Chinese web portal Sohu.com's (SOHU) unaudited financial results for the fourth quarter and fiscal year ended December 31, 2006 show advertising revenues of US$22.0 million, up 30% year-on-year and 5% quarter-on-quarter.

Total revenues for fourth quarter totaled US$34.4 million, compared to revenues of US$35.4 million for third quarter ended September 30, 2006, and US$29.7 million for fourth quarter ended December 31, 2005. Gross margin of 63% in fourth quarter of 2006 decreased from 65% in the previous quarter and 68% in the same period of 2005.

Dr. Charles Zhang, Chairman and CEO of Sohu, commented, "Our visionary leadership has enabled us to re-engineer Sohu into a technological-focused company. Accomplishments to date have been extraordinary, such as our peers-to-peers streaming technology for both live broadcasting and video-on-demand, as well as the just-launched Sogou 3.0. Our outstanding research and development team will continue to bring even more powerful and impressive products to market in 2007 and attract an even wider audience to Sohu's premier matrix of websites. I have full confidence that our competitive advantage in technology will solidify Sohu's leadership position in the China Internet space, especially in the brand advertising market."

Net income for fourth quarter of 2006 was US$6.1 million or US$0.16 per fully diluted share. Non-GAAP net income for fourth quarter of 2006 was US$8.1 million or US$0.21 per fully diluted share. This compares to non-GAAP net income of US$8.5 million or US$0.22 per fully diluted share for the previous quarter and US$8.9 million or US$0.23 per fully diluted share for fourth quarter of 2005.

Advertising revenues for fourth quarter of 2006 totaled US$24.9 million, a 23% year-on-year improvement and a 4% increase quarter-on-quarter. Advertising revenues, consisting of US$22.0 million in brand advertising and US$2.9 million in sponsored search, accounted for 73% of total revenues in fourth quarter of 2006. Brand advertising revenues for fourth quarter of 2006 were US$22.0 million, an increase of 30% year-on-year and 5% quarter-on-quarter.

Sponsored search revenues for fourth quarter of 2006 were US$2.9 million, down 14 % year-on-year and up 3% quarter-on quarter. Advertising gross margin was 65%, down from 69% in the previous quarter and 74% in fourth quarter of 2005. Advertising non-GAAP gross margin was 66%, down from 71% in the previous quarter and lower than 74% in fourth quarter of 2005. Gross margins decline were primarily due to an increase in content costs, increased headcount, and higher bandwidth and server depreciation costs.

Sohu's non-advertising quarterly revenues, which are derived mainly from wireless value-added services and online games, increased by 1% year-on-year and decreased 18% quarter-on-quarter to US$9.4 million, representing 27% of total revenues. The decrease was mainly due to the full quarter impact of the implementation of double confirmations on SMS monthly subscriptions and the further strengthening of billing policies and procedures of certain provincial mobile network operators. Non-advertising gross margin improved to 60% compared to 56% in previous quarter and 55% in fourth quarter of 2005.

For the fourth quarter, Sohu's operating expenses totaled US$16.1 million. Non-GAAP operating expenses totaled US$14.5 million, a decrease of 6% from previous quarter and up 4% year-on-year. The quarter-on-quarter decrease was mainly due to a decrease in bad debt expenses and professional fee, while the year-on-year increase was due to the company's increased investment in research and development, increased marketing expenses on branding, and an increase in headcount and salaries.

Total revenues for fiscal year 2006 totaled US$134.2 million, a 28% increase over fiscal year 2005 revenues of US$104.5 million. Gross margin was 65% in fiscal 2006, down from 69% in fiscal 2005. Non-GAAP gross margin was 66% in fiscal 2006, down from 69% in fiscal 2005.

Advertising revenues for fiscal year 2006 totaled US$91.8 million, up 29% from US$70.9 million in fiscal 2005. Brand advertising revenues grew 35%, attributable to China's robust online advertising market and heightened activity related to the World Cup last summer, whereas sponsored search revenues grew 3% year-on-year.

In fiscal 2006, Sohu's non-advertising revenues totaled US$42.5 million, up 26% from US$33.7 million in fiscal 2005.

Net income for fiscal 2006 was US$25.9 million or US$0.68 per fully diluted share. Non-GAAP net income in fiscal 2006 was US$32.8 million or US$0.85 per fully diluted share compared to net income of US$29.8 million or US$0.77 per fully diluted share in fiscal 2005.

As of December 31, 2006, Sohu's cash, cash equivalents and investments in marketable debt securities balance was US$129.7 million, compared to US$120 million and US$133.1 million as of September 30, 2006 and December 31, 2005,
respectively.

Sohu estimates total revenues for first quarter 2007 to be between US$32.0 million to US$34.0 million, with advertising revenues of US$25.0 million to US$26.0 million and non-advertising revenues of US$7.0 million to US$8.0 million. Sohu estimates brand advertising revenues for the first quarter 2007 to be between US$22.5 million to US$23.0 million.

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