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Q3 2011 Earnings Call

October 31, 2011 8:30 AM ET


Jenny Wu – IR

Charles Zhang – Chairman and CEO

Belinda Wang – Co-President and COO

Carol Yu – Co-President and CFO


Eddie Leong – Merrill Lynch

Wallace Cheung – Credit Suisse

Alicia Yap – Barclays Capital

Zhao Ming – SIJ

Jenny Wu – Citigroup

Gillian Chung – Morgan Stanley

Catherine Leung – Goldman Sachs

Gary Ngan – UBS

Wendy Huang – RBS

Mu Zhi Li – Mizuho

Dick Wei – JP Morgan



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Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining Sohu’s Third Quarter 2011 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management’s prepared remarks, there will be a question-and-answer 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, Jenny Wu from Christensen. Please go ahead, madam.

Jenny Wu

Thank you, operator. Thank you for joining us today to discuss’s third quarter 2011 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. Also with us from Changyou, our Chief Executive Officer, Tao Wang; President and Chief Operating Officer, Dewen Chen; and Chief Financial Officer, Alex Ho. As well as 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 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. I’m pleased to report strong third quarter results with year-over-year revenue growth of 42% driven by solid performance of our online advertising and online gaming businesses. For online advertising, two of the fastest growing areas Sogou and Sohu Video continued to deliver exciting news.

Sogou’s quarterly revenue grew 244% year-over-year, comfortably exceeding our prior guidance. Sohu Video for the first time in September posted number of visitors and total number of video viewed rose to the second place in China according to comp score.

For online game, our online gaming subsidiary Changyou once again exceeded its top line and bottom line financial goals while making planned investments in marketing and promotion up to 1 year. Our flagship game, Tian Long Ba Bu or TLBB continued to expand player’s numbers with the release of new expansion pack. Duke of Mountain Deer or DMD appears to hard core game players with these new technologies and advanced cross server game play.

Now let me start with some quarterly highlights. Total revenues were US$233 million in the third quarter up 42% a year-over-year and 17% quarter-over-quarter. Gross trend add revenues before tax were $84 million. Net brand advertising revenues were US$77 million, up by 30% year-over-year and 13% quarter-over-quarter, at the high-end of our guidance.

Sogou’s revenue were US$18.4 million, exceeding our guidance of US$16 million. This was up 244% year-over-year and 35% quarter-over-quarter.

Online games revenues reached US$116 million, up 35% year-over-year and 14% quarter-over-quarter. Non-GAAP diluted EPS were $1.26 compared with $1.16 in the third quarter of 2010, and were also ahead of our expectations.

Let me first discuss Sogou business in more detail. During the third quarter, Sogou continued to deliver strong top-line growth driven by continued solid traffic growth and improved monetization. Revenue more than tripled that of last year to reach US$18.4 million. Of this, search revenue was US$15.3 million and advertising revenue from home page was US$3.1 million, the latter representing an 89% increase from the second quarter.

For the third quarter, the number of customers for search increased 18% sequentially and 73% annually. In terms of search traffic, during the third quarter, Sogou Search further narrowed the gap with the number two player, as our daily page views increased by about 12% quarter-over-quarter. We are highly optimistic about Sogou’s prospects. China’s online search market proves to be resilient to possible macroeconomic slowdown and Sogou with its highly motivated and innovative management team showed strong momentum to outpace industry growth. Our three core products Pinyin, Browser and Search have consistently gained popularity among Internet users.

Now moving on to our online video businesses. In this third quarter, as a result of offering compelling new content and effective promotion efforts, we were able to further broaden the audience reach rapidly. According to com score, in September 2011, the monthly unique visitors and the number of video viewed or released onto the video site increased by 49% and 33% from June respectively. Advertising revenue for Sohu Video increased about 110% compared with the same period of 2010.

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