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Sohu.com Reports Fourth Quarter and Fiscal Year 2010 Unaudited Financial Results

BEIJING Jan. 31, 2011 BEIJING, CHINA January 31, 2011 China December 31, 2010

http://photos.prnewswire.com/prnh/20100201/CNM013LOGO

Fourth Q uarter Highlights(1)

  • Record total revenues and record revenues in each of the Group’s brand advertising, online game and search businesses. All such operating parameters exceeded the Group’s expectations.
  • US$173.2 million
  • US$60.1 million
  • US$91.7 million
  • US$6.6 million
  • US$41.5 million US$1.07 US$47.9 million US$1.23

(1) Explanation of the Group’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."

Fiscal Year 20 10 Highlights

  • Record total revenues and record revenues in each of the Group’s brand advertising, online game and search businesses.
  • US$612.8 million
  • US$211.8 million
  • US$327.1 million
  • US$18.6 million
  • US$139.3 million US$3.62 US$164.3 million US$4.21
  • US$678.4 million December 31, 2010 US$114.6 million December 31, 2009

Charles Zhang

Belinda Wang

Fourth Q uarter Financial Results

Revenues

US$173.2 million

US$60.1 million

US$91.7 million

US$6.6 million

US$14.4 million

Gross Margin

Gross margin was 74% for the fourth quarter of 2010, compared with 74% in the third quarter of 2010 and 75% in the fourth quarter of 2009. Non-GAAP gross margin for the fourth quarter of 2010 was 75%, compared with 74% in the third quarter of 2010 and 75% in the fourth quarter of 2009.

Brand advertising gross margin for the fourth quarter of 2010 was 60%, compared with 61% in the third quarter of 2010 and 65% in the fourth quarter of 2009. Non-GAAP brand advertising gross margin for the fourth quarter of 2010 was 63%, compared with 62% in the third quarter of 2010 and 65% in the fourth quarter of 2009.

Both GAAP and non-GAAP gross margin for online games in the fourth quarter of 2010 were 90%, compared with 90% in the third quarter of 2010 and 92% in the fourth quarter of 2009. The decline in gross margin was mainly due to an increase in salaries and benefits and higher bandwidth and server depreciation costs associated with the operation of more games in the fourth quarter of 2010.

Both GAAP and non-GAAP gross margin for the search business in the fourth quarter of 2010 were 32%, compared with 32% in the third quarter of 2010 and 2% in the fourth quarter of 2009.

Both GAAP and non-GAAP gross margin for the wireless business for the fourth quarter of 2010 were 45%, compared with 46% in the third quarter of 2010 and 44% in the fourth quarter of 2009.

Operating Expenses

US$61.8 million US$55.5 million

Operating Margin

Operating margin was 38% for the fourth quarter of 2010, compared with 40% in the previous quarter and 39% in the fourth quarter of 2009. Non-GAAP operating margin was 43% for the fourth quarter of 2010, compared with 44% in the previous quarter and 42% in the fourth quarter of 2009.

Income Tax Expense

US$0.7 million January 1, 2010 US$11.1 million US$10.6 million

Net Income

US$57.4 million US$64.6 million

US$41.5 million US$ 1.07 US$47.9 million US$ 1.23

Cash Balance

US$678.4 million December 31, 2010

Fiscal Year 20 10 Financial Results

Revenues

US$612.8 million

US$211.8 million

US$327.1 million

US$18.6 million

US$52.3 million

Gross Margin

Gross margin was 74% and non-GAAP gross margin was 75% for fiscal year 2010, compared with 76% for both GAAP and non-GAAP gross margin in 2009.

Brand advertising gross margin was 59% for fiscal year 2010, compared with 66% in 2009. Brand advertising non-GAAP gross margin was 61% for fiscal year 2010, compared with 67% in 2009.

Online game gross margin was 91% for fiscal year 2010, compared with 93% in 2009. Online game non-GAAP gross margin was 91% for fiscal year 2010, compared with 94% in 2009. The decline in gross margin was mainly due to an increase in salaries and benefits and higher bandwidth and server depreciation costs associated with the operation of more games in 2010.

Both GAAP and non-GAAP gross margin for the search business were 24% for fiscal year 2010, compared with -14% in 2009.

Both GAAP and non-GAAP gross margin for the wireless business were 46% for fiscal year 2010, compared with 43% in 2009.

Operating Expenses

US$221.9 million US$199.4 million

Operating Margin

Operating margin for fiscal year 2010 was 38%, compared with 40% in 2009. Non-GAAP operating margin was 42%, compared with 43% in 2009.

Income Tax Expense

US$1.2 million US$34.9 million US$29.8 million

Net Income

US$198.2 million US$226.8 million

US$139.3 million US$3.62 US$164.3 million US$4.21

Carol Yu

Supplementary Information for Online Game Results

Fourth Quarter 20 10 Operational Results

December 31, 2010

Aggregate peak concurrent users ("PCU") for Changyou’s games increased 5% quarter-over-quarter and 7% year-over-year to 1,030,000.

Aggregate active paying accounts ("APA") for Changyou’s games increased 3% quarter-over-quarter and 13% year-over-year to 2.7 million.

RMB219 China

China Tian Long Ba Bu Zhong Hua Ying Xiong

Fourth Quarter and Fiscal Year 2010 Revenue s

Total revenues US$91.7 million US$327.1 million US$267.6 million

Revenues from game operations US$89.5 million US$318.9 million US$259.8 million China

Overseas licensing revenues $2.2 million Vietnam Thailand US$8.2 million US$7.8 million Vietnam Malaysia

Recent Business Developments

Open Beta Testing of San Jie Qi Yuan

December 3, 2010 China China

Changyou To Jing Mao

January 2011 Jing Mao China Jing Mao Jing Mao February 1, 2011

Business Outlook

For the first quarter of 2011, Sohu estimates:

  • $164.5 million and $169.5 million
  • $55.0 million and $57.0 million
  • US$92.0 million and US$95.0 million Jing Mao US$91.0 million and US$93.0 million
  • $6.5 million
  • $54.5 million and $57.0 million
  • $40.0 million and $42.0 million $1.03 and $1.08
  • $5.0 million to $6.0 million $1.5 million to $2.0 million 11 to 13 cents

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, income tax expense, net income and net income per share, which are adjusted from results based on GAAP to exclude the impact of share-based awards granted to employees in the consolidated statements of operations, which consists mainly of share-based compensation expense and non-cash tax benefits from excess tax deductions related to share-based awards. 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 impact of share-based awards from its non-GAAP financial measure is useful for itself and investors. Further, the impact of share-based awards 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 the impact of share-based awards 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, in general, the monthly financial results for internal reporting and any performance measure for commissions and bonuses are based on non-GAAP financial measures that exclude the impact of share-based awards.

The non-GAAP financial measures are provided to enhance 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 the impact of share-based awards, is that the impact of share-based awards has been and will continue to be a significant recurring expense in Sohu’s business for the foreseeable future. In order to mitigate these limitations Sohu has provided specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables include details on the reconciliation between the GAAP financial measures that are most directly comparable to the non-GAAP financial measures that have been presented.

Notes to Financial Information

Financial information in this press release other than the information indicated as being non-GAAP is derived from Sohu’s unaudited interim financial statements prepared in accordance with GAAP.

June 20, 2006

Safe Harbor Statement

the People’s Republic of China December 31, 2009

Conference Call and Webcast

January 31, 2011 9:30 p.m. Beijing Hong Kong January 31, 2011 8:30 a.m.

The dial-in details for the live conference call are:

US Toll-Free:

+ 1-877-941-2927

International:

+1-480-629-972 4

Hong Kong:

+852-3009-5027

Passcode:

SOHU

Please dial in 10 minutes before the call is scheduled to begin and provide the passcode to join the call.

10:30 a.m. Eastern Time January 31 through February 8, 2011

International:

+852-3056-2777

Passcode:

43 98395

http://corp.sohu.com/

About Sohu.com

China www.sohu.com www.sogou.com www.17173.com www.focus.cn www.chinaren.com www.goodfeel.com.cn www.go2map.com www.changyou.com

China Tian Long Ba Bu China Zhong Hua Ying Xiong Charles Zhang China

For investor and media inquiries, please contact:

China

Mei Li

Sohu.com Inc.

Tel: +86 (10) 6272-6596

[email protected]

the United States

Jeff Bloker

Christensen

Tel: +1 (480) 614-3003

[email protected]

SOHU.COM INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Three Months Ended

Twelve Months Ended

Dec . 3 1 , 20 10

Sep . 3 , 20 10

Dec . 3 1 , 200 9

Dec . 3 1 , 20 10

Dec . 3 1 , 200 9

Revenues:

       Brand advertising

$

60,064

$

59,083

$

45,876

$

211,821

$

177,073

       Online games

91,735

85,623

70,698

327,151

267,585

       Sponsored search

6,596

5,357

2,914

18,649

8,491

       Wireless and others

14,767

14,001

16,343

55,156

62,090

            Total revenues

173,162

164,064

135,831

612,777

515,239

Cost of revenues:

      Brand advertising (includes stock-based compensation expense of $1,610, $ 1,022 , $ 141,  $4,803 and $ 787,   respectively)

23,889

23,256

16,238

86,684

59,451

Online games (includes stock-based compensation expense of $ 44, $ 40 ,   $ 57,  $194 and   $ 324,   respectively)

8,923

8,537

5,419

29,852

17,505

Sponsored search (includes stock-based compensation expense of $ 0, $ , $ 0,  $0 and $ 0 , respectively)

4,497

3,650

2,854

14,243

9,669

Wireless and others (includes stock-based compensation expense of $ 0, $ 1 , $ 1,  $3 and $ 38, respectively)

8,075

7,733

9,322

29,528

36,770

  Total cost of revenues

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