Sohu.com Inc. ( SOHU) Q4 2010 Earnings Call January 31, 2011 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 - JP Morgan Eddie Leung - BofA Merrill Lynch C Ming Zhao - Susquehanna Financial Group Jenny Wu - Morgan Stanley Wallace Cheung - Credit Suisse Catherine Leung - Goldman Sachs Wendy Huang - RBS Gene Munster - Piper Jaffray Alicia Yap - Citigroup Presentation Operator Operator
Forward-looking statements involved 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 at 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 am pleased to report another strong quarter with record revenue for the full-year 2010. For the fourth quarter, our financial performance exceeded our expectation, as we achieved record total revenues and record revenues in each of our brand advertising, online game and the search businesses. In order; total revenues were $173.2 million, up 27% year-over-year and 6% quarter-over-quarter. Gross brand ad revenue before our business tax were $65.6 million. Net brand advertising revenues were $60.1 million, up 31% year-over-year and 2% quarter-over-quarter. Online game revenues were $91.7 million, up 30% year-over-year and 7% quarter-over-quarter. Search revenue was $6.6 million, up 126% year-over-year and 23% quarter-over-quarter. Non-GAAP diluted EPS were $1.23, up 33% year-over-year and 6% quarter-over-quarter, above the high end of our guidance of $1.15. For the full-year 2010, total revenues were $612.8 million, up 19% year-over-year. Gross brand ad revenue before business tax were $231.4 million. Net brand advertising revenues were $211.8 million, up 20% year-over-year. Online game revenues were $327.1 million, up 22% year-over-year. Search revenues were $18.6 million, up 120% year-over-year. Before deducting the share of net income pertaining to the non-controlling interest, non-GAAP net income increased 15% compared with 2009, reaching $226.8 million. Non-GAAP diluted EPS reached $4.21, up 6% year-over-year. While I am encouraged by these strong results across our multiple business lines, I’m even more excited when we look beyond the financial performance. First, our conscientious efforts in online video and our strategy to secure high quality authorized content have brought our market share from 3.4% to 13.4% in a mere 12-month period. Second, while Tian Long Ba Bu continues to be a strong and popular game, Changyou will unveil the full trial version of the highly anticipated Duke of Mount Deer to players once it officially kicks off the game’s marketing campaign in March. And third, with its new capital structure in place, Sogou’s business is quickly picking up momentum. Over the fourth quarter of 2010, active users of the Sogou browser, related search traffic and search revenue, all grew north of 20% quarter-to-quarter.
Let me start by discussing our online video business in more detail. We continue to put emphasis in this area and execute our strategy to expand our library of authorized high-definition video content, especially for exclusive popular TV dramas. Specifically, we need to sign up content owners 6 to 12 months before TV drama series is aired.We are pleased that Taobao was able to successfully obtain 23 out of 30 most watched prime-time TV dramas as measured by CSN Media Research. This was more than any other video website in the market and all these dramas were secured by or exclusive online. In contrast, none of the exclusive content purchase by our competitors made this most watched list. For 2011, we have now secured 85 prime-time TV dramas, of which 24 are exclusive online. This demonstrates not only our talent at identifying popular content six to 12 months in advance, but also our ability to secure content in a highly competitive online video market. After securing authorized premium content and Sogou’s well established immediate influence are clearly giving us a competitive advantage and helping to accelerate user growth. Read the rest of this transcript for free on seekingalpha.com