape in the People’s Republic of China, fluctuations in quarterly operating results, and the company’s reliance on online advertising sales, wireless services (most wireless revenues are collected from a few mobile telecom operators) and online games for its revenues. Further information regarding these and other risks is included in Sohu’s annual report on Form 10-K for the year ended December 31, 2007, Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, and other filings with the Securities and Exchange Commission.

 

Item 9.01. Financial Statements and Exhibits

 

(c) Exhibits.

 

99.1    Press Release dated October 27, 2008 regarding financial results for the quarter ended September 30, 2008
99.2   

Press Release dated October 27, 2008 announcing a stock repurchase program of up to US$150 million


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

DATED: October 30, 2008     SOHU.COM INC.
    By:  

/s/ Carol Yu

      Co-President and Chief Financial Officer


EXHIBIT INDEX

 

Exhibit No.

 

Description

99.1   Press Release dated October 27, 2008 regarding financial results for the quarter ended September 30, 2008
99.2  

Press Release dated October 27, 2008 announcing a stock repurchase program of up to US$150 million

Press Release dated October 27, 2008 regarding financial results

Exhibit 99.1

LOGO

SOHU.COM REPORTS THIRD QUARTER UNAUDITED FINANCIAL RESULTS

Third Quarter 2008 Total Revenues Reach US$120.7 Million, Exceeding High End of

Company Guidance by US$4.7 Million; Up 134% Year-on-Year and 18% Quarter-on-

Quarter;

Third Quarter 2008 Non-GAAP Fully Diluted EPS of US$1.08, Exceeding High End of

Company Guidance by 3 US Cents; Up 260% Year-on-Year and 1% Quarter-on-Quarter

BEIJING, CHINA, October 27, 2008 – Sohu.com Inc. (NASDAQ: SOHU), China’s leading online media, communications, search, online games and mobile value-added services company, today reported financial results for the third quarter ended September 30, 2008.

Third Quarter Highlights

 

   

Fifth consecutive quarter of record high total revenues and record high for each revenue category: brand advertising, advertising, online games, and non-advertising revenues as well as net income. All such operating parameters were above company guidance.

 

   

Brand advertising revenues of US$49.4 million, up 66% year-on-year and 18% quarter-on-quarter.

 

   

Advertising revenues of US$51.1 million, up 62% year-on-year and 18% quarter-on-quarter.

 

   

Online game revenues of US$54.6 million, up 330% year-on-year and 14% quarter-on-quarter. In-house developed massive multiplayer online role-playing game Tian Long Ba Bu (“TLBB”) generated revenue of US$51.0 million, up 12% quarter-on-quarter.

 

   

Non-advertising revenues of US$69.5 million, up 248% year-on-year and 19% quarter-on-quarter.

 

   

Total revenues of US$120.7 million, up 134% year-on-year and 18% quarter-on-quarter, exceeding the high end of Company guidance by US$4.7 million.

 

   

Non-GAAP net income (i.e., excluding share-based compensation expense) of US$42.8 million, or US$1.08 per fully diluted share, exceeding the high end of company guidance by 3 US cents. Non-GAAP net income increased by 266% year-on-year and 1% quarter-on-quarter.

 

   

GAAP net income of US$40.3 million or US$1.02 per fully diluted share. GAAP net income increased by 316% year-on-year and marginally higher than the second quarter of 2008.


   

Explanation of the Company’s non-GAAP financial measures and the related reconciliations to GAAP financial measure are included in the accompanying “Non-GAAP Disclosure” and the “Reconciliation to Unaudited Condensed Consolidated Statements of Operations.”

“Our overall business continues to perform very well and we gained strong momentum from the successful execution of our strategy in the third quarter. Our constant drive to offer premier content and cutting edge technological products, enabled us to gain market share from competitors and elevate the Sohu brand,” said Dr. Charles Zhang, Chairman and CEO of Sohu.com. “As expected, Sohu benefited from the growth of the Internet in China following the Beijing 2008 Olympics and other major historic events, attracting a significant number of new users to our community who have continued to adopt Sohu as their portal of choice.”

“At the same time we continue to invest in the development of products to increase user stickiness. Our online game business continues to deliver solid performance as a result of our superior development capabilities and successful strategy of focusing on users’ in-game experience. Our game pipeline and licensing strategy are progressing well and on schedule with many successes including the selective export of our flagship game, TLBB, to overseas markets and a revitalization of Blade Online.”

Ms. Belinda Wang, Co-President and Chief Marketing Officer of Sohu.com, said, “Strong brand advertising revenue growth this quarter was primarily driven by continued shifting of advertising budgets from offline to online, and robust spending surrounding the 2008 Beijing Olympics. Advertisers are increasingly interested in implementing their online marketing campaigns on Sohu’s platform as a result of the significant expansion in unique visitors on our site. We are confident of spending patterns in the fourth quarter due in part to those advertisers who did not advertise during the Olympics and believe the fundamental trends in online spending will continue.”

Dr. Gong Yu, Chief Operating Officer of Sohu.com, added, “In providing the most comprehensive, authoritative and first-hand coverage of the Beijing 2008 Olympic Games, Sohu enhanced its brand value and became recognized as the Number 1 Portal of Choice for Olympic reporting. By offering innovative products on our platform, we significantly increased the momentum of new users to our community.”

Third Quarter Financial Results

Total revenues for the third quarter ended September 30, 2008 were US$120.7 million, compared to revenues of US$102.0 million for the second quarter of 2008, and US$51.5 million for the third quarter of 2007.

The gross margin of 74% for the third quarter of 2008 was down from 76% in the second quarter of 2008, and up from 67% in the third quarter of 2007. The non-GAAP gross margin for the third quarter of 2008 of 74% was down from 76% in the second quarter of 2008, and up from 67% in the third quarter of 2007.

Net income for the third quarter of 2008 was US$40.3 million or US$1.02 per fully diluted share. Non-GAAP net income for third quarter of 2008 was US$42.8 million or US$1.08 per fully diluted share. This compares to non-GAAP net income of US$42.3 million or US$1.07 per fully diluted share for the second quarter of 2008 and US$11.7 million or US$0.30 per fully diluted share for the third quarter of 2007.


Advertising revenues for the third quarter of 2008 totaled US$51.1 million, an 18% increase over the second quarter of 2008 and a 62% increase over the third quarter of 2007. Advertising revenues, consisting of US$49.4 million of brand advertising and US$1.7 million of sponsored search, accounted for 42% of total revenues in the third quarter of 2008. Brand advertising revenues for the third quarter of 2008 increased by 18% quarter-on-quarter and 66% year-on-year.

Advertising gross margin for the third quarter of 2008 was 59%, down from 64% in the previous quarter and down from 63% in the third quarter of 2007. Non-GAAP advertising gross margin for the third quarter of 2008 was 60%, down from 65% in the previous quarter and 64% in the third quarter of 2007. The decrease was mainly due to content costs surrounding the Beijing 2008 Olympic Games.

For the third quarter of 2008, Sohu’s non-advertising revenues, which are derived mainly from online games and wireless value-added services, were US$69.5 million, or 58% of total revenues. Online game revenues were US$54.6 million, an increase of 14% quarter-on-quarter and 330% year-on-year, due to the continued strong performance of TLBB and successful revitalization of Blade Online. Wireless revenues were US$14.5 million, a quarter-on-quarter increase of 58% and year-on-year increase of 112%. The quarter-on-quarter increase was primarily because a) our making of one-off tax provision of US$2.1 million in the second quarter which was netted against wireless revenue, and b) stabilization of wireless-related regulatory and business environment throughout the quarter.

Non-advertising gross margin was 84%, flat with the second quarter of 2008 and up from 72% in the third quarter of 2007. Non-GAAP non-advertising gross margin for the third quarter of 2008 was 84%, flat with the previous quarter and up from 72% in the same quarter last year.

For the third quarter of 2008, Sohu’s operating expenses totaled US$45.0 million. Non-GAAP operating expenses totaled US$42.7 million, up 21% from US$35.4 million for the previous quarter and up 79% year-on-year. The year-on-year increase was primarily due to continued investment in product development, marketing expenses for Sohu’s branding as well as an increase in bonuses to reward employees for their contribution to Sohu’s good results. The quarter-on-quarter increase was mainly due to Olympic-related marketing spending.

For the third quarter of 2008, income tax expense was US$5.0 million, compared to US$0.6 million for the previous quarter and US$0.3 million for the same period last year. In the second quarter, we had recorded a one-time income tax reversal of US$4.1 million.

Ms. Carol Yu, Co-President and CFO of Sohu.com, commented, “The third quarter of 2008 continues the string of record total revenue and record total net income we have been consistently delivering since the middle of 2007. Management’s confidence in Sohu’s business prospects, our strong cash position, and debt-free balance sheet have led us to put in place yet another stock buyback program of US$150 million, which is the highest share repurchase amount in the Company’s history. This will be the third buyback program we executed during the past 5 years, with previous programs buying back a total of 2.9 million shares.”


Business Outlook

Sohu estimates total revenues for the fourth quarter of 2008 to be between US$118 million and US$122 million, with advertising revenues of US$45.5 million to US$47.5 million and non-advertising revenues of US$72.5 million to US$74.5 million.

Sohu estimates brand advertising revenues for the fourth quarter of 2008 to be between US$44 million and US$46 million.

Sohu estimates online game revenues for the fourth quarter of 2008 to be between US$57 million and US$59 million.

Sohu estimates non-GAAP fully diluted earnings per share for the fourth quarter of 2008 to be between US$1.20 and US$1.25.

Assuming no new grants of share-based awards, Sohu estimates share-based compensation expense for the fourth quarter of 2008 to be between US$2.5 million and US$3.0 million. The estimated impact of this expense is expected to reduce Sohu’s fully diluted earnings per share for the fourth quarter of 2008, under US GAAP, by US$0.06 to US$0.07.

Non-GAAP Disclosure

To supplement the unaudited consolidated financial statements presented in accordance with United States Generally Accepted Accounting Principles (“GAAP”), Sohu’s management uses non-GAAP measures of cost of revenues, operating expenses, net income and net income per share, which are adjusted from results based on GAAP to exclude the compensation cost of share-based awards granted to employees under Statement of Financial Accounting Standard 123R. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.

Sohu’s management believes excluding the share-based compensation expense from its non-GAAP financial measure is useful for itself and investors. Further, the amount of share-based compensation expense cannot be anticipated by management and business line leaders and these expenses were not built into the annual budgets and quarterly forecasts, which have been the basis for information Sohu provides to analysts and investors as guidance for future operating performance. As share-based compensation expense does not involve any upfront or subsequent cash outflow, Sohu does not factor this in when evaluating and approving expenditures or when determining the allocation of its resources to its business segments. As a result, the monthly financial results for internal reporting and any performance measure for commission and bonus are based on non-GAAP financial measures that exclude share-based compensation expense.

The non-GAAP financial measures are provided to enhance the investors’ overall understanding of Sohu’s current financial performance and prospects for the future. A limitation of using non-GAAP cost of revenues, operating expenses, net income and net income per share, excluding share-based compensation 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 generally accepted accounting principles in the United States.

On June 20, 2006, Sohu discontinued its own e-commerce platform of physical consumer goods. While processing the disposal of its e-commerce business, Sohu is reporting the related business activities as discontinued operations. Sohu’s income statement separates out discontinued operations for both current and prior periods in order to focus on continuing operations and provide a consistent basis for comparing financial performance over time.

Safe Harbor Statement

This announcement contains forward-looking statements. It is currently expected the Business Outlook will not be updated until release of Sohu’s next quarterly earnings announcement; however, Sohu reserves right to update its Business Outlook at any time for any reason.

Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, the current global financial and credit markets crisis and its potential impact on the Chinese economy, the uncertain regulatory landscape in the People’s Republic of China, fluctuations in Sohu’s quarterly operating results, Sohu’s historical and possible future losses and limited operating history, and the company’s reliance on online advertising sales, online games and wireless services (most wireless revenues are collected from a few mobile network operators) for its revenues. Further information regarding these and other risks is included in Sohu’s annual report on Form 10-K for the year ended December 31, 2007, and other filings with the Securities and Exchange Commission.

Conference Call and Webcast

Sohu’s management team will host a conference call today at 8:00 AM EST, October 27, 2008 (or 8:00 PM, October 27, 2008 Beijing/Hong Kong time). To listen to the conference call, please use the dial in numbers below:

USA Toll Number: 1-800-219-6110

International: 1-303-262-2138

A replay of the call will be available for two weeks following the call and can be accessed by dialing the numbers below:

USA Toll Number: 1-800-405-2236

International: 1-303-590-3000

PASSCODE: 1120865#

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 online alumni club www.chinaren.com; #1 games information portal www.17173.com; the top real estate website www.focus.cn; wireless value-added services provider www.goodfeel.com.cn; and leading online mapping service provider www.go2map.com.

Sohu corporate services consist of brand advertising on its matrix of websites as well as paid listing and bid listing on its in-house developed search directory and engines. Sohu also offers two types of consumer services. The company operates two massive multi-player online role-playing games, namely Tian Long Ba Bu and Blade Online, and a casual game platform. Sohu also offers wireless value-added services such as news, information, music, ringtone and picture content sent over mobile phones. Sohu.com, established by Dr. Charles Zhang, one of China’s internet pioneers, is in its twelfth year of operation.

Sohu.com Contact Information

Shanshan Cai

Manager

Investor Relations and Corporate Communications

Tel: +86 10 6272 6596

E-mail: ir@contact.sohu.com

http://corp.sohu.com

— TABLES TO FOLLOW —


SOHU.COM INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

 

     Three Months Ended     Nine Months Ended  
     Sep. 30,
2008
    Jun. 30,
2008
    Sep. 30,
2007
    Sep. 30,
2008
    Sep. 30,
2007
 

Revenues:

          

Advertising

          

Brand advertising

   $ 49,398     $ 41,691     $ 29,781     $ 124,244     $ 79,940  

Sponsored search

     1,737       1,693       1,745       5,044       5,578  
                                        

Subtotal of advertising revenues

     51,135       43,384       31,526       129,288       85,518  
                                        

Non-advertising

          

Online games

     54,604       47,896       12,693       143,455       18,135  

Wireless

     14,483       9,166       6,832       32,242       18,996  

Others

     454       1,534       467       2,494       943  
                                        

Subtotal of non-advertising revenues

     69,541       58,596       19,992       178,191       38,074  
                                        

Total revenues

     120,676       101,980       51,518       307,479       123,592  

Cost of revenues:

          

Advertising

          

Brand advertising (includes share-based compensation expense under SFAS 123(R) of $288, $295, $382, $892 and $1,209 respectively)

     19,018       13,907       10,253       44,177       27,684  

Sponsored search (includes share-based compensation expense under SFAS 123(R) of $4, $6, $9, $16 and $50, respectively)

     1,775       1,605       1,330       4,900       4,291  
                                        

Subtotal of advertising cost of revenues

     20,793       15,512       11,583       49,077       31,975  
                                        

Non-advertising

          

Online games (includes stock-based compensation expense under SFAS 123 (R) of $0, $5, $3, $10 and $34, respectively)

     3,480       3,505       2,078       10,193       4,348  

Wireless

     7,064       5,480       3,311       16,475       9,096  

Others (includes share-based compensation expense under SFAS 123(R) of $0, $2, $2, $4 and $10, respectively)

     577       378       178       1,336       409  
                                        

Subtotal of non-advertising cost of revenues

     11,121       9,363       5,567       28,004       13,853  
                                        

Total cost of revenues

     31,914       24,875       17,150       77,081       45,828  

Gross profit

     88,762       77,105       34,368       230,398       77,764  

Operating expenses:

          

Product development (includes share-based compensation expense under SFAS 123(R)

of $1,678, $1,228, $672, $5,169 and $2,193, respectively)

     13,012       10,798       6,875       35,289       17,048  

Sales and marketing (includes share-based compensation expense under SFAS 123(R)

of $214, $228, $337, $722 and $1,222, respectively)

     27,643       21,408       13,573       65,191       30,320  

General and administrative (includes share-based compensation expense under SFAS 123(R) of $377, $394, $616, $1,416 and $2,183, respectively)

     4,148       4,827       4,900       15,160       11,672  

Amortization of intangibles

     201       199       202       596       891  
                                        

Total operating expenses

     45,004       37,232       25,550       116,236       59,931  
                                        

Operating profit

     43,758       39,873       8,818       114,162       17,833  

Other income (expense)

     51       (575 )     575       (481 )     335  

Interest income and exchange difference

     1,421       1,480       608       3,067       2,434  
                                        

Income before income tax expense

     45,230       40,778       10,001       116,748       20,602  

Income tax expense

     (4,992 )     (577 )     (322 )     (14,754 )     (767 )
                                        

Income from continuing operations

     40,238       40,201       9,679       101,994       19,835  

Minority interests

     22       (12 )     12       18       42  
                                        

Net income from continuing operations

     40,260       40,189       9,691       102,012       19,877  

Gain (loss) from discontinued E-commerce operations

     1       —         (5 )     —         (18 )
                                        

Net income

   $ 40,261     $ 40,189     $ 9,686     $ 102,012     $ 19,859  
                                        

Basic net income per share

   $ 1.05     $ 1.05     $ 0.26     $ 2.68     $ 0.54  
                                        

Shares used in computing basic net income per share

     38,496       38,108       37,307       38,121       36,979  
                                        

Diluted net income per share

   $ 1.02     $ 1.02     $ 0.25     $ 2.61     $ 0.52  
                                        

Shares used in computing diluted net income per share

     39,321       39,429       38,516       39,126       38,879  
                                        


SOHU.COM INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

 

     As of Sep. 30, 2008    As of Dec. 31, 2007
     (Unaudited)    (Audited)

ASSETS

     

Cash and cash equivalents

   $ 279,352    $ 122,706

Accounts receivable, net

     46,481      27,058

Prepaid and other current assets

     28,421      7,551

Fixed assets, net

     76,936      65,027

Goodwill

     55,555      55,542

Intangible assets, net

     6,086      7,041

Restricted cash

     2,673      4,324

Other assets, net

     4,525      1,268
             
   $ 500,029    $ 290,517
             

LIABILITIES AND SHAREHOLDERS’ EQUITY

     

Accounts payable

   $ 8,614    $ 2,667

Accrued liabilities to suppliers and agents

     35,431      23,741

Receipts in advance and deferred revenue

     30,080      14,139

Tax payables

     28,180      6,850

Other accrued liabilities

     42,103      24,216
             

Total liabilities

     144,408      71,613

Minority interests

     4,078      7

Shareholders’ equity

     351,543      218,897
             
   $ 500,029    $ 290,517
             


SOHU.COM INC.

RECONCILIATIONS TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NON-GAAP NET INCOME EXCLUDING SHARE-BASED COMPENSATION EXPENSE

 

     Three Months Ended Sep. 30, 2008     Three Months Ended Jun. 30, 2008     Three Months Ended Sep. 30, 2007  
     GAAP     Non-GAAP
Adjustments (a)
    Non-GAAP     GAAP     Non-GAAP
Adjustments (a)
    Non-GAAP     GAAP     Non-GAAP
Adjustments (a)
    Non-GAAP  

Advertising revenues

   $ 51,135     $ —       $ 51,135     $ 43,384     $ —       $ 43,384     $ 31,526     $ —       $ 31,526  

Less: Cost of advertising revenues

     20,793       (292 )     20,501       15,512       (301 )     15,211       11,583       (391 )     11,192  
                                                                        

Advertising gross profit

   $ 30,342     $ 292     $ 30,634     $ 27,872     $ 301     $ 28,173     $ 19,943     $ 391     $ 20,334  
                                                                        

Advertising gross margin

     59 %       60 %     64 %       65 %     63 %       64 %
                                                      

Non-advertising revenues

   $ 69,541     $ —       $ 69,541     $ 58,596     $ —       $ 58,596     $ 19,992     $ —       $ 19,992  

Less: Cost of non-advertising revenues

     11,121       —         11,121       9,363       (7 )     9,356       5,567       (5 )     5,562  
                                                                        

Non-advertising gross profit

   $ 58,420     $ —       $ 58,420     $ 49,233     $ 7     $ 49,240     $ 14,425     $ 5     $ 14,430  
                                                                        

Non-advertising gross margin

     84 %       84 %     84 %       84 %     72 %       72 %
                                                      

Total revenues

   $ 120,676     $ —       $ 120,676     $ 101,980     $ —       $ 101,980     $ 51,518     $ —       $ 51,518  

Less: Total cost of revenues

     31,914       (292 )     31,622       24,875       (308 )     24,567       17,150       (396 )     16,754  
                                                                        

Gross profit

   $ 88,762     $ 292     $ 89,054     $ 77,105     $ 308     $ 77,413     $ 34,368     $ 396     $ 34,764  
                                                                        

Gross margin

     74 %       74 %     76 %       76 %     67 %       67 %
                                                      

Operating expenses

   $ 45,004     $ (2,269 )   $ 42,735     $ 37,232     $ (1,850 )   $ 35,382     $ 25,550     $ (1,625 )   $ 23,925  
                                                                        

Net income

   $ 40,261     $ 2,561     $ 42,822     $ 40,189     $ 2,158     $ 42,347     $ 9,686     $ 2,021     $ 11,707  
                                                                        

Diluted net income per share

   $ 1.02       $ 1.08     $ 1.02       $ 1.07     $ 0.25       $ 0.30  
                                                      

Shares used in computing diluted net income per share

     39,321         39,626       39,429         39,540       38,516         38,882  
                                                      


SOHU.COM INC.

RECONCILIATIONS TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NON-GAAP NET INCOME EXCLUDING SHARE-BASED COMPENSATION EXPENSE

 

     Nine Months Ended Sep. 30, 2008     Nine Months Ended Sep. 30, 2007  
     GAAP     Non-GAAP
Adjustments (a)
    Non-GAAP     GAAP     Non-GAAP
Adjustments (a)
    Non-GAAP  

Advertising revenues

   $ 129,288     $ —       $ 129,288     $ 85,518     $ —       $ 85,518  

Less: Cost of advertising revenues

     49,077       (908 )     48,169       31,975       (1,259 )     30,716  
                                                

Advertising gross profit

   $ 80,211     $ 908     $ 81,119     $ 53,543     $ 1,259     $ 54,802  
                                                

Advertising gross margin

     62 %       63 %     63 %       64 %
                                    

Non-advertising revenues

   $ 178,191     $ —       $ 178,191     $ 38,074     $ —       $ 38,074  

Less: Cost of non-advertising revenues

     28,004       (14 )     27,990       13,853       (44 )     13,809  
                                                

Non-advertising gross profit

   $ 150,187     $ 14     $ 150,201     $ 24,221     $ 44     $ 24,265  
                                                

Non-advertising gross margin

     84 %       84 %     64 %       64 %
                                    

Total revenues

   $ 307,479     $ —       $ 307,479     $ 123,592     $ —       $ 123,592  

Less: Total cost of revenues

     77,081       (922 )     76,159       45,828       (1,303 )     44,525  
                                                

Gross profit

   $ 230,398     $ 922     $ 231,320     $ 77,764     $ 1,303     $ 79,067  
                                                

Gross margin

     75 %       75 %     63 %       64 %
                                    

Operating expenses

   $ 116,236     $ (7,307 )   $ 108,929     $ 59,931     $ (5,598 )   $ 54,333  
                                                

Net income

   $ 102,012     $ 8,229     $ 110,241     $ 19,859     $ 6,901     $ 26,760  
                                                

Diluted net income per share

   $ 2.61       $ 2.79     $ 0.52       $ 0.69  
                                    

Shares used in computing diluted net income per share

     39,126         39,462       38,879         39,381  
                                    

Note:

 

(a) To eliminate share-based compensation expense as measured using the fair value method under SFAS 123(R).
Press Release dated October 27, 2008 announcing a stock repurchase program

Exhibit 99.2

LOGO

SOHU.COM Announces US$150 Million Stock Repurchase Program

BEIJING, CHINA, October 27, 2008 - Sohu.com Inc. (NASDAQ: SOHU), China’s leading online media, communications, search, online games and mobile value-added services company, today announced that its Board of Directors has authorized a stock repurchase program of up to US$150 million of its outstanding shares of common stock until the end of 2009.

The shares may be repurchased from time to time at management’s discretion at prevailing market prices in the open market in accordance with Rule 10b-18 under the Securities Exchange Act of 1934. The Company’s management will determine the timing and amount of any repurchases based on their evaluation of market conditions, stock price and other factors. The stock repurchase program may be suspended or discontinued at any time.

“This program underscores our continued confidence in Sohu’s long term growth prospects and ability to maintain its position as a leading Internet portal in China,” said Dr. Charles Zhang, Chairman and Chief Executive Officer of Sohu.com. “The strength of Sohu’s strong balance sheet and operating cash flow allows us to take advantage of opportunities surrounding the volatility in US equity markets to repurchase stock and add value to Sohu’s shareholders.”

About Sohu.com

Sohu.com Inc. (Nasdaq: SOHU - News) 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 online alumni club www.chinaren.com; #1 games information portal www.17173.com; the top real estate website www.focus.cn; wireless value-added services provider www.goodfeel.com.cn; and leading online mapping service provider www.go2map.com.

Sohu corporate services consist of brand advertising on its matrix of websites as well as paid listing and bid listing on its in-house developed search directory and engines. Sohu also offers two types of consumer services. The company operates two massive multi-player online role-playing games, namely Tian Long Ba Bu and Blade Online, and a casual game platform. Sohu also offers wireless value-added services such as news, information, music, ringtone and picture content sent over mobile phones. Sohu.com, established by Dr. Charles Zhang, one of China’s Internet pioneers, is in its twelfth year of operation.

Sohu.com Contact Information

Shanshan Cai

Manager

Investor Relations and Corporate Communications

Tel: +86 10 6272 6596

E-mail: ir@contact.sohu.com

http://corp.sohu.com