's (SOHU) unaudited financial results for the first quarter ended March 31, 2006 show the company's revenues totaled US$31.3 million, compared to revenues of US$30.5 million for fourth quarter ended December 31, 2005, and US$23.7 million for first quarter ended March 31, 2005.

Gross margin for the first quarter of 2006 was 65%. Non-GAAP gross margin of 66% in first quarter of 2006 was unchanged from the previous quarter and down slightly from 68% in the same period of 2005.

Net income for the first quarter of 2006 was US$6.0 million or US$0.16 per fully diluted share. Non-GAAP net income for first quarter of 2006 was US$7.8 million or US$0.20 per fully diluted share. This compares to net income of US$8.9 million or US$0.23 per fully diluted share for the previous quarter and US$5.7 million or US$0.15 per fully diluted share for first quarter of 2005.

Sohu's advertising revenues for first quarter of 2006 totaled US$20.1 million, a 35% year-on-year improvement and 1% quarter-on-quarter decline. Advertising revenues, consisting of US$16.7 million in brand advertising and US$3.4 million in sponsored search, accounted for 64% of total revenues in first quarter of 2006.

Advertising non-GAAP gross margin was 75%, an increase from 74% in the previous quarter but slightly lower than 78% in first quarter of 2005.

For first quarter of 2006, Sohu's non-advertising revenues, which are derived mainly from wireless value-added services, online games and e-commerce, increased by 25% year-on-year and 9% quarter-on-quarter to US$11.1 million, representing 36% of total revenues.

The strong year-on-year improvement was a result of the continued recovery in wireless revenues, which increased 10% over the previous quarter and 34% over the same period last year.

Non-advertising non-GAAP gross margin was 51% compared to 50% in the previous quarter and 52% in first quarter of 2005.

For the first quarter, Sohu's non-GAAP operating expenses totaled US$13.0 million, declining 9% from the previous quarter and increasing 20% year-on- year. The quarter-on-quarter decrease was primarily due to a decline in sales commission while the year-on-year increase primarily related to costs associated with Sohu's exclusive Olympics sponsorship role and personnel costs.

As of March 31, 2006, Sohu's cash, cash equivalents and investments in marketable debt securities balance was US$137.5 million, compared to US$133.1 million and US$128.7 million as of December 31, 2005 and March 31, 2005, respectively.

Sohu estimates total revenues for second quarter 2006 to be between US$31.5 million to US$33.5 million, with advertising revenues of US$21.5 million to US$22.5 million and non-advertising revenues of US$10 million to US$11 million.

Sohu estimates the non-GAAP fully diluted earnings per share for the second quarter of 2006 to be between US$0.20 and US$0.22.


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