Sohu Com Inc. (SOHU)

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Sohu.com Reports Third Quarter 2012 Unaudited Financial Results

Monday , November 05, 2012 00:35ET


BEIJING, Nov. 5, 2012 /PRNewswire/ -- Sohu.com Inc. (NASDAQ: SOHU), China's leading online media, search, gaming, community and mobile service group, today reported unaudited financial results for the third quarter ended September 30, 2012.


Third Quarter Highlights

-- Total revenues were US$285 million, up 23% year-over-year and 12%
quarter-over-quarter.
-- Brand advertising revenues were US$78 million, up 2% year-over-year and
12% quarter-over-quarter.
-- Sogou[1] revenues were US$37 million, up 102% year-over-year and 23%
quarter-over-quarter.
-- Online game revenues reached quarterly record high of US$151 million, up
30% year-over-year and 10% quarter-over-quarter.
-- GAAP net income attributable to Sohu.com Inc. was US$24 million, or
US$0.63 per fully diluted share. Non-GAAP net income attributable to
Sohu.com Inc. was US$30 million, or US$0.77 per fully diluted share.

Dr. Charles Zhang, Chairman and CEO of Sohu.com Inc. commented, "We are pleased with the solid financial results we achieved in the third quarter. Total revenues surpassed our expectations, rising 23% year-on-year. Brand advertising revenues met the high end of our guidance and online gaming revenues came in well ahead of our expectations."

Dr. Zhang added, "By business unit, for online video, our newly set-up dedicated sales team is bringing in results and we expect fourth quarter advertising revenue to be back on growth track. Sogou maintained triple-digit year-on-year revenue growth which was supported by improved monetization. For Changyou, strong performance by both MMO and web games helped post new records for both revenues and profit."

Ms. Belinda Wang, Co-President and COO added, "In the third quarter, thanks to solid demand from FMCG sector and the recovery of real estate sector, our brand advertising revenues reached the high end of our prior estimate. For the fourth quarter, although we see some weakening signals from the auto sector where Japanese car makers cut spending as a result of sharp decline in their sales volume, the impact is expected to be offset by the contribution from other sectors."

Third Quarter Financial Results

Revenues

Total revenues for the third quarter of 2012 were US$285 million, up 23% year-over-year and 12% quarter-over-quarter.

Total online advertising revenues, which include revenues from brand advertising and search and others businesses for the third quarter of 2012, were US$113 million, up 19% year-over-year and 15% quarter-over-quarter.

Brand advertising revenues for the third quarter of 2012 totaled US$78 million, up 2% year-over-year and 12% quarter-over-quarter.

Search and others revenues for the third quarter of 2012 were US$35 million, up 92% year-over-year and 23% quarter-over-quarter. The year-over-year increase was mainly due to increased traffic and improved monetization of traffic.

Online game revenues for the third quarter of 2012 were US$151 million, up 30% year-over-year and 10% quarter-over-quarter.

Wireless revenues for the third quarter of 2012 were US$14 million, up 1% year-over-year and down 8% quarter-over-quarter.

Gross Margin

Both GAAP and non-GAAP gross margin was 66% for the third quarter of 2012, compared with 61% in the second quarter of 2012 and 71% in the third quarter of 2011.

Online advertising gross margin for the third quarter of 2012 was 49%, compared with 32% in the second quarter of 2012 and 58% in the third quarter of 2011. Non-GAAP online advertising gross margin for the third quarter of 2012 was 50%, compared with 31% in the second quarter of 2012 and 58% in the third quarter of 2011.

Both GAAP and non-GAAP gross margin for brand advertising in the third quarter of 2012 was 52%, compared with 26% in the second quarter of 2012 and 61% in the third quarter of 2011. The year-over-year decrease in gross margin was primarily due to increases in content and bandwidth costs. The quarter-over-quarter increase in gross margin was primarily due to decrease in content costs. We recognized an approximately $15 million impairment charges of video content in the second quarter of 2012.

Both GAAP and non-GAAP gross margin for search and others business in the third quarter of 2012 were 44%, compared with 44% in the second quarter of 2012 and 49% in the third quarter of 2011. The year-over-year decrease in margin was mainly due to higher traffic acquisition costs.

Both GAAP and non-GAAP gross margin for online games in the third quarter of 2012 were 86%, compared with 87% in the second quarter of 2012 and 87% in the third quarter of 2011.

Both GAAP and non-GAAP gross margin for the wireless business for the third quarter of 2012 were 34%, compared with 35% in the second quarter of 2012 and 39% in the third quarter of 2011. The year-over-year decrease was primarily due to increased revenue sharing costs with partners.


Operating Expenses


For the third quarter of 2012, operating expenses totaled $125 million, up 36% year-over-year and 11% quarter-over-quarter. Non-GAAP operating expenses were $121 million, up 38% year-over-year and 14% quarter-over-quarter. The year-over-year increase was primarily due to an increase in the number of employees and higher salaries and benefits expense. The quarter-over-quarter increase was primarily due to an increase in the number of employees, higher salaries and benefits expense and higher marketing expense.

Operating Profit

Operating profit for the third quarter of 2012 was US$64 million, down 13% year-over-year and up 48% quarter-over-quarter. Operating margin was 22% for the third quarter of 2012, compared with 17% in the previous quarter and 32% in the third quarter of 2011.

Non-GAAP operating profit for the third quarter of 2012 was US$68 million, down 13% year-over-year and up 37% quarter-over-quarter. Non-GAAP operating margin was 24% for the third quarter of 2012, compared with 19% in the previous quarter and 33% in the third quarter of 2011.

Income Tax Expense

For the third quarter of 2012, GAAP income tax expense was US$19 million. Excluding a non-cash income tax expense of US$1 million recorded for the utilization of tax benefits from excess tax deductions related to share-based awards, non-GAAP income tax expense was US$18 million, flattish with 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 2012 was US$52 million, down 20% year-over-year and up 53% quarter-over-quarter. Non-GAAP net income for the third quarter of 2012 was US$59 million, down 15% year-over-year and up 43% quarter-over-quarter.

GAAP net income attributable to Sohu.com Inc. for the third quarter of 2012 was US$24 million, or US$0.63 per fully diluted share, down 47% year-over-year and up 123% quarter-over-quarter. Non-GAAP net income attributable to Sohu.com Inc. for the third quarter of 2012 was US$30 million, or US$0.77 per fully diluted share, down 40% year-over-year and up 80% quarter-over-quarter.

Cash Balance

As of September 30, 2012, Sohu Group had cash and cash equivalents of US$773 million, compared with US$733 million as of December 31, 2011.

Ms. Carol Yu, Co-President and CFO of Sohu.com Inc. commented, "Our strategic move of setting up a dedicated video sales team from early 2012 started to bear fruits. Our business units, including Sohu Video and Sogou, are making solid developments as the Group consistently and carefully grooms them. The encouraging progress validates our strategy that is to maximize long-term shareholder value."

Other development

On August 6, 2012, Changyou declared a special one-time cash dividend of $1.90 per Class A or Class B ordinary share, or $3.80 per ADS. The total amount of the special dividend declared was approximately $201 million. On September 21, 2012, Changyou paid the dividend to its shareholders. The amount of the dividend received by Sohu was approximately $136 million.


Supplementary Information for Online Game Results

Third Quarter 2012 Operational Results

-- Aggregate registered accounts for Changyou's games[2] , excluding
7Road's games, increased 41% year-over-year and 12% quarter-over-quarter
to 223.5 million.
-- Aggregate peak concurrent users ("PCU") for Changyou's games, excluding
7Road's games, decreased 5% year-over-year and increased 1%
quarter-over-quarter to 1.09 million.
-- Aggregate active paying accounts ("APA") for Changyou's games, excluding
7Road's games, decreased 20% year-over-year and 8% quarter-over-quarter
to 2.41 million. The quarter-over-quarter and year-over-year decreases
reflected a decline in the number of low-spending active paying accounts
that did not make a purchase in the third quarter of 2012 as Changyou
continued last quarter's strategy of giving away virtual items and
reducing in-game promotions in TLBB.
-- Average revenue per active paying account ("ARPU") for Changyou's games,
excluding 7Road's games, increased 46% year-over-year and 15%
quarter-over-quarter to RMB319.The quarter-over-quarter and
year-over-year increases were mainly due to the decline in TLBB's
low-spending active paying accounts and TLBB's core players increasing
their spending in the third quarter of 2012.

Business Outlook

For the fourth quarter of 2012, Sohu estimates:

-- Total revenues to be between US$288 million and US$293 million.
-- Brand advertising revenues to be between $80 million and $82 million;
this implies a sequential and annual increase of 3% to 5%.
-- Sogou revenues to be around US$40 million; this implies a sequential
increase of 7% and an annual growth of 74%.
-- Online game revenues to be between US$152 million and US$155 million.
This implies a sequential increase of 1% to 3% and represents an annual
growth of 23% to 26%.
-- Before deducting the share of non-GAAP net income pertaining to the
Non-Controlling interest, non-GAAP net income to be between US$48
million and US$51 million.
-- Non-GAAP net income attributable to Sohu.com Inc. to be between US$23
million and US$25 million, and non-GAAP fully diluted earnings per share
to be between US$0.60 and US$0.65.
-- Assuming no new grants of share-based awards, we estimate that
compensation expenses and income tax expenses relating to share-based
awards to be around US$3.5 million to US$4.5 million. The estimated
impact of this expense is expected to reduce Sohu's fully diluted
earnings per share for the fourth quarter of 2012 under US GAAP by 9 to
11 US cents.

Continued at:

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