's (SOHU) newly reported unaudited financial results for the fourth quarter and fiscal year ended December 31, 2005 show revenues increased 27% year-on-year.

Sohu's U.S. GAAP net profit was US$8.9 million or US$0.23 per fully diluted share, exceeding company guidance.

Total quarterly revenue hit US$30.5 million, up 27% year-on-year and 8% quarter-on-quarter, a record quarter of revenues.

Advertising revenues of US$20.3 million, up 28% year-on-year and 8% quarter-on-quarter, exceeding company guidance.

Non-advertising revenues of US$10.2 million, exceeding company guidance, with wireless revenues showing steady improvement up 7% quarter-on-quarter

Revenues for fourth quarter ended December 31, 2005 totaled US$30.5 million, compared to revenues of US$28.3 million for third quarter ended September 30, 2005, and US$24.1 million for fourth quarter ended December 31,


Gross margin of 66% in fourth quarter of 2005 was up slightly from 65% in the previous quarter and down slightly from 68% in the same period of 2004.

The company's net income compares to net income of US$8.0 million or US$0.21 per fully diluted share for the previous quarter and US$6.5 million or US$0.17 per fully diluted share for fourth quarter of 2004.

Advertising revenues, consisting of US$16.9 million in brand advertising and US$3.4 million in sponsored search, accounted for 67% of total revenues in fourth quarter of 2005. Advertising gross margin was 74%, relatively stable

from the previous quarter but lower than 81% in fourth quarter of 2004.

In fiscal 2005, Sohu's advertising revenues totaled US$70.9 million, up 27% from US$55.7 million in fiscal 2004.

For fourth quarter of 2005, Sohu's non-advertising revenues, which are derived mainly from wireless value-added services, online games and e-commerce, increased by 24% year-on-year and 7% quarter-on-quarter to US$10.2 million, representing 33% of total revenues.

The cmpany says the strong year-on-year improvement was a result of the continued recovery in wireless revenues after bottoming out in the fourth quarter 2004.

Wireless revenues posted its fourth consecutive quarter of sequential growth, increasing 7% over third quarter and

55% over the same period last year. Non-advertising gross margin improved to 50% compared to 47% in previous quarter and 42% in fourth quarter of 2004.

In fiscal 2005, Sohu's non-advertising revenues totaled US$37.5 million, down 21% from US$47.5 million in fiscal 2004 reflecting the shift in the revenue mix to favor the core advertising business.

For the fourth quarter, Sohu's operating expenses totaled US$14.2 million, increasing 25% from previous quarter and 37% year-on-year. The increase in expenses quarter-on-quarter primarily relates to costs associated with Sohu's exclusive Olympics sponsorship role and additional sales commissions payable to its sales team totaling US$1.4 million pertaining to higher collections as well as a change in the timing of when the commission is accrued.

As of December 31, 2005, Sohu's cash, cash equivalents and investments in marketable debt securities balance was US$134.1 million, compared to US$132.5 million and US$141.3 million as of September 30, 2005 and December 31, 2004, respectively. During the year, the Company completed a US$13.8 million stock repurchase program and the arepurchase of convertible notes.

Sohu estimates total revenues for first quarter 2006 to be between US$28.0 million to 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.

Sohu estimates the stock-based compensation expense for the first quarter of 2006, due to the effect of adoption of Statement of Financial Accounting Standard 123R, Share-Based Payment which requires the expensing of stock-based compensation expense, to be between US$1.7 million to US$1.8 million. In addition, starting from January 1, 2006, the applicable PRC income tax rate of Sohu has increased to 7.5%. Sohu estimates that the PRC income tax expense for the first quarter of 2006 to be between US$0.5 million to US$0.7 million. The estimated total impact of these two expenses is expected to reduce Sohu's fully diluted earnings per share for the first quarter of 2006 by US$0.05 to US$0.06.


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