Riding high on revenue generated from the recent Olympics in Beijing, Chinese website portal Sohu.com (SOHU) has reported financial results for the third quarter ended September 30, 2008 and says advertising revenues were USD51.1 million, up 62% year-on-year and 18% quarter-on-quarter.
Belinda Wang, co-president and chief marketing officer of Sohu.com, stated, "Strong brand advertising revenue growth this quarter was primarily driven by continued shifting of advertising budgets from offline to online, and robust spending surrounding the 2008 Beijing Olympics. Advertisers are increasingly interested in implementing their online marketing campaigns on Sohu's platform as a result of the significant expansion in unique visitors on our site. We are confident of spending patterns in the fourth quarter due in part to those advertisers who did not advertise during the Olympics and believe the fundamental trends in online spending will continue."
Total revenues for the third quarter ended September 30, 2008 were USD120.7 million, compared to revenues of USD102.0 million for the second quarter of 2008, and USD51.5 million for the third quarter of 2007. The gross margin of 74% for the third quarter of 2008 was down from 76% in the second quarter of 2008, and up from 67% in the third quarter of 2007. The non-GAAP gross margin for the third quarter of 2008 of 74% was down from 76% in the second quarter of 2008, and up from 67% in the third quarter of 2007.
Net income for the third quarter of 2008 was USD40.3 million or USD1.02 per fully diluted share.
The USD51.1 million in advertising revenues, consisting of USD49.4 million of brand advertising and USD1.7 million of sponsored search, accounted for 42% of total revenues in the third quarter of 2008. Brand advertising revenues for the third quarter of 2008 increased by 18% quarter-on-quarter and 66% year-on- year.
Advertising gross margin for the third quarter of 2008 was 59%, down from 64% in the previous quarter and down from 63% in the third quarter of 2007. Non-GAAP advertising gross margin for the third quarter of 2008 was 60%, down from 65% in the previous quarter and 64% in the third quarter of 2007. The decrease was mainly due to content costs surrounding the Beijing 2008 Olympic Games.
For the third quarter of 2008, Sohu's non-advertising revenues, which are derived mainly from online games and wireless value-added services, were USD69.5 million, or 58% of total revenues. Online game revenues were USD54.6 million, an increase of 14% quarter-on-quarter and 330% year-on-year. Wireless revenues were USD14.5 million, a quarter-on-quarter increase of 58% and year-on-year increase of 112%. The company says its quarter-on-quarter increase was primarily due making a one-off tax provision of USD2.1 million in the second quarter, which was netted against wireless revenue, and stabilization of wireless-related regulatory and business environment throughout the quarter.
Non-advertising gross margin was 84%, flat with the second quarter of 2008 and up from 72% in the third quarter of 2007. Non-GAAP non-advertising gross margin for the third quarter of 2008 was 84%, flat with the previous quarter and up from 72% in the same quarter last year.
For the third quarter of 2008, Sohu's operating expenses totaled USD45.0 million. For the third quarter of 2008, income tax expense was USD5.0 million, compared to USD0.6 million for the previous quarter and USD0.3 million for the same period last year. In the second quarter, we had recorded a one-time income tax reversal of USD4.1 million.
Sohu estimates total revenues for the fourth quarter of 2008 to be between USD118 million and USD122 million, with advertising revenues of USD45.5 million to USD47.5 million and non-advertising revenues of USD72.5 million to USD74.5 million.