Total revenues for second quarter ended June 30, 2006 totaled US$34.1 million for Sohu.com (SOHU), compared to revenues of US$30.4 million for first quarter ended March 31, 2006, and US$25.0 million for second quarter ended June 30, 2005.

Gross margin for the second quarter of 2006 was 64%. Non-GAAP gross margin of 65% in second quarter of 2006 was down slightly from 68% in the previous quarter and 69% in the same period of 2005. Including discontinued operations, net income for the second quarter of 2006 was US$7.2 million or US$0.19 per fully diluted share.

Non-GAAP net income for second quarter of 2006 was US$8.4 million or US$0.22 per fully diluted share. This compares to non-GAAP net income of US$7.8 million or US$0.20 per fully diluted share for the previous quarter and US$7.1 million or US$0.18 per fully diluted share for second quarter of 2005.

Sohu's advertising revenues for second quarter of 2006 totaled US$22.8 million, a 35% year-on-year and 13% quarter-on-quarter improvement. For the first half of 2006, advertising revenues grew by 35% year-on-year.

Advertising revenues, consisting of US$19.3 million in brand advertising and US$3.5 million in sponsored search, accounted for 67% of total revenues in second quarter of 2006. For the first half of 2006, brand advertising revenues and sponsored search revenues grew by 38% and 20% year-on-year, respectively.

Advertising non-GAAP gross margin was 71%, a decline from 75% in the previous quarter and 76% in second quarter of 2005. This gross margin decline was primarily due to an increase in exclusive content expenses and bandwidth costs.

For second quarter of 2006, Sohu's non-advertising revenues, which are derived mainly from wireless value-added services and online games, increased by 39% year-on-year and 9% quarter-on-quarter to US$11.2 million, representing 33% of total revenues. The strong year-on-year improvement was a result of the continued recovery in wireless revenues.

Wireless revenues for second quarter of 2006 totaled US$9.0 million, an increase of 12% over the previous quarter and 41% over the same period last year. Non-advertising non-GAAP gross margin was 53% compared to 55% in the previous quarter and 56% in second quarter of 2005. This gross margin decline was primarily due to the reduced price ceiling set by one of the mobile network operators on SMS fees and increased wireless content expenses.

For the second quarter, Sohu's non-GAAP operating expenses totaled US$14.4 million, increasing 12% from the previous quarter and increasing 37% year-on- year. The year-on-year increase was primarily because of the increase of marketing expenses, increase in headcount and salaries.

For the second quarter, Sohu's other income included a gain of US$0.8 million arising from our early redemption of convertible notes with face value of US$15.0 million at a discount.

As of June 30, 2006, Sohu's cash, cash equivalents and investments in marketable debt securities balance was US$132.9 million, compared to US$133.1 million as of December 31, 2005, even after an early redemption of US$15 million convertible notes during the second quarter.

Sohu estimates total revenues for third quarter 2006 to be between US$32.5 million to US$34.5 million, with advertising revenues of US$23.5 million to US$24.5 million and non-advertising revenues of US$9.0 million to US$10.0 million. Sohu estimates that brand advertising revenues for the third quarter 2006 to be between US$20.0 million to US$20.5 million.

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