's (SOHU) financial results for the third quarter ended September 30, 2005 show revenues totaled US$28.3 million, compared to revenues of US$25.9 million for second quarter ended June 30, 2005, and US$25.9 million for third quarter ended September 30, 2004.

Gross margin of 65% in third quarter of 2005 was down slightly from 67% in previous quarter and 68% in same period of 2004.

Net income for third quarter of 2005 was US$8.0 million or US$0.21 per fully diluted share. This compares to net income of US$7.1 million or US$0.18 per fully diluted share for previous quarter and US$8.3 million or US$0.21 per fully diluted share for third quarter of 2004.

Sohu's advertising revenues for third quarter of 2005 totaled US$18.8 million, a 21% year-on-year improvement and 11% increase quarter-on-quarter. Advertising revenues, consisting of US$15.6 million in brand advertising and US$3.2 million in sponsored search, accounted for 66% of total revenues in third quarter of 2005. Advertising gross margin was 74%, compared to 76% in previous quarter and 79% in third quarter of 2004.

For third quarter of 2005, Sohu's non-advertising revenues, which are derived from wireless value-added services, online games and e-commerce, decreased by 9% year-on-year but improved 6% quarter-on-quarter to US$9.5 million, representing 34% of total revenues.

The year-on-year decline was a result of reduction in wireless revenues of 17%. However, wireless revenues posted its third consecutive quarter of sequential growth, increasing 6% over second quarter, reflecting a continued recovery in Sohu's wireless business. Non-advertising gross margin was 47% compared to 51% in previous quarter and 52% in third quarter of 2004, primarily due to additional charges from a mobile operator.

For third quarter of 2005, Sohu's operating expenses totaled US$11.4 million, increasing a 6% from previous quarter and 18% year-on-year.

Operating profit margin of 25% was slightly down from 26% in previous quarter and down from 31% in third quarter last year. Year-on-year increase in operating expenses represents Sohu's continued investment in long-term growth opportunities, mainly in research and development.

As of September 30, 2005, Sohu's cash, cash equivalents and investments in marketable debt securities balance was US$132.5 million.

Sohu also announced its Board of Directors has approved a stock repurchase program in which the company plans to purchase up to US$15 million of its outstanding shares in the open market.

During the Company's previous stock repurchase program, the company purchased a total of $37.7 million, or roughly 6% of the shares outstanding, from May 2004 to February 2005. As of October 31, 2005, Sohu had approximately 36.6 million shares of common stock outstanding.

Sohu estimates total revenues for fourth quarter 2005 to be between US$28.0 million and US$30.0 million, with advertising revenues of US$19.0 million to US$20.0 million and non-advertising revenues of US$9.0 million to US$10.0 million. Fourth quarter earnings per fully diluted share are expected to be between US$0.19 and US$0.22.


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