SOHU

Sohu.com Inc. (SOHU)

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Sohu.com Inc. (SOHU)

Q4 2012 Earnings Call

February 4, 2013 8:30 am ET

Executives

Tip Fleming – Investor Relations, Christensen

Charles Zhang – Chairman and Chief Executive Officer

Belinda Wang – Co-president and Chief Operating Officer

Carol Yu – Co-president and Chief Financial Officer

Analysts

Dick Wei – JPMorgan

Eddie Leung – Merrill Lynch

C. Ming Zhao – 86Research Ltd.

Alicia Yap – Barclays Capital

Philip Wan – Morgan Stanley

Jiong Shao – Macquarie Research

Mark Marostica – Piper Jaffray

Wendy Huang – CIMB Research

Jialong Shi – CLSA

Mi Zhou – UBS

Chi Tsang – HSBC

Fei Fang – Goldman Sachs

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's Fourth Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. After managements' 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 fourth 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 are Chief Executive Officer, Tao Wong; President, Dewen Chen; Chief Operating Officer, Xiaojian Hong; Chief Information Officer, Wendy Pan; and Chief Financial Officer, Alex Ho. And 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 of 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 place no 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 statements. 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 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.

Charles Zhang

Thank you. And thanks to everyone for joining our call. We are pleased to report that Sohu Group ended 2012 with an encouraging fourth quarter. Looking at 2012, despite the slowdown in China's economic growth, I am pleased that the Group's total earning revenues rose 25% year-on-year and it surpassed the $1 billion mark for the first time in our history setting an important milestone for our Group.

Our business units, for online video, we achieved initial success of our newly established but dedicated sales team as the business returned to growth in the fourth quarter. We expect the performance to further to accelerate in 2013. Sogou once again achieved triple digit year-on-year revenue growth in 2012 and we were thrilled with some notable breakthrough products on the mobile side that have been well received by our users.

For Changyou, strong performance from both MMO and the web games helped have post the new records for revenues.

Now I would like to share some fourth quarter financial highlights with you, first; record total revenues and record revenues in brand advertising, Sogou and online game businesses. Total revenues were $299 million, up 22% year-over-year and 5% quarter-over-quarter, exceeding the high end of our guidance by $6 million. Net brand advertising revenues were $82 million, up 6% year-over-year and 5% quarter-over-quarter.

Sogou revenues were $41 million, up 78% year-over-year and 10% quarter-over-quarter. Online games revenue were $159 million, up 29% year-over-year and a 5% quarter-over-quarter. Non-GAAP diluted EPS were $0.73, exceeding the high-end of group guidance by $0.08.

For the full-year of 2012 record total revenues and record revenues in brand advertising; Sogou and online game businesses. Total revenues were $1.67 billion, up 25% year-over-year. Net brand advertising revenues were $290 million, up 4% year-over-year. Sogou revenues are $131 million, up 108% year-over-year. Online games revenue were $575 million, up 32% year-over-year. Non-GAAP diluted EPS reached $2.54.

Now let me discuss our online video business first in more detail. In the fourth quarter, Sohu Video maintained its leading position by offering a differentiated content portfolio covering the most popular content including American TV drama series, domestic variety shows and in-house produced programs.

For American TV drama series our collection has undisputedly put Sohu Video as the number one destination for this most sought after content categories. Just to name a few; the Emmy award winner Homeland, Breaking Bad, Modern Family, and the like. We are seeing growing popularity of our American TV channel with accumulated video views jumped 136% as compared with that of the third quarter.

Demographics of American TV series viewers is that we typically have higher educational background and taste of life and our targeted consumers of high end advertisers such as luxurious goods and automobiles. In as early as mid-2012 we were quick to predict that variety show content would be another hit category for both TV and online video.

Following the Voice of China (Foreign Language) launched last summer we secured China's Got Talent, Talent Show, on an exclusive basis during the fourth quarter. It quickly became one of the nation's most popular shows. And in last December, we won the most enviable role as exclusive online broadcast partner and the Sohu strategic new media partner for The Voice of China 2013.

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