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Sohu Shows Online Search Strength, Weakness In Wireless

Sohu.com (SOHU) today announced its unaudited results for the last quarter of 2004.

Revenues for the fourth quarter ended December 31, 2004 totaled US$24.1 million, compared to revenues of US$24.6 million for the fourth quarter ended December 31, 2003. Gross margin was 68% in Q4 2004 compared to 72% in Q4 2003. US GAAP net income for the fourth quarter of 2004 was US$6.5 million or US$0.17 per fully diluted share. This compares to US GAAP net income of US$11.6 million or US$0.28 per fully diluted share for the fourth quarter of 2003.

Revenues for fiscal 2004 were US$103.2 million compared to revenues of US$80.4 million in fiscal 2003. Gross margin was 67% in fiscal 2004 compared to 69% in fiscal 2003. US GAAP net income in fiscal 2004 was US$35.6 million or US$0.89 per fully diluted share compared to net income of US$26.4 million or US$0.66 per fully diluted share in fiscal 2003.

Sohu's advertising revenue for the fourth quarter of 2004 totaled US$15.9 million, a 68% year-on-year improvement and 3% quarter-on-quarter. Advertising revenue, consisting of US$13.2 million in brand advertising and US$2.7 million in sponsored search, accounted for 66% of total revenues in Q4 2004. Advertising gross margin was 80%, compared to 77% in the same period last year.

In fiscal 2004, Sohu's advertising revenue totaled US$55.7 million, up 89% from US$29.5 million in fiscal 2003.

For the fourth quarter of 2004 Sohu's non-advertising revenue, which are derived from wireless value-added services, online games and e-commerce, decreased by 46% year-on-year and 22% quarter-on-quarter to US$8.2 million, representing 34% of total revenues. The decline was predominantly caused by the loss in wireless revenue, which went down by 64% year-on-year and 43% quarter-on-quarter. Non-advertising gross margin was 45% compared to 69% in the same quarter one year ago largely because of the decline in relatively high-margin wireless product sales.

The martial arts fighting game Blade Online, in commercial operation since October 17, 2004, generated revenue in line with company expectations. Together with Knight Online, Sohu's first online game, the two multi-player online role-playing games represented 5% of overall revenues in the fourth quarter.

In fiscal 2004, Sohu's non-advertising revenues totaled US$47.5 million, down 7% from US$50.9 million in fiscal 2003, reflecting how changes in operating environment for wireless value-added services that resulted in a sharp decline in wireless business in the second half of 2004 were partially offset by the relatively strong levels of wireless revenues in the first half of 2004.

"Fiscal year 2004 was a year of unprecedented online advertising success while we managed through a difficult operating environment in our wireless business. Our core business of brand advertising and sponsored search, which in the fourth quarter contributed two-thirds of our revenues, is a strong and proven basis from which to re-ignite overall growth for the company. We believe the worst in our wireless business decline is behind us. Management confidence is high as we focus relentlessly on executing our strategy of building a diversified Internet and wireless business for long-term growth in the Chinese market," said Charles Zhang, Sohu's Chairman and CEO.

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