SOHU.com Reports Preliminary Fourth Quarter and Fiscal Year 2004 Unaudited Financial Results

SOHU.com Reports Preliminary Fourth Quarter and Fiscal Year 2004 Unaudited Financial Results


Full Year 2004 Revenues Grow 28% with Profits up 35% over 2003;
Fourth Quarter Net Income of US$0.17 Per Share



BEIJING, Feb. 7 /Xinhua-PRNewswire-FirstCall/ -- SOHU.COM Inc. (NASDAQ: SOHU), China's leading online media, communications, commerce and mobile value-added services company, reported unaudited financial results for the fourth quarter and fiscal year ended December 31, 2004.

Business Highlights

Highlights for the fourth quarter 2004:

-- Total revenues of US$24.1 million meet company guidance
-- Advertising revenue of US$15.9 million and non-advertising revenue of
US$8.2 million in line with company guidance
-- US GAAP net profit of US$6.5 million or US$0.17 per fully diluted share
within company guidance

Highlights for fiscal 2004:

-- Record total revenues of US$103.2 million, a 28% increase year-on-year
-- Advertising revenue increases 89% year-on-year to US$55.7 million
-- Fiscal 2004 US GAAP net income of US$35.6 million or US$0.89 per fully
diluted share, a 35% increase year-on-year
-- Operating profit reaches US$34.0 million with operating profit margin
of 33%



''Fiscal year 2004 was a year of unprecedented online advertising success while we managed through a difficult operating environment in our wireless business. Our core business of brand advertising and sponsored search, which in the fourth quarter contributed two-thirds of our revenues, is a strong and proven basis from which to re-ignite overall growth for the company. We believe the worst in our wireless business decline is behind us. Management confidence is high as we focus relentlessly on executing our strategy of building a diversified Internet and wireless business for long-term growth in the Chinese market,'' said Charles Zhang, Chairman and CEO of SOHU.

Business Results

Revenues for the fourth quarter ended December 31, 2004 totaled US$24.1 million, compared to revenues of US$24.6 million for the fourth quarter ended December 31, 2003. Gross margin was 68% in Q4 2004 compared to 72% in Q4 2003. US GAAP net income for the fourth quarter of 2004 was US$6.5 million or US$0.17 per fully diluted share. This compares to US GAAP net income of US$11.6 million or US$0.28 per fully diluted share for the fourth quarter of 2003.

Revenues for fiscal 2004 were US$103.2 million compared to revenues of US$80.4 million in fiscal 2003. Gross margin was 67% in fiscal 2004 compared to 69% in fiscal 2003. US GAAP net income in fiscal 2004 was US$35.6 million or US$0.89 per fully diluted share compared to net income of US$26.4 million or US$0.66 per fully diluted share in fiscal 2003.

SOHU's advertising revenue for the fourth quarter of 2004 totaled US$15.9 million, a 68% year-on-year improvement and 3% quarter-on-quarter. Advertising revenue, consisting of US$13.2 million in brand advertising and US$2.7 million in sponsored search, accounted for 66% of total revenues in Q4 2004. Advertising gross margin was 80%, compared to 77% in the same period last year.

In fiscal 2004, SOHU's advertising revenue totaled US$55.7 million, up 89% from US$29.5 million in fiscal 2003, as a result of combined organic growth and acquisition amidst widespread acceptance of the Internet as a key platform for corporate advertisers to reach an online population of 94 million users.

For the fourth quarter of 2004 SOHU's non-advertising revenue, which are derived from wireless value-added services, online games and e-commerce, decreased by 46% year-on-year and 22% quarter-on-quarter to US$8.2 million, representing 34% of total revenues. The decline was predominantly caused by the loss in wireless revenue, which went down by 64% year-on-year and 43% quarter-on-quarter. Non-advertising gross margin was 45% compared to 69% in the same quarter one year ago largely because of the decline in relatively high-margin wireless product sales.

The martial arts fighting game Blade Online, in commercial operation since October 17, 2004, generated revenue in line with company expectations. Together with Knight Online, SOHU's first online game, the two multi-player online role-playing games represented 5% of overall revenues in the fourth quarter.

In fiscal 2004, SOHU's non-advertising revenues totaled US$47.5 million, down 7% from US$50.9 million in fiscal 2003, reflecting how changes in operating environment for wireless value-added services that resulted in a sharp decline in wireless business in the second half of 2004 were partially offset by the relatively strong levels of wireless revenues in the first half of 2004.

For the fourth quarter of 2004, SOHU's operating expenses totaled US$10.4 million, an increase of 56% year-on-year. Operating profit margin of 25% was down from 45% in the same period last year.

In fiscal 2004, SOHU's operating expenses were US$35.2 million, an increase of 52% over operating expenses of US$23.2 million in fiscal 2003. The year-on-year increase in operating expenses is mostly due to investment in long-term growth opportunities, the rise in sales and marketing spending, and the consolidation of operating expenses from three companies acquired by SOHU since late 2003.

''SOHU is a healthy, diversified company with long-term growth prospects, even though we have managed through five quarters of highly volatile wireless business. To demonstrate management's unwavering confidence, the company bought back more shares during the fourth quarter. As a result, the total stock buy-back in 2004 amounted to almost 4% of total shares outstanding,'' Carol Yu, SOHU's Chief Financial Officer, said.

At December 31, 2004, SOHU's cash and marketable debt securities balance was US$141.3 million.

Business Outlook

SOHU estimates total revenues for the first quarter 2005 to be between US$22.5 million to US$23.5 million, with advertising revenue of US$14.5 million to US$15.0 million and non-advertising revenues of US$8.0 million to US$8.5 million. First quarter earnings per diluted share are expected to be between US$0.14 to US$0.16.

Note to the Financial Statements

The unaudited financial information disclosed above is preliminary. The audit of the financial statements and related notes to be included in our annual report on Form 10-K for the year ended December 31, 2004 is still in progress. In addition, because an audit of our internal controls over financial reporting in connection with section 404 of the Sarbanes-Oxley Act of 2002 has not yet been completed, we make no representation as to the effectiveness of those internal controls as of the end of our 2004 fiscal year.

Adjustments to the financial statements may be identified when the audit work is completed, which could result in significant differences between our audited financial statements and this preliminary unaudited financial information.

Safe Harbor Statement

This announcement contains forward-looking statements. It is currently expected the Business Outlook will not be updated until the release of SOHU's next quarterly earnings announcement; however, SOHU reserves the 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, SOHU's 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), 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, 2003, and other filings with the Securities and Exchange Commission.

Conference Call

SOHU's management team will host a conference call at 8:00 AM Eastern Daylight Savings Time, February 7, 2005 (or 9:00 PM on February 7 in the Hong Kong/China time zone) following the quarterly results announcement. To listen to the conference call, please use the dial in numbers below: CHINA (NORTH) Toll Free Number: 10800-852-0823 CHINA (SOUTH) Toll Free Number: 10800-152-0823 HONG KONG Toll Number: +852-2258-4002 USA Toll Number: +1-210-795-0493 PASSCODE: 8776308

The conference call will be available on web cast live and replayed at: http://www.sohu.com/about/English/conference.htm .

About SOHU

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 matrix of web properties in China, consisting of the mass portal and leading online media destination http://www.sohu.com/ ; the #1 online alumni club http://www.chinaren.com/ ; #1 games portal http://www.17173.com/ ; top real estate website http://www.focus.cn/ and wireless value-added services provider http://www.goodfeel.com.cn/ . This network of web properties offers the vast SOHU user community very broad choices regarding information, entertainment, communication and commerce. SOHU.COM, established by Dr. Charles Zhang, one of China's Internet pioneers, is in its ninth year of operation.

SOHU.COM INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)


Three Months Twelve Months
Ended Ended
Dec. Sep. Dec. Dec. Dec.
31, 30, 31, 31, 31,
2004 2004 2003 2004 2003
Revenues:
Advertising $15,879 $15,473 $9,478 $55,748 $29,503
Non-advertising:
Wireless 4,663 8,145 12,887 36,369 44,047
E-commerce 1,996 1,486 936 6,171 3,787
Other 1,529 836 1,284 4,921 3,088
Subtotal of
non-advertising
revenue 8,188 10,467 15,107 47,461 50,922
Total revenues 24,067 25,940 24,585 103,209 80,425

Cost of revenues:
Advertising 3,250 3,576 2,134 12,987 7,459
Non-advertising:
Wireless 1,933 3,021 3,347 13,267 12,990
E-commerce 1,963 1,450 882 6,045 3,410
Other 592 340 415 1,686 1,347
Subtotal of
non-advertising
cost of revenue 4,488 4,811 4,644 20,998 17,747
Total cost of
revenues 7,738 8,387 6,778 33,985 25,206

Gross profit 16,329 17,553 17,807 69,224 55,219

Operating expenses:
Product development 2,386 2,462 1,906 8,820 7,542
Sales and marketing 4,547 4,600 3,211 16,529 10,570
General and
administrative 2,987 2,210 1,460 8,521 5,029
Amortization of
intangibles 456 368 57 1,360 57
Total operating
expenses 10,376 9,640 6,634 35,230 23,198

Operating profit 5,953 7,913 11,173 33,994 32,021


Other expense (244) (190) (202) (838) (964)
Interest income 595 641 748 2,444 1,950
Net income before taxes 6,304 8,364 11,719 35,600 33,007

Income tax expense 198 (38) (150) 37 (6,650)
Net income 6,502 8,326 11,569 35,637 26,357

Basic net income per share $0.18 $0.23 $0.32 $0.98 $0.74

Shares used in computing
basic net
income per share 36,478 36,392 36,040 36,369 35,483

Diluted net income per
share $0.17 $0.21 $0.28 $0.89 $0.66

Shares used in computing
diluted net
income per share 40,306 40,644 42,146 40,941 40,351


SOHU.COM INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)


As of As of
Dec. 31, Dec. 31,
2004 2003
ASSETS

Cash, cash equivalents and
investments in marketable debt
securities $141,323 $142,570

Accounts receivable, net 19,901 12,381

Prepaid and other current assets 4,893 4,050

Fixed assets, net 12,175 6,846

Goodwill 44,502 31,664

Intangible assets, net 7,503 4,082

Other assets, net 4,470 3,462

234,767 205,055

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable and accrued
liabilities 30,799 19,454

Deferred revenues 5,469 3,962
Zero coupon convertible senior
notes 90,000 90,000

Total liabilities 126,268 113,416


Shareholders' equity 108,499 91,639
$234,767 $205,055


For more information, please contact:

Caroline Straathof
SOHU Investor Relations and Communications
Tel: +86-10-6272-6596
Email: ir@sohu-inc.com
Web: http://www.sohu.com/about/English


Source: SOHU.COM Inc.

CONTACT: Caroline Straathof, SOHU Investor Relations and Communications,
+86-10-6272-6596, or ir@sohu-inc.com

Web site: http://www.sohu.com/about/English


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