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Operating Expenses Jump As Sohu.com Reports Record China Revenues

Chinese online media and entertainment company Sohu.com Inc. announced record total revenues of USD233 million, up 42% year-over-year and 17% quarter-over-quarter, as it reported its unaudited financial results for the third quarter ended September 30, 2011.

Total online advertising revenues which include revenues from brand advertising and its search engine Sogou.com business were USD95 million, up 47% year-over-year and 17% quarter-over-quarter.

Brand advertising revenues for the third quarter of 2011 totaled USD76.6 million, up 30% year-over-year and 13% quarter-over-quarter. The company says the increases were mainly due to strong advertising demand from IT-related sector and increased revenues from real estate sector toward which Sohu built a larger sales network in 2011. Sogou.com revenues for the third quarter of 2011 were USD18.4 million, up 244% year-over-year and 35% quarter-over-quarter. The increases were mainly due to increased search traffic and improved monetization of traffic.

Online game revenues for the third quarter of 2011 were USD115.8 million, up 35% year-over-year and 14% quarter-over-quarter. Wireless revenues for the third quarter of 2011 were USD14.2 million, up 5% year-over-year and 22% quarter-over-quarter.

Gross margin was 71% for the third quarter of 2011, compared with 73% in the second quarter of 2011 and 74% in the third quarter of 2010. Non-GAAP gross margin for the third quarter of 2011 was 71%, compared with 74% in the second quarter of 2011 and 74% in the third quarter of 2010.

For the third quarter of 2011, Sohu’s operating expenses totaled USD92.3 million, up 66% year-over-year and 20% quarter-over-quarter. The increases in operating expenses were mainly due to increases in total headcount and higher expenses associated with marketing and promotion activities in the third quarter of 2011.

Operating profit for the third quarter of 2011 was USD73.6 million, up 13% year-over-year and 7% quarter-over-quarter. Operating margin was 32% for the third quarter of 2011, compared with 35% in the previous quarter and 40% in the third quarter of 2010.

For the third quarter of 2011, GAAP income tax expense was USD14.4 million. Excluding a non-cash income tax expense of USD0.3 million recorded for tax benefits from share-based awards, non-GAAP income tax expense was USD14.1 million, compared with USD9.3 million in the previous quarter.

GAAP net income attributable to Sohu.com Inc. for the third quarter of 2011 was USD45.3 million, or USD1.17 per fully diluted share. Non-GAAP net income attributable to Sohu.com Inc. for the third quarter of 2011 was USD49.0 million, or USD 1.26 per fully diluted share, up 9% year-over-year and 3% quarter-over-quarter, exceeding the high end of the group’s expectations.

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