Sohu.com Reports Fourth Quarter 2005 and Fiscal Year 2005 Unaudited Financial Results
9 February 2006
Sohu.com Inc. (Nasdaq: SOHU), China's leading online media, search and mobile value-added services company, today reported unaudited financial results for the fourth quarter and fiscal year ended December 31, 2005.
Business Highlights
Highlights For Fourth Quarter 2005
-- Total revenues of US$30.5 million, up 27% year-on-year and 8% quarter-
on-quarter, a record quarter of revenues
-- Advertising revenues of US$20.3 million, up 28% year-on-year and 8%
quarter-on-quarter, exceeding company guidance
-- Non-advertising revenues of US$10.2 million, exceeding company
guidance, with wireless revenues showing steady improvement up 7%
quarter-on-quarter
-- U.S. GAAP net profit of US$8.9 million or US$0.23 per fully diluted
share, exceeding company guidance
Highlights For Fiscal 2005
-- Record total revenues of US$108.3 million, up 5% year-on-year
-- Advertising revenues increased 27% year-on-year to US$70.9 million
-- Fiscal 2005 U.S. GAAP net income of US$29.8 million or US$0.77 per
fully diluted share
-- Operating profit of US$24.8 million with operating profit margin of 23%
Charles Zhang, Chairman and CEO of Sohu.com stated, "We had a very good quarter. We continued to execute on our core business initiatives of growing our online advertising business and developing our healthy sponsored search segment following our search product upgrade to Sogou 2.5. Our solid fourth quarter financial results, which have exceeded company top and bottom line guidance during a seasonally weak quarter, demonstrate the strength and momentum in our business. Fiscal 2005 experienced a solid 27% year-on-year increase in advertising revenues supplemented by our steadily improving wireless business."
Business Results
Revenues for fourth quarter ended December 31, 2005 totaled US$30.5 million, compared to revenues of US$28.3 million for third quarter ended September 30, 2005, and US$24.1 million for fourth quarter ended December 31, 2004. Gross margin of 66% in fourth quarter of 2005 was up slightly from 65% in the previous quarter and down slightly from 68% in the same period of 2004. Net income for fourth quarter of 2005 was US$8.9 million or US$0.23 per fully diluted share. This compares to net income of US$8.0 million or US$0.21 per fully diluted share for the previous quarter and US$6.5 million or US$0.17 per fully diluted share for fourth quarter of 2004.
Revenues for fiscal year 2005 totaled US$108.3 million, a 5% year-on-year increase from fiscal year 2004. Gross margin was 66% in fiscal 2005, down slightly from 67% in fiscal 2004. U.S. GAAP net income in fiscal 2005 was US$29.8 million or US$0.77 per fully diluted share compared to net income of US$35.6 million or US$0.89 per fully diluted share in fiscal 2004.
Sohu's advertising revenues for fourth quarter of 2005 totaled US$20.3 million, a 28% year-on-year improvement and 8% increase quarter-on-quarter. Advertising revenues, consisting of US$16.9 million in brand advertising and US$3.4 million in sponsored search, accounted for 67% of total revenues in fourth quarter of 2005. Advertising gross margin was 74%, relatively stable from the previous quarter but lower than 81% in fourth quarter of 2004.
In fiscal 2005, Sohu's advertising revenues totaled US$70.9 million, up 27% from US$55.7 million in fiscal 2004.
For fourth quarter of 2005, Sohu's non-advertising revenues, which are derived mainly from wireless value-added services, online games and e-commerce, increased by 24% year-on-year and 7% quarter-on-quarter to US$10.2 million, representing 33% of total revenues. The strong year-on-year improvement was a result of the continued recovery in wireless revenues after bottoming out in the fourth quarter 2004. Wireless revenues posted its fourth consecutive quarter of sequential growth, increasing 7% over third quarter and 55% over the same period last year. Non-advertising gross margin improved to 50% compared to 47% in previous quarter and 42% in fourth quarter of 2004.
In fiscal 2005, Sohu's non-advertising revenues totaled US$37.5 million, down 21% from US$47.5 million in fiscal 2004 reflecting the shift in the revenue mix to favor the core advertising business.
For the fourth quarter, Sohu's operating expenses totaled US$14.2 million, increasing 25% from previous quarter and 37% year-on-year. The increase in expenses quarter-on-quarter primarily relates to costs associated with Sohu's exclusive Olympics sponsorship role and additional sales commissions payable to our sales team totaling US$1.4 million pertaining to higher collections as well as a change in the timing of when the commission is accrued.
For the fourth quarter of 2005, Sohu's other income totaled US$2.4 million. This included a gain of US$1.2 million arising from our repurchase of convertible notes with face value of US$15.22 million at a discount. In addition, due to an exemption regarding payment of certain taxes and receipts of tax refunds by our China subsidiaries, we have also recorded approximately US$1.2 million gain of other income.
As of December 31, 2005, Sohu's cash, cash equivalents and investments in marketable debt securities balance was US$134.1 million, compared to US$132.5 million and US$141.3 million as of September 30, 2005 and December 31, 2004, respectively. During the year, the Company completed a US$13.8 million stock repurchase program and the aforementioned repurchase of convertible notes.
Carol Yu, CFO of Sohu.com commented, "Although this is typically a slower season for advertising, we were still able to post another solid quarter of results. Our focus on growing our user base and maintaining our leadership position in online advertising in China continues to work well. We have taken full advantage of the rapid growth in online advertising in China which we believe is still in an early growth stage and have taken the necessary steps to ensure Sohu's Internet properties are well-positioned to benefit as more advertisers begin to value the importance of brand and search advertising in China as an effective tool to reach consumers."
Olympic Sponsorship Update
Sohu was chosen as official Internet Content Sponsor for the Beijing 2008 Olympic Games in November 2005 and has already begun providing its exclusive services to construct, operate and host the official website, http://www.beijing2008.com, for the upcoming historic event.
"With Sohu's win of the Olympics sponsorship role, we have seen the continued strengthening of the Sohu brand via our expanding advertising revenue base. While we expect to see even more Sohu exclusive co-marketing and cross-selling opportunities come into effect as the Beijing 2008 Olympics approaches, we have already begun to see increased interest from Fortune 1000 advertisers. In fact, we have signed Olympic-related deals with well-known companies such as Lenovo and Audi China during the fourth quarter. Our experienced management team continues to focus on leveraging our core advertising strength and steadily growing our dynamic search business as we move closer to the Beijing 2008 Olympics," concluded Dr. Zhang.
Business Outlook
Sohu estimates total revenues for first quarter 2006 to be between US$28.0 million to US$30.0 million, with advertising revenues of US$19.0 million to US$20.0 million and non-advertising revenues of US$9.0 million to US$10.0 million.
Sohu estimates the stock-based compensation expense for the first quarter of 2006, due to the effect of adoption of Statement of Financial Accounting Standard 123R, Share-Based Payment which requires the expensing of stock-based compensation expense, to be between US$1.7 million to US$1.8 million. In addition, starting from January 1, 2006, the applicable PRC income tax rate of Sohu has increased to 7.5%. Sohu estimates that the PRC income tax expense for the first quarter of 2006 to be between US$0.5 million to US$0.7 million. The estimated total impact of these two expenses is expected to reduce Sohu's fully diluted earnings per share for the first quarter of 2006 by US$0.05 to US$0.06.
After deducting the stock-based compensation expense and PRC income tax expense mentioned above, Sohu estimates fully diluted earnings per share for the first quarter of 2006, under US generally accepted accounting principles, to be between US$0.14 and US$0.16.
Notes to Financial Information
Financial information in this press release is extracted from Sohu's unaudited financial statements prepared in accordance with generally accepted accounting principles in the United States.
In previous periods, the Company had included all its website operating costs in cost of revenues of brand advertising. Beginning July 1, 2005, in order to improve the measurement of performance of each segment, the Company began allocating website operating cost to cost of revenues of each segment based on actual usage. Accordingly, the Company reclassified cost of revenues amongst each segment for previous periods presented to conform with current period classification.
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 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, wireless services (most wireless revenues are collected from a few mobile telecom operators), online games and e-commerce 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, 2004, Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and other filings with the Securities and Exchange Commission.
Conference Call
Sohu's management team will host a conference call at 8:00 PM EST, February 6, 2006 (or 9:00 AM on February 7, 2006 in Beijing/Hong Kong time zone) following quarterly results announcement.
To listen to the conference call, please use dial in numbers below:
CHINA A Toll Free Number: +1 0800 744 0091
CHINA B Toll Free Number: +1 0800 440 0091
HONG KONG Toll Number: +852 3002 8537
USA Toll Number: +1 800 218 9073/ +1 303 262 2050
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: 3460509
The conference call will be available on web cast live and replayed at: http://corp.sohu.com/s2005/conferencecall.shtml
About Sohu.com
Sohu.com Inc. (Nasdaq: SOHU) is China's premier online brand and indispensable to the daily life of millions of Chinese who use the portal network for their news, search, e-mail, wireless messaging, instant messaging, browsing, games and shopping. 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 online alumni club http://www.chinaren.com; #1 games information portal http://www.17173.com; the top real estate website http://www.focus.cn; wireless value-added services provider http://www.goodfeel.com.cn; and leading online mapping service provider http://www.go2map.com. This network of web properties offers vast Sohu user community very broad choices regarding information, entertainment, communication and commerce.
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 three types of consumer services. Sohu offers wireless value-added services such as news, information, ringtone and picture content sent over mobile phones. The company also operates two massively multi-player online role-playing games as well as a casual game platform, and manages an e-commerce platform. Sohu.com, established by Dr. Charles Zhang, one of China's Internet pioneers, is in its ninth year of operation.
For further information:
Jessica Zhang
Senior Manager
Sohu.com Investor Relations and Corporate Communications
Tel: +86 10 6272 6616
E-mail: ir@contact.sohu.com
http://corp.sohu.com
SOHU.COM INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Three Months Ended Twelve Months Ended
Dec. Sep. Dec. Dec. Dec.
31, 30, 31, 31, 31,
2005 2005 2004 2005 2004
Revenues:
Advertising
Brand advertising $16,882 $15,618 $13,187 $58,483 $46,062
Sponsored search 3,406 3,172 2,692 12,414 9,686
Subtotal of
advertising
revenues 20,288 18,790 15,879 70,897 55,748
Non-advertising
Wireless 7,249 6,762 4,663 26,330 36,369
E-commerce 816 879 1,996 3,801 6,171
Other 2,113 1,847 1,529 7,320 4,921
Subtotal of non-
advertising
revenues 10,178 9,488 8,188 37,451 47,461
Total revenues 30,466 28,278 24,067 108,348 103,209
Cost of revenues:
Advertising
Brand advertising 4,272 4,122 2,626 14,611 10,786
Sponsored search 1,084 813 388 3,077 1,272
Subtotal of
advertising cost
of revenues 5,356 4,935 3,014 17,688 12,058
Non-advertising
Wireless 3,437 3,353 2,054 11,983 13,756
E-commerce 849 1,014 1,977 3,901 6,115
Other 774 626 694 2,748 2,056
Subtotal of non-
advertising cost
of revenues 5,060 4,993 4,725 18,632 21,927
Total cost of
revenues 10,416 9,928 7,739 36,320 33,985
Gross profit 20,050 18,350 16,328 72,028 69,224
Operating expenses:
Product development 3,555 3,439 2,387 13,730 8,820
Sales and marketing 7,724 4,615 4,547 21,342 16,529
General and
administrative 2,451 2,813 2,987 10,163 8,521
Amortization of
intangibles 509 509 455 1,948 1,360
Total operating
expenses 14,239 11,376 10,376 47,183 35,230
Operating profit 5,811 6,974 5,952 24,845 33,994
Other income/(expense) 2,351 358 (244) 2,447 (838)
Interest income 755 617 595 2,500 2,444
Income before income
tax expense 8,917 7,949 6,303 29,792 35,600
Income tax expense 20 81 199 (11) 37
Net income $ 8,937 $ 8,030 $ 6,502 $29,781 $35,637
Basic net income
per share $ 0.24 $ 0.22 $ 0.18 $ 0.82 $ 0.98
Shares used in
computing basic net
income per share 36,626 36,417 36,478 36,309 36,369
Diluted net income
per share $ 0.23 $ 0.21 $ 0.17 $ 0.77 $ 0.89
Shares used in
computing diluted net
income per share 39,435 39,750 40,533 39,680 41,011
SOHU.COM INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
As of Dec. As of Dec.
31, 2005 31, 2004
ASSETS
Cash, cash equivalents and investments in
marketable debt securities $134,077 $141,322
Accounts receivable, net 19,283 19,901
Prepaid and other current assets 4,546 4,894
Fixed assets, net 15,745 12,175
Goodwill 50,918 44,502
Intangible assets, net 8,244 7,503
Other assets, net 6,868 4,470
$239,681 $234,767
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 35,053 $ 36,268
Zero coupon convertible senior notes 74,780 90,000
Total liabilities 109,833 126,268
Shareholders' equity 129,848 108,499
$239,681 $234,767
Source: prnewswire
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