SOHU

Sohu.com Inc. (SOHU)

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Sohu.com Inc. (SOHU)

Q3 2012 Results Earnings Call

November 5, 2012 8:30 AM ET

Executives

Tip Fleming - Christensen, IR

Dr. Charles Zhang - Chairman and CEO

Belinda Wang - Co-President and COO

Carol Yu - Co-President and CFO

Tao Wang - Chief Executive Officer, Changyou

Dewen Chen - President and COO, Changyou

Alex Ho - Chief Financial Officer, Changyou

Xiaochuan Wang - Chief Executive Officer, Sogou

Ye Deng - Vice President, Sohu and CEO, Sohu Video

Analysts

Dick Wei - JP Morgan

Ed Leung - Merrill Lynch

Alicia Yap - Barclays

Muzhi Li - Citigroup

Ming Zhao - 86 Research

Philip Wan - Morgan Stanley

Mark Marostica - Piper Jaffray

Mi Zhou - UBS

Wendy Huang - CIMB

Jiong Shao - Macquarie

Presentation

Operator

Ladies and gentlemen, thank you for standing by and very good evening to all. Thank you for joining Sohu's Third Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, there will be a Q&A session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the conference over to your host for today's conference call, Tip Fleming from Christensen. Please go ahead, sir.

Tip Fleming

Thank you, Operator. Thank you all for joining us today to discuss Sohu.com's third quarter 2012 results. On the call are Chairman and Chief Executive Officer, Dr. Charles Zhang; Co-President and Chief Operating Officer, Belinda Wang; Co-President and Chief Financial Officer, Carol Yu; also with us from Changyou our Chief Executive Officer, Tao Wang; President and Chief Operating Officer, Dewen Chen; and Chief Financial Officer, Alex Ho. We also have CEO of Sogou, Xiaochuan Wang; Vice President of Sohu and CEO of Sohu Video, Ye Deng.

Before management begins their prepared remarks, I would like to remind you the company's Safe Harbor statement in connection with today's conference call. Except for the historical information contained herein, the matters discussed in this conference call 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.

For more information about the potential risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission, including its registration statement on most -- and most recent annual report on Form 10-K.

Now, let me turn the call over to Dr. Charles Zhang, Chairman and CEO. Charles, please proceed.

Dr. Charles Zhang

Thank you. And thanks to everyone for joining our call. We are pleased with solid financial results we achieved in the third quarter. Total revenues surpassed our expectations driving 23% year-over-year. Brand advertising revenue met the high end of our guidance and online gaming revenue came in well ahead of our expectations.

Our 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 the 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.

Now I would like to share some third quarter financial highlights with you. Total revenues were $285 million, up 23% year-on-year and 12% quarter-over-quarter, exceeding a high end of our guidance by $8 million.

Net brand advertising revenues was 78%, up 2% year-on-year, and 12% quarter-on-quarter. Sogou revenues were $37 million, up 102% year-over-year and 23% quarter-over-quarter.

Online games revenue reached a quarterly record of $151 million, up 30% year-over-year and 10% quarter-over-quarter.

Non-GAAP diluted EPS were $0.77, compared with a US$1.26 in the third quarter of 2011 and US$0.42 in the previous quarter.

Now, let me discuss our online video business in more detail. During the third quarter, Sohu Video continued to march forward and regain the market share. According to our research in September 2012, our average daily unique visitors increased by 16% from three months ago which was a 6% for the industry as a whole.

This puts us in a solid number two position amongst all the new players. We believe the industry consolidation that has been taking place over past few months provided us with this land-grab opportunity.

From the content side, we continue our contract record in picking the best performers at reliable prices. We lock in the Excalibur of Emperor (inaudible), one of the two top TV players in the third quarter, back in 2011, actually.

This has not only brought us higher viewership on our own platform but also enabled us to extend several other popular TV serials from our peers. This again proved our insight in picking the right content and more importantly the media influence of our entertainment platform has muted us to be a preferred partner for content owner.

Third quarter is also a big time for American TV players as new seasons are released. We maintained our leading position with the portfolio including the hottest selections like the Big Bang Theory, Gossip Girl, Nikita, just to name a few that users can only find on Sohu Video.

We also broadcasted the Emmy award winning drama such as Homeland and Modern Family. These shows are especially appealing to metropolitan white collars and in turn this demographic group is highly started after by advertisers.

In fact, content we licensed. Our in-house produced content also gained traction. We recently released our web drama series called (inaudible) and this comedy became an instant hit in the Internet space.

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