SOHU.COM Reports First Quarter 2003 Financial Results
Wednesday April 23, 7:30 pm ET

First Quarter Net Income of 12 Cents Per Share and Revenue Growth of 218%

BEIJING, April 23 /PRNewswire-FirstCall/ -- SOHU.COM Inc. (Nasdaq: SOHU - News), China's leading online media, communications, commerce and mobile value-added services company, today reported results for the first quarter ended March 31, 2003.

    Business Highlights

    Highlights for the first quarter 2003:

     *  US GAAP net income of US$4.6 million, or US$ 0.12 per diluted share

        was a US$6.8 million improvement from the Q1 2002 net loss of US$2.2

        million or US$0.06 per diluted share

     *  Revenues rise 218% year-on-year to US$14.4 million

     *  11th consecutive quarter of double-digit quarterly sequential revenue

        growth

     *  Advertising revenues rise 78% year-on-year to US$4.5 million, with

        positive outlook for 2003 China online marketing spend

     *  Non-advertising revenues jump 392% year-on-year to US$9.9 million

        through sustained conversion of SOHU's user base into consumers

     *  Gross margins reach record high of 64%

     *  Operating profit margins of 30% in Q1 2003 demonstrate scalability of

        the business model

"In the first quarter of 2003 we achieved a stronger than expected performance in both our consumer business and online advertising, underscoring how SOHU increasingly is taking center stage in business and personal life of Chinese people. Our online and wireless services have helped make the Internet a mainstream media and entertainment platform. We believe these stellar results confirm that our business model of diversified revenues on a scalable cost base has resulted in sustainable profitability," commented Charles Zhang, CEO and Chairman of SOHU.

 

Business Results

 

With SOHU's revenues derived from a mix of advertising and consumer business lines in the first quarter, the Company has realized its goal of building a sustainable and diversified business model based on two solid pillars: a stable home-market corporate advertising base and a large paying user population.

 

For the first quarter of 2003, SOHU's advertising revenue totaled US$4.5 million, a 78% year-on-year improvement with Chinese domestic advertising clients accounting for the bulk of advertising revenues. Advertising revenue gross margins of 64% increased substantially from 42% in the same period a year ago.

"We were able to not only grow sales but also book a record high order intake despite Chinese New Year, giving us visibility for continued sequential growth in advertising this year. Our record sales and order intake were driven by intensifying competition in widening sectors of the Chinese economy and an increasing number of domestic companies using SOHU to reach the much sought- after market segment of young, urban consumers," Victor Koo, COO of SOHU, explained.

 

"We are particularly pleased to note that our long-standing Number One search engine ranking in China is paying us dividends, as more than 30,000 small and medium enterprises have turned to us, the market leader in Search and Directory, for paid listings and classified advertising. During the first quarter we have become the first Internet portal to launch bidding listing services in China," Jianjun Wang, Vice President of SOHU.net, remarked.

 

For the first quarter of 2003, SOHU's non-advertising revenues grew 392% year-on-year to US$9.9 million, significantly beating company guidance. Non-advertising revenue gross margins reached an all-time high of 63%.

 

Non-advertising revenues from consumer services, consisting of e-subscriptions (mainly mobile short messaging related services) and e-commerce sales, contributed 69% of total revenues in Q1 2003. Through e-subscriptions and e-commerce SOHU is monetizing its vast user base of over 50 million registered users and leveraging existing products. This organic growth was attributable to SOHU's product development and branding, which has facilitated the conversion of SOHU's users into paying consumers, with over 2/3 of e-subscriptions revenue being derived from monthly subscriptions for community, news, email and alumni club services.

 

"In order to expand our consumer business services, during the first quarter SOHU launched an open beta version of Knight Online, our first 3D online game to be released in China, and we are planning for the commercial release later in the second quarter. We see online games as a natural extension of our consumer business services which leverage our user base, brand and technology," said Jinmei He, Vice-President of SOHU Online.

 

Cash flow from operating activities for the first quarter ended March 31,2003 was US$4.0 million, as compared to US$129,000 in the corresponding period of 2002. At March 31, 2003, SOHU's cash and marketable debt securities balance was US$47.4 million, an increase of US$3.2 million from the previous quarter's balance of US$44.2 million.

 

"Our dedicated local management team, through intelligent spending, continues to prove the scalability of SOHU's business model having achieved operating profit margins of 30% and more than doubled earnings per share from the previous quarter. While revenues increased by 218% year-on-year, Q1 2003 operating expenses of US$4.8 million went up by only 16% from Q1 2002," Derek Palaschuk, SOHU's Chief Financial Officer, commented.

 

Business Outlook

 

In 2003, SOHU believes that advertising revenues will continue to grow as both domestic and multinational companies use SOHU to reach the rapidly growing Internet population. We expect that our consumer business will remain the fastest growing area of the business and we estimate that non-advertising revenues for 2003 will account for 70% of total revenues.

 

SOHU estimates total revenues for Q2 2003 to be between US$14.6 million and US$16.0 million, with advertising revenues of US$4.6 million to US$5.2 million and non-advertising revenues of US$10.0 million to US$10.8 million. Second quarter net income is expected to be $4.6 million to $5.0 million or US$0.12 to US$0.13 per diluted share.

 

"All our core businesses are growing and our newly developed products, services and business partnerships will bring additional organic growth to both advertising and consumer business. The Internet in China offers great opportunities that SOHU is in a unique position to capitalize on, which is the backdrop for our sustained long-term growth and profitability. I am confident our momentum can be maintained towards our long-term market leadership," concluded Charles Zhang, CEO and Chairman of SOHU.COM.