Sohu.com Reports Fourth Quarter and Fiscal Year 2007 Unaudited Financial Results
- Fourth Quarter 2007 Brand Advertising Revenues Reach US$32.2 million, Exceeding High End of Guidance by US$1.7 million and Up 46% Year-on- Year;
- Fourth Quarter 2007 Online Game Revenues Reach US$24.0 million, Up Over 10 Times Year-on-Year;
- Fourth Quarter 2007 Total Revenues Reach US$65.3 million, Exceeding High End of Guidance by US$7.8 million, Up 90% Year-on-Year;
- Fourth Quarter 2007 Non-GAAP Fully Diluted EPS of US$0.43, Exceeding High End of Guidance by 5 US Cents
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 fourth quarter and fiscal year ended December 31, 2007.
Fourth Quarter Highlights
-- Record high total revenues and record high for each revenue category: brand advertising, advertising, and non-advertising revenues as well as net income. -- Even though the Company raised its guidance for fourth quarter for non- advertising revenues, total revenues and non-GAAP fully diluted earnings per share on December 4, 2007, all the aforementioned operating parameters exceeded the raised guidance. -- Brand advertising revenues of US$32.2 million, up 46% year-on-year and 8% quarter-on-quarter, exceeding high end of company guidance by US$1.7 million. -- Advertising revenues of US$33.7 million, up 35% year-on-year and 7% quarter-on-quarter. -- Online game revenues of US$24.0 million, up over 10 times year-on-year and 89% quarter-on-quarter. In-house developed massive multiplayer online role-playing game Tian Long Ba Bu ("TLBB") further solidified its success with revenue up 102% quarter-on-quarter to US$22.0 million. -- Non-advertising revenues of US$31.6 million, up 236% year-on-year and 58% quarter-on-quarter, exceeding high end of the raised guidance by US$6.1 million. -- Total revenues of US$65.3 million, up 90% year-on-year and 27% quarter- on-quarter, exceeding high end of the raised guidance by US$7.8 million. -- Non-GAAP net income (i.e. excluding share-based compensation expenses) of US$17.0 million or US$0.43 per fully diluted share, exceeding high end of the raised guidance by 5 US cents. Non-GAAP net income increased by 110% year-on-year and 45% quarter-on-quarter. -- GAAP net income of US$15.1 million or US$0.39 per fully diluted share. GAAP net income increased by 148% year-on-year and 56% quarter-on- quarter. -- Explanation of the Company's non-GAAP financial measures and the related reconciliations to GAAP financial measures are included in the accompanying "Non-GAAP Disclosure" and the "Reconciliations to Unaudited Condensed Consolidated Statements of Operations."
Fiscal Year 2007 Highlights
-- Record high total revenues and record high for each revenue category: brand advertising, advertising, and non-advertising revenues as well as net income. -- Brand advertising revenues of US$112.1 million, up 42% year-on-year. -- Advertising revenues of US$119.2 million, up 30% year-on-year. -- Online game revenues of US$42.1 million, up 394% year-on-year. -- Non-advertising revenues of US$69.7million, up 64% year-on-year. -- Total revenues of US$188.9 million, up 41% year-on-year. -- Non-GAAP net income of US$43.7 million or US$1.12 per fully diluted share. Non-GAAP net income increased by 33% year-on-year. -- GAAP net income of US$34.9 million or US$0.90 per fully diluted share. GAAP net income increased by 35% year-on-year.
Dr. Charles Zhang, Chairman and CEO of Sohu.com, stated, "Once again our team delivered an outstanding quarter with record total revenues and earnings. We are even more pleased to report that we exceeded our raised guidance in each of our revenue categories and earnings for the fourth quarter announced in early December. Sohu's technological innovation and leadership as well as our strategic vision and execution continue to be the catalysts that propel us forward. With the Beijing 2008 Olympic Games kicking off in 185 days, the Sohu brand resonates across China as we broaden our media reach to penetrate the Olympic audience. We expect the continued expansion of the total Chinese internet population, combined with our advancements in technology and our Olympic sponsorship, to help us to increase our market share of internet users. We believe that we will continue to reap the rewards of our success and strong branding for 2008 and beyond."
Ms. Belinda Wang, Co-President and Chief Marketing Officer of Sohu.com, said, "We are excited about the trends driving strong momentum in the Chinese online advertising market. For fiscal 2007, Olympic partners, sponsors and suppliers increased advertising spending with Sohu by 74% year-on-year. Looking ahead for 2008, we believe the growth of our brand advertising business will continue to be robust."
Dr. Gong Yu, Chief Operating Officer of Sohu.com, added, "We have never performed better on an operating level and there is still a lot of leverage in the existing infrastructure and technology. This is particularly important as Sohu continues to leverage its opportunities surrounding the Olympics and further our role as being the leading internet portal in China."
Fourth Quarter Financial Results
Total revenues for the fourth quarter ended December 31, 2007 were US$65.3 million, compared to revenues of US$51.5 million for the third quarter ended September 30, 2007, and US$34.4 million for the fourth quarter ended December 31, 2006.
Gross margin of 71% for the fourth quarter of 2007 increased from 67% in the previous quarter and 63% in the same period of 2006. Non-GAAP gross margin was 72% in the fourth quarter of 2007, up from 67% in the previous quarter and 64% in the same period of 2006. The gross margin expansion was primarily due to the contribution from TLBB.
Net income for the fourth quarter of 2007 was US$15.1 million or US$0.39 per fully diluted share. Non-GAAP net income for fourth quarter of 2007 was US$17.0 million or US$0.43 per fully diluted share. This compares to non-GAAP net income of US$11.7 million or US$0.30 per fully diluted share for the third quarter of 2007 and US$8.1 million or US$0.21 per fully diluted share for the fourth quarter of 2006.
Advertising revenues for the fourth quarter of 2007 totaled US$33.7 million, a 7% quarter-on-quarter increase and a 35% year-on-year increase. Advertising revenues, consisting of US$32.2 million in brand advertising and US$1.5 million in sponsored search, accounted for 52% of total revenues in the fourth quarter of 2007. Brand advertising revenues for the fourth quarter of 2007 increased 8% quarter-on-quarter and 46% year-on-year. Sponsored search revenues for the fourth quarter of 2007 were down 12% quarter-on-quarter and 48% year-on-year. Advertising gross margin for the fourth quarter of 2007 was 63%, flat with the previous quarter and down from 65% in the fourth quarter of 2006. Non-GAAP advertising gross margin for the fourth quarter of 2007 was 64%, flat with the previous quarter and down from 66% in the fourth quarter of 2006. The year-on-year decrease was mainly due to increased headcounts and bonuses, increased content costs, bandwidth and server depreciation expenses.
For the fourth quarter of 2007, Sohu's non-advertising revenues, which are derived mainly from online game and wireless value-added services, were US$31.6 million, representing 48% of total revenues. Online game revenues for fourth quarter of 2007 increased 89% quarter-on-quarter and 1039% year-on-year. Wireless revenue increased 7% quarter-on-quarter and 9% year-on-year. Non-advertising gross margin was 79%, compared to 72% in the previous quarter and 57% in fourth quarter of 2006. Non-GAAP non-advertising gross margin was 79%, compared to 72% in the previous quarter and 57% in fourth quarter of 2006. Those increases were due to the contribution from TLBB.
For fourth quarter of 2007, Sohu's operating expenses totaled US$31.5 million. Non-GAAP operating expenses totaled US$30.0 million, an increase of 25% from the previous quarter and up 111% year-on-year. The increase was primarily due to continued investment in product development, marketing expenses for Sohu branding and TLBB, as well as an increase in bonuses to reward employees for their contribution to good results.
Fiscal Year 2007 Financial Results
Total revenues for fiscal year 2007 were US$188.9 million, a 41% increase over fiscal year 2006 revenues of US$134.2 million. Gross margin was 66% in fiscal 2007, increased from 64% in fiscal 2006. Non-GAAP gross margin was 67% in fiscal 2007, increased from 65% in fiscal 2006.
Advertising revenues for fiscal year 2007 totaled US$119.2 million, up 30% from US$91.8 million in fiscal 2006. Advertising revenues consisted of US$112.1 million in brand advertising and US$7.1 million in sponsored search. Brand advertising revenues grew 42% year-on-year, attributable to China's robust online advertising market and stronger market momentum as the Beijing 2008 Olympic Games draw near. Sponsored search revenues decreased 44% year-on-year mainly due to strengthening of our anti-fraudulent click policy starting mid 2006.
In fiscal 2007, Sohu's non-advertising revenues totaled US$69.7 million, up 64% from US$42.5 million in fiscal 2006.
Net income for fiscal 2007 was US$34.9 million or US$0.90 per fully diluted share. Non-GAAP net income in fiscal 2007 was US$43.7 million or US$1.12 per fully diluted share compared to net income of US$32.8 million or US$0.85 per fully diluted share in fiscal 2006.
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