SOHU

Sohu.com Inc. (SOHU)

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Sohu.com Inc. (SOHU)

Q2 2010 Earnings Call Transcript

July 26, 2010 8:30 am ET

Executives

Tip Fleming – IR, Christensen

Charles Zhang – Chairman and CEO

Belinda Wang – Co-President and COO

Carol Yu – Co-President and CFO

Tao Wang – CEO, Changyou.com

Analysts

Alicia Yap – Citigroup

Eddie Leung – Merrill Lynch

Jenny Wu – Morgan Stanley

Wallace Cheung – Credit Suisse

Kathy Chen – Goldman Sachs

Wendy Huang – RBS

Steve Weinstein – Pacific Crest

Lee [ph]

Dick Wei – JPMorgan

Presentation

Operator

Welcome to the Q2 2010 Sohu earnings conference call on the 26th of July 2010. On today’s recorded presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. (Operator instructions) I would now hand the conference over to Mr. Tip Fleming. Please go ahead, sir.

Tip Fleming

Thank you, operator. Thank you for joining us today to discuss Sohu.com's second quarter 2010 results. On the call today 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; Chief Executive Officer of Changyou.com, Tao Wang; Chief Financial Officer of Changyou.com, Alex Ho; and Sohu's Senior Finance Director, James Deng.

Before management begins their 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 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 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. Hello, everyone, welcome to our call. I’m pleased to report another solid quarter. During the second quarter of 2010, we achieved a record total revenue and record revenues for brand advertising and online games. All such revenues exceeded our expectations. Total revenues were $146.1 million, up 15% year-over-year and 13% quarter-over-quarter.

Gross brand advertising revenue before business tax was $28.1 million. Net brand advertising revenue was $53.2 million, up 22% year-over-year and 35% quarter-over-quarter. Online game revenues were $77.7 million, up 17% year-over-year and 8% quarter-over-quarter.

Our results for the second quarter of 2010 surpassed our expectations as we established the record total revenues and set new highs in our brand advertising and online game businesses. For brand advertising business, we continue to place emphasis on online video and are convinced this will be an area of significant future growth.

We have successfully expanded and diversified our collection of licensed and in-house produced quality video content, and develop innovative applications that cater to various devices, including the most sought after iPad. We are very encouraged by the fast-growing user base and new advertisers.

For our online game business, Changyou demonstrated that the ongoing strategic release of feedback-driven content and a diverse portfolio of games are helping retain existing users, attract new ones, and reinforce the popularity of our games. We are optimistic about our ability to build on our momentum this year and add value over the long-term.

Moving on, I would like to provide some more color on specific areas of our business. During the quarter, we continued to execute our video strategy and are pleased to report that Sohu now maintains the largest online library of authorized high-definition video content in China with more than 100,000 episodes of local and global television dramas, movies and documentaries, TV show and cartoons.

A Korean TV drama has been the mostly welcomed overseen video content in China for years. We have recently secured from Korea top three TV stations, all of the hit shows from the past decade, as well as TV dramas for the next three years. Meanwhile, we created innovative applications that cater to various devices. One example is the application that automatically identifies users that are accessing Sohu video sites from an iPad and directs them to an iPad section that contains more than 200 select high-definition videos, specifically tailored to fit the iPad format.

In the second quarter, average daily video views of our high-definition video channel grew 63% compared to the first quarter of this year. Importantly, this growing traffic attracted more advertising spending. Advertisers who traditionally only advertise on local TV stations have increasingly turned for online video sites, and many of them have increased the spending.

Specifically, the number of online video advertisers in the first half of this year increased 85% as compared to the same period of last year or up a small base. For the full year 2010, we believe revenues from video advertising will triple that of past year. Given that this business is only one year old, we pride ourselves as an especially strong choice.

Moving on, and before I pass the call over to Belinda, I’d like to take a moment to discuss our online game business. Our online game business, we have once again delivered record financial results and exceeded our financial guidance for the quarter and our flagship title Tian Long Ba Bu continues to grow and generate high profit for the company. According to Forbes Magazine, Tian Long Ba Bu was already one of the world’s top five most trustable game franchise in 2009.

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