Sohu Q2 GAAP net income US$34 Mil., -45% Y/Y

7 August 2012 18 h 42 min Comments Off

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Sohu.com Inc., China’s leading online media, search, gaming, community and mobile service group, today reported unaudited financial results for the second quarter ended June 30, 2012.

Second Quarter Highlights
• Total revenues were US$256 million, up 29% year-over-year and 13% quarter-over-quarter.
• Brand advertising revenues were US$69 million, up 2% year-over-year and 14% quarter-over-quarter.
• Sogou[1] revenues were US$30 million, up 123% year-over-year and 34% quarter-over-quarter.
• Online game revenues reached quarterly record high of US$137 million, up 35% year-over-year and 8% quarter-over-quarter.
• GAAP net income attributable to Sohu.com Inc. was US$11 million, or US$0.28 per fully diluted share. Non-GAAP net income attributable to Sohu.com Inc. was US$16 million, or US$0.42 per fully diluted share.

Dr. Charles Zhang, Chairman and CEO of Sohu.com Inc. commented, “We had a solid second quarter with total revenues rising nearly 30% from last year, despite challenges faced in our brand advertising business. As China’s economic growth continued to decelerate and we initiated some operational transitions in our online video business, revenues from brand advertising recorded only a low single-digit year-on-year increase.”
Dr. Zhang added, “But overall, we are pleased with our performance at the group level as our search and online game segments both remained on a solid upward path. For search, Sogou again posted triple-digit revenue growth on a year-over-year basis. Our online game subsidiary Changyou achieved record results at both the top and bottom-line, supported by strong performance from its MMO and web-based game franchises. We believe the blended results help demonstrate the resilience of our business mix and the benefit of having diversified operations.”
Ms. Belinda Wang, Co-President and COO added, “The year 2012 is a critical year of transition for the Sohu Group. As we continue to make heavy but necessary investments across our strategically important business lines, we are confident to see a payoff in 2013. “

Second Quarter Financial Results

Revenues

. Total revenues for the second quarter of 2012 were US$256 million, up 29% year-over-year and 13% quarter-over-quarter.
Total online advertising revenues, which include revenues from brand advertising and search and others businesses for the second quarter of 2012, were US$98 million, up 21% year-over-year and 19% quarter-over-quarter.
Brand advertising revenues for the second quarter of 2012 totaled US$69 million, up 2% year-over-year and 14% quarter-over-quarter.
Search and others revenues for the second quarter of 2012 were US$29 million, up 111% year-over-year and 33% quarter-over-quarter.
Online game revenues for the second quarter of 2012 were US$137 million, up 35% year-over-year and 8% quarter-over-quarter.
Wireless revenues for the second quarter of 2012 were US$16 million, up 34% year-over-year and 17% quarter-over-quarter.

Gross Margin
Both GAAP and non-GAAP gross margin was 61% for the second quarter of 2012, compared with 65% in the first quarter of 2012 and 73% in the second quarter of 2011.
Online advertising gross margin for the second quarter of 2012 was 32%, compared with 39% in the first quarter of 2012 and 59% in the second quarter of 2011. Non-GAAP online advertising gross margin for the second quarter of 2012 was 31%, compared with 40% in the first quarter of 2012 and 60% in the second quarter of 2011.
Brand advertising gross margin for the second quarter of 2012 was 26%, compared with 39% in the first quarter of 2012 and 63% in the second quarter of 2011. The year-over-year decrease in gross margin was primarily due to increases in content and bandwidth costs. The quarter-over-quarter decrease in gross margin was due to approximately $15 million impairment charges of video content we recognized in the second quarter of 2012. Non-GAAP brand advertising gross margin for the second quarter of 2012 was 26%, compared with 40% in the first quarter of 2012 and 64% in the second quarter of 2011.
Both GAAP and non-GAAP gross margin for search and others business in the second quarter of 2012 were 44%, compared with 39% in the first quarter of 2012 and 40% in the second quarter of 2011. The increase in margin was mainly due to higher revenues from online marketing services.
Both GAAP and non-GAAP gross margin for online games in the second quarter of 2012 were 87%, compared with 87% in the first quarter of 2012 and 90% in the second quarter of 2011.
Both GAAP and non-GAAP gross margin for the wireless business for the second quarter of 2012 were 35%, compared with 34% in the first quarter of 2012 and 39% in the second quarter of 2011. The year-over-year decrease was primarily due to increased revenue share with partners.

Operating Profit
Operating profit for the second quarter of 2012 was US$43 million, down 37% year-over-year and 17% quarter-over-quarter. Operating margin was 17% for the second quarter of 2012, compared with 23% in the previous quarter and 35% in the second quarter of 2011.
Non-GAAP operating profit for the second quarter of 2012 was US$49 million, down 32% year-over-year and 10% quarter-over-quarter. Non-GAAP operating margin was 19% for the second quarter of 2012, compared with 24% in the previous quarter and 37% in the second quarter of 2011.

Income Tax Expense
For the second quarter of 2012, GAAP income tax expense was US$18.5 million. Excluding a non-cash income tax expense of US$1.5 million recorded for the utilization of tax benefits from excess tax deductions related to share-based awards and deferred tax liability impact on intangible asset impairment of US$0.6 million, non-GAAP income tax expense was US$17.6 million, compared with US$17.6 million in the previous quarter.

Net Income
Before deducting the share of net income pertaining to the Non-controlling Interest, GAAP net income for the second quarter of 2012 was US$34 million, down 45% year-over-year and 17% quarter-over-quarter. Non-GAAP net income for the second quarter of 2012 was US$41 million, down 39% year-over-year and 9% quarter-over-quarter.
GAAP net income attributable to Sohu.com Inc. for the second quarter of 2012 was US$11 million, or US$0.28 per fully diluted share. Non-GAAP net income attributable to Sohu.com Inc. for the second quarter of 2012 was US$16 million, or US$0.42 per fully diluted share, down 65% year-over-year and 31% quarter-over-quarter.

Cash Balance
Sohu Group continued to maintain a debt-free balance sheet and a cash position of US$765 million as of June 30, 2012.

Ms. Carol Yu, Co-President and CFO of Sohu.com Inc. commented, “With our strong balance sheet and resilient business mix, Sohu Group is able to make long-term investments for the businesses we believe that have bright prospects. Our determination is unaffected by business cycles and short-term factors, and will eventually maximize returns to shareholders.”

Recent development
. Changyou.com Declares US$3.8 Special Cash Dividend per American Depositary Share
On August 6, 2012, Changyou.com Limited (NASDAQ: CYOU), Sohu’s online game subsidiary, announced that its board of directors declared a special one-time cash dividend of US$1.9 per Class A or Class B ordinary share, or US$3.8 per American Depositary Share (“ADS”). The total amount of the special cash dividend is approximately US$201 million.
Record holders of Changyou’s Class A and Class B ordinary shares at the close of business U.S. Eastern Time on August 17, 2012 (the “Record Date”) will be entitled to receive the special cash dividend. Holders of the Changyou’s ADSs, each representing two Class A ordinary shares, as of the Record Date will be entitled to the special cash dividend. Changyou expects, Bank of New York Mellon, depositary bank for Changyou’s ADR program, to pay out dividends to ADS holders on or before September 30, 2012.
The amount of the dividend to be received by Sohu is expected to be approximately $136 million. Sohu does not expect to pay any of such dividend it receives, or to pay any other dividends, to its shareholders in the foreseeable future.

Supplementary Information for Online Game Results
Second Quarter 2012 Operational Results
• Aggregate registered accounts for Changyou’s games[2], excluding 7Road’s games, increased 51% year-over-year and 6% quarter-over-quarter to 199.5 million.
• Aggregate peak concurrent users (“PCU”) for Changyou’s games, excluding 7Road’s games, increased 11% year-over-year and were flat quarter-over-quarter to 1.08 million.
• Aggregate active paying accounts (“APA”) for Changyou’s games, excluding 7Road’s games, decreased 10% year-over-year and 16% quarter-over-quarter to 2.61 million. The decreases reflected a decline in the number of low-spending active paying accounts that did not make a purchase in the second quarter of 2012 as a result of less in-game promotions and the give-away of virtual items in TLBB to celebrate the game’s fifth year anniversary.
• Average revenue per active paying account (“ARPU”) for Changyou’s games, excluding 7Road’s games, increased 31% year-over-year and 23% quarter-over-quarter to RMB277. The increase was mainly due to the decline in low-spending active paying accounts in the second quarter of 2012.

Business Outlook
For the third quarter of 2012, Sohu estimates:
• Total revenues to be between US$272 million and US$277 million.
• Brand advertising revenues to be between $76 million and $78 million; this implies a sequential increase of 10% to 13%, and flattish with the same period of last year to an annual increase of 2%. This includes revenues from 17173 of US$11 million to US$12 million, which implies a sequential increase of 21% to 32% and an annual increase of 14% to 24%.
• Sogou revenues to be around US$37 million; this implies a sequential increase of 22% and an annual growth of 101%.
• Online game revenues to be between US$141 million and US$144 million. This implies a sequential increase of 3% to 5% and represents an annual growth of 22% to 24%.
• Before deducting the share of non-GAAP net income pertaining to the Non-Controlling interest, non-GAAP net income to be between US$42 million and US$45 million.
• Non-GAAP net income attributable to Sohu.com Inc. to be between US$19 million and US$21 million, and non-GAAP fully diluted earnings per share to be between US$0.50 and US$0.55.
• Assuming no new grants of share-based awards, we estimate that compensation expenses and income tax expenses relating to share-based awards to be around US$4.5 million to US$5.5 million. The estimated impact of this expense is expected to reduce Sohu’s fully diluted earnings per share for the third quarter of 2012 under US GAAP by 12 to 14 cents.

Source: Sohu.com (06/08/2012)

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