Home > Overseas Investment News > Sohu.com Reports Fourth Quarter and Fiscal Year 2018 Unaudited Financial Results
Sohu.com Reports Fourth Quarter and Fiscal Year 2018 Unaudited Financial Results
2019-02-01

BEIJING, Feb. 1, 2019 /PRNewswire/ -- Sohu.com Limited (NASDAQ: SOHU), China's leading online media, video, search and gaming business group, today reported unaudited financial results for the fourth quarter and fiscal year ended December 31, 2018.

Fourth Quarter Highlights

  • Total revenues[1] were US$482 million[2], down 5% year-over-year and up 5% quarter-over-quarter.
  • Brand advertising revenues were US$57 million, down 20% year-over-year and flat quarter-over-quarter.
  • Search and search related advertising revenues[3] were US$277 million, up 12% year-over-year and 8% quarter-over-quarter.
  • Online game revenues were US$94 million, down 14% year-over-year and 2% quarter-over-quarter.
  • Operating loss for Sohu Video was US$30 million, compared with a loss of US$69 million in the fourth quarter 2017.
  • GAAP net income attributable to Sohu.com Limited was US$15 million, compared with a net loss of US$295 million in the fourth quarter of 2017.
  • Non-GAAP net loss attributable to Sohu.com Limited was US$59 million, compared with a net loss of US$78 million in the fourth quarter of 2017.
  • In the fourth quarter of 2018, Changyou recognized a US$16 million charge for goodwill impairment. Excluding the effect of this goodwill impairment charge, non-GAAP net loss attributable to Sohu.com Limited would have been US$48 million.

[1] The Company has adopted ASU No. 2014-09, ''Revenue from Contracts with Customers" beginning January 1, 2018. The only significant impact of the standard is that revenues and expenses related to advertising barter transactions will be recognized beginning January 1, 2018. The impact for the fourth quarter of 2018 was approximately US$6 million for both revenues and cost of revenues and expenses, most of which were generated from SOGOU.

[2] On a constant currency (non-GAAP) basis, if the exchange rate in the fourth quarter of 2018 had been the same as it was in the fourth quarter of 2017, or RMB6.61=US$1.00, US$ total revenues in the fourth quarter of 2018 would have been US$504 million, or US$22 million more than GAAP total revenues, and down 1% year-over-year.

[3] Search and Search related advertising revenues exclude intra-Group transactions.

Fiscal Year 2018 Highlights

  • Total revenues were US$1.88 billion, up 1% compared with 2017.
  • Brand advertising revenues were US$232 million, down 26% compared with 2017. 
  • Search and search related advertising revenues were US$1.02 billion, up 28% compared with 2017.
  • Online game revenues were US$390 million, down 13% compared with 2017.
  • Operating loss for Sohu Video was US$140 million, compared with a loss of US$302 million in 2017.
  • GAAP net loss attributable to Sohu.com Limited was US$161 million, compared with a net loss of US$556 million in 2017. Non-GAAP net loss attributable to Sohu.com Limited was US$237 million, compared with a net loss of US$310 million in 2017.

Dr. Charles Zhang, Chairman and CEO of Sohu.com Limited, commented, "During 2018, as we faced a challenging macroeconomic environment, we focused our resources on key mobile products and worked hard to improve operating efficiencies. While annual revenues were largely flat compared with 2017, our bottom line performance was meaningfully improved thanks to a variety of cost saving efforts. For Sohu Media Portal, daily active users of Sohu News App, our flagship mobile product, outpaced the industry's growth, benefitting from superior content and continued upgrades of the recommendation engine. For Sohu Video, we focused on original program production, providing users unique and high quality dramas and shows. In the meantime, we significantly cut spending on traditional TV programs and successfully lowered the segment loss over 50% from 2017. In 2018, Sogou's mobile search and mobile keyboard continued to gain user traction while its leading AI capabilities have been not only recognized in international contests, but also applied to new commercial use cases. Lastly, Changyou delivered in-line financial results supported by solid performance of TLBB PC and mobile games. For 2019, Changyou will strengthen its R&D capabilities to launch more hit games."

Fourth Quarter Financial Results 

Revenues

Total revenues for the fourth quarter of 2018 were US$482 million, down 5% year-over-year and up 5% quarter-over-quarter.

Total online advertising revenues, which include revenues from the brand advertising and search and search-related advertising businesses, for the fourth quarter of 2018 were US$334 million, up 5% year-over-year and 7% quarter-over-quarter.

Brand advertising revenues for the fourth quarter of 2018 totaled US$57 million, down 20% year-over-year and flat quarter-over-quarter. The year-over-year decrease was mainly due to decreases in video and real estate advertising revenues.

Search and search-related advertising revenues for the fourth quarter of 2018 were US$277 million, up 12% year-over-year and 8% quarter-over-quarter.

Online game revenues for the fourth quarter of 2018 were US$94 million, down 14% year-over-year and 2% quarter-over-quarter. The year-over-year decrease was due to the natural decline in revenue of the Company's older games, including Legacy TLBB Mobile.

Gross Margin

Both GAAP and non-GAAP[4] gross margin was 43% for the fourth quarter of 2018, compared with 46% in the fourth quarter of 2017 and 43% in the third quarter of 2018.

Both GAAP and non-GAAP gross margin for the online advertising business for the fourth quarter of 2018 was 32%, compared with 37% in the fourth quarter of 2017 and 32% in the third quarter of 2018.

GAAP gross margin for the brand advertising business in the fourth quarter of 2018 was 26%, compared with negative 16% in the fourth quarter of 2017 and 23% in the third quarter of 2018. Non-GAAP gross margin for the brand advertising business was 26%, compared with negative 17% in the fourth quarter of 2017 and 23% in the third quarter of 2018. The year-over-year margin improvement was mainly due to decreased video content cost and impairment charges for video content cost recognized in the fourth quarter of 2017.

Both GAAP and non-GAAP gross margin for the search and search-related advertising business in the fourth quarter of 2018 was 34%, compared with 52% in the fourth quarter of 2017 and 34% in the third quarter of 2018. The year-over-year decrease primarily resulted from increases in traffic acquisition costs outpacing revenue growth.

Both GAAP and non-GAAP gross margin for online games in the fourth quarter of 2018 was 85%, compared with 84% in the fourth quarter of 2017 and 84% in the third quarter of 2018. 

[4] Non-GAAP results exclude share-based compensation expense; non-cash tax benefits from excess tax deductions related to share-based awards; changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values; income/expense from the adjustment of contingent consideration previously recorded for acquisitions; dividends and deemed dividends to non-controlling preferred shareholders of Sogou; a one-time income tax expense recognized in the fourth quarter of 2017 as a result of the one-time transition tax (the "Toll Charge") imposed by the U.S. Tax Cuts and Jobs Act signed into law on December 22, 2017 (the "TCJA"); the subsequent re-evaluation for the fourth quarter of 2018 and adjustment of the tax expense previously recognized for the Toll Charge; the resulting recognition of a previously unrecognized tax benefit and recording of an uncertain tax position related to the balance of the Toll Charge; and interest accrued in relation to the previously unrecognized tax benefit. Explanation of the Company's non-GAAP financial measures and related reconciliations to GAAP financial measures are included in the accompanying "Non-GAAP Disclosure" and "Reconciliations of Non-GAAP Results of Operation Measures to the Nearest Comparable GAAP Measures."

Operating Expenses

For the fourth quarter of 2018, GAAP operating expenses totaled US$254 million, down 8% year-over-year and up 2% quarter-over-quarter. Non-GAAP operating expenses were US$252 million, down 1% year-over-year and up 2% quarter-over-quarter. The year-over-year decrease in GAAP operating expenses was mainly due to decreases in salary and benefit expenses. Operating expenses for the fourth quarter of 2018 included an approximately US$16 million impairment charge recognized by Changyou related to its 17173.com website business.

Operating Loss

GAAP operating loss for the fourth quarter of 2018 was US$48 million, compared with an operating loss of US$41 million in the fourth quarter of 2017 and an operating loss of US$49 million in the third quarter of 2018.

Non-GAAP operating loss for the fourth quarter of 2018 was US$46 million, compared with an operating loss of US$22 million in the fourth quarter of 2017 and an operating loss of US$47 million in the third quarter of 2018. 

Other Income

Other income for the fourth quarter of 2018 was US$13 million, compared with other income of US$4 million in the fourth quarter of 2017 and other income of US$29 million in the third quarter of 2018. The year-over-year increase was mainly attributable to an increase in gain from Sogou's short-term investments in the fourth quarter of 2018. The quarter-over-quarter decrease was mainly attributable to Sogou's US$18 million gain from one of its equity investments in the third quarter of 2018.

Income Tax Expense

GAAP income tax benefit was US$70 million for the fourth quarter of 2018, compared with income tax expense of US$234 million in the fourth quarter of 2017 and income tax benefit of US$13 million in the third quarter of 2018. Non-GAAP income tax expense was US$5 million for the fourth quarter of 2018, compared with income tax expense of US$19 million in the fourth quarter of 2017 and income tax benefit of US$12 million in the third quarter of 2018.

The change from GAAP income tax expense to income tax benefit for the fourth quarter of 2018 from the fourth quarter of 2017 and the increase in income tax benefit from the third quarter of 2018 mainly resulted  from a one-time income tax expense recognized in the fourth quarter of 2017 as a result of the one-time transition tax (the "Toll Charge") imposed by the U.S. Tax Cuts and Jobs Act signed into law on December 22, 2017 (the "TCJA"); the subsequent re-evaluation for the fourth quarter of 2018 and adjustment of the tax expense previously recognized for the Toll Charge; the resulting recognition of a previously unrecognized tax benefit and recording of an uncertain tax position related to the balance of the Toll Charge; and interest accrued in relation to the previously unrecognized tax benefit[5].

[5] The revised treatment of the Toll Charge is based on management's estimate of the tax benefit and related uncertain tax position as of December 31, 2018, which is management's estimate pursuant to SEC Staff Accounting Bulletin No. 118, and the uncertain tax position related to the Toll Charge may be subject to further adjustment in subsequent periods based on future circumstances, such as final IRS Toll Charge regulations published in January 2019, and on management's judgment and estimates.

Net Income/(Loss)

GAAP net income attributable to Sohu.com Limited for the fourth quarter of 2018 was US$15 million, or US$0.37 income per fully-diluted ADS, compared with a net loss of US$295 million in the fourth quarter of 2017 and a net loss of US$35 million in the third quarter of 2018. Non-GAAP net loss attributable to Sohu.com Limited for the fourth quarter of 2018 was US$59 million, or US$1.50 loss per fully-diluted ADS, compared with a net loss of US$78 million in the fourth quarter of 2017 and a net loss of US$32 million in the third quarter of 2018. 

Liquidity

As of December 31, 2018, cash and cash equivalents and short-term investments held by the Sohu Group, minus short-term bank loans, were US$1.73 billion, compared with US$2.12 billion as of December 31, 2017.

Fiscal Year 2018 Financial Results

Revenues

Total revenues for 2018 were US$1.88 billion, up 1% compared with 2017.

Total online advertising revenues, which include revenues from the brand advertising and search and search-related advertising businesses, for 2018 were US$1.25 billion, up 12% compared with 2017.

Brand advertising revenues for 2018 were US$232 million, down 26% compared with 2017. The decrease was mainly due to declines in portal, video and real estate advertising revenues.

Search and search-related advertising revenues for 2018 were US$1.02 billion, up 28% compared with 2017.

Online game revenues for 2018 were US$390 million, down 13% compared with 2017. The year-over-year decrease was mainly from Legacy TLBB Mobile, which was launched in the second quarter of 2017, and TLBB 3D.

Gross Margin

Both GAAP and non-GAAP gross margin was 43% for 2018, compared with 44% in 2017.

Both GAAP and non-GAAP gross margin for the online advertising business for 2018 was 32%, compared with 30% in 2017.

Both GAAP and non-GAAP gross margin for the brand advertising business for 2018 was 20%, compared with negative 16% in 2017. The increase was mainly attributable to a decrease in video content cost and impairment charges recognized in 2017.

GAAP gross margin for the search and search-related advertising business for 2018 was 35%, compared with 48% in 2017. Non-GAAP gross margin for the search and search-related advertising business for 2018 was 35%, compared with 49% in 2017. The year-over-year decrease primarily resulted from increases in traffic acquisition costs outpacing revenue growth.

Both GAAP and non-GAAP gross margin for online games for 2018 was 84%, compared with 86% in 2017.

Operating Expenses

For 2018, GAAP operating expenses totaled US$972 million, down 6% compared with 2017. Non-GAAP operating expenses were US$970 million, down 2% compared with 2017. The change was primarily attributable to impairment charges of approximately US$87 million recognized by Changyou in 2017 related to the MoboTap business, offset by increased product and development expenses.

Operating Loss

GAAP operating loss for 2018 was US$161 million, compared with an operating loss of US$209 million in 2017.

Non-GAAP operating loss for 2018 was US$158 million, compared with an operating loss of US$164 million in 2017. 

Income Tax Expense

GAAP income tax benefit for 2018 was US$13 million, compared with income tax expense of US$273 million in 2017. Non-GAAP income tax expense for 2018 was US$62 million, compared with income tax expense of US$58 million in 2017. The change from GAAP income tax expense to income tax benefit for 2018 from 2017 resulted from management's re-evaluation and adjustment of the tax expense previously recognized for the Toll Charge in the fourth quarter of 2017.

Net Loss

GAAP net loss attributable to Sohu.com Limited for 2018 was US$161 million, or US$4.13 loss per fully-diluted ADS, compared with a net loss of US$556 million in 2017. Non-GAAP net loss attributable to Sohu.com Limited for 2018 was US$237 million, or US$6.08 loss per fully-diluted ADS, compared with a net loss of US$310 million in 2017. 

Business Outlook

For the first quarter of 2019, Sohu estimates:

  • Total revenues to be between US$390 million and US$415 million.
  • Brand advertising revenues to be between US$45 million and US$50 million; this implies an annual decrease of 11% to 20% and a sequential decrease of 13% to 21%.
  • Sogou revenues to be between US$231 million and US$241 million; this implies an annual decrease of 3% to 7% and a sequential decrease of 19% to 22%.
  • Online game revenues to be between US$80 million and US$90 million; this implies an annual decrease of 15% to 24% and a sequential decrease of 4% to 15%.
  • Non-GAAP net loss attributable to Sohu.com Limited. to be between US$50 million and US$60 million, and non-GAAP loss per fully-diluted ADS to be between US$1.30 and US$1.55. GAAP net loss attributable to Sohu.com Limited to be between US$55 million and US$65 million, and GAAP loss per fully-diluted ADS to be between US$1.40 and US$1.65.

For the first quarter 2019 guidance, the Company has adopted a presumed exchange rate of RMB6.90=US$1.00, as compared with the actual exchange rate of approximately RMB6.36=US$1.00 for the first quarter of 2018, and RMB6.91=US$1.00 for the fourth quarter of 2018. 

Non-GAAP Disclosure

To supplement the unaudited consolidated financial statements presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"), Sohu's management uses non-GAAP measures of gross profit, operating profit, net income, net income attributable to Sohu.com Limited and diluted net income attributable to Sohu.com Limited per share, which are adjusted from results based on GAAP to exclude the impact of the share-based awards, which consist mainly of share-based compensation expenses and non-cash tax benefits from excess tax deductions related to share-based awards;  changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values; income/expense from the adjustment of contingent consideration previously recorded for acquisitions; dividend and deemed dividend to non-controlling preferred shareholders; the one-time income tax expense recognized in the fourth quarter of 2017 as a result of the Toll Charge imposed by the TCJA and the subsequent re-evaluation for the fourth quarter of 2018 and adjustment of the tax expense previously recognized for the Toll Charge; the resulting recognition of a previously unrecognized tax benefit and recording of an uncertain tax position related to the balance of the Toll Charge; and interest expense recognize in connection with the Toll Charge. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.

Sohu's management believes excluding share-based compensation expense,  changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values; non-cash tax benefits from excess tax deductions related to share-based awards; income/expense from the adjustment of contingent consideration previously recorded for acquisitions; dividend and deemed dividend to non-controlling preferred shareholders; and income tax expense, income tax benefit, uncertain tax position, and interest recognized in relation to the Toll Charge from its non-GAAP financial measure is useful for itself and investors. Further, the impact of share-based compensation expense and  changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values; non-cash tax benefits from excess tax deductions related to share-based awards; income/expense from the adjustment of contingent consideration previously recorded for acquisitions; dividend and deemed dividend to non-controlling preferred shareholders; the one-time income tax expense recognized in the fourth quarter of 2017 as a result of the Toll Charge imposed by the TCJA and the subsequent re-evaluation for the fourth quarter of 2018 and adjustment of the tax expense previously recognized for the Toll Charge; the resulting recognition of a previously unrecognized tax benefit and recording of an uncertain tax position related to the balance of the Toll Charge; and interest expense recognized in connection with the Toll Charge cannot be anticipated by management and business line leaders and these expenses were not built into the annual budgets and quarterly forecasts that have been the basis for information Sohu provides to analysts and investors as guidance for future operating performance. As the impact of share-based compensation expense and changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, non-cash tax benefits from excess tax deductions related to share-based awards, income/expense from the adjustment of contingent consideration previously recorded for acquisitions, and dividend and deemed dividend to non-controlling preferred shareholders does not involve subsequent cash outflow or is reflected in the cash flows at the equity transaction level, Sohu does not factor this impact in when evaluating and approving expenditures or when determining the allocation of its resources to its business segments. As a result, in general, the monthly financial results for internal reporting and any performance measures for commissions and bonuses are based on non-GAAP financial measures that exclude share-based compensation expense and  changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, non-cash tax benefits from excess tax deductions related to share-based awards, income/expense from the adjustment of contingent consideration previously recorded for acquisitions, and dividend and deemed dividend to non-controlling preferred shareholders, and also excluded the one-time income tax expense recognized in the fourth quarter of 2017 as a result of the Toll Charge imposed by the TCJA and the subsequent re-evaluation for the fourth quarter of 2018 and adjustment of the tax expense previously recognized for the Toll Charge, the resulting recognition of a previously unrecognized tax benefit and recording of an uncertain tax position related to the balance of the Toll Charge, and interest expense recognized in connection with the Toll Charge.

The non-GAAP financial measures are provided to enhance investors' overall understanding of Sohu's current financial performance and prospects for the future. A limitation of using non-GAAP gross profit, operating profit, net income, net income attributable to Sohu.com Limited and diluted net income attributable to Sohu.com Limited per share, excluding share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards, income/expense from the adjustment of contingent consideration previously recorded for acquisitions, dividend, and deemed dividend to non-controlling preferred shareholders is that the impact of share-based awards and non-cash tax benefits from excess tax deductions related to share-based awards has been and will continue to be a significant recurring expense in Sohu's business for the foreseeable future, income/expense from the adjustment of contingent consideration previously recorded for acquisitions may recur in the future, and dividend and deemed dividend to non-controlling preferred shareholders may recur when Sohu and its affiliates enter into equity transactions. In order to mitigate these limitations Sohu has provided specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables include details on the reconciliation between the GAAP financial measures that are most directly comparable to the non-GAAP financial measures that have been presented.

Notes to Financial Information

Financial information in this press release other than the information indicated as being non-GAAP is derived from Sohu's unaudited interim financial statements prepared in accordance with GAAP.

Safe Harbor Statement

This announcement contains forward-looking statements. It is currently expected that the Business Outlook will not be updated until release of Sohu's next quarterly earnings announcement; however, Sohu reserves right to update its Business Outlook at any time for any reason. Statements that are not historical facts, including statements about Sohu's beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, instability in global financial and credit markets and its potential impact on the Chinese economy; exchange rate fluctuations, including their potential impact on the Chinese economy and on Sohu's reported US dollar results; recent slow-downs in the growth of the Chinese economy; the uncertain regulatory landscape in the People's Republic of China; fluctuations in Sohu's quarterly operating results; Sohu's current and projected future losses due to increased spending by Sohu for video content; the possibilities that Sohu will be unable to recoup its investment in video content and that Changyou will be unable to develop a series of successful games for mobile platforms or successfully monetize mobile games it develops or acquires; Sohu's reliance on online advertising sales, online games and mobile services for its revenues; and the impact of the U.S. TCJA. Further information regarding these and other risks is included in Sohu's annual report on Form 10-K for the year ended December 31, 2017, and other filings with the Securities and Exchange Commission.

Conference Call and Webcast 

Sohu's management team will host a conference call at 8:30 a.m. U.S. Eastern Time, February 1, 2019 (9:30 p.m. Beijing/Hong Kong time, February 1, 2019) following the quarterly results announcement.

The dial-in details for the live conference call are:

US Toll-Free:

International:

Hong Kong:

China Mainland

/

Passcode:

SOHU

Please dial in 10 minutes before the call is scheduled to begin and provide the passcode to join the call.

A telephone replay of the call will be available after the conclusion of the conference call at 11:30 a.m. Eastern Time on February 1 through February 8, 2019. The dial-in details for the telephone replay are:

International:

Passcode:

9187839

The live Webcast and archive of the conference call will be available on the Investor Relations section of Sohu's Website at .

About Sohu.com

Sohu.com Limited (NASDAQ: SOHU) is China's premier online brand and indispensable to the daily life of millions of Chinese, providing a network of web properties and community based/web 2.0 products which offer the vast Sohu user community a broad array of choices regarding information, entertainment and communication. Sohu has built one of the most comprehensive matrices of Chinese language web properties and proprietary search engines, consisting of the mass portal and leading online media destination ; interactive search engine ; developer and operator of online games  and leading online video website tv.sohu.com.

Sohu's corporate services consist of online brand advertising on Sohu's matrix of websites as well as bid listing and home page on its in-house developed search directory and engine. Sohu also provides multiple news and information services on mobile platforms, including Sohu News App and the mobile news portal m.sohu.com. Sohu's online game subsidiary, Changyou.com (NASDAQ: CYOU) develops and operates a diverse portfolio of PC and mobile games, such as Tian Long Ba Bu ("TLBB"), one of the most popular PC games in China. Changyou also owns and operates the 17173.com Website, a leading game information portal in China. Sohu's online search subsidiary Sogou (NYSE: SOGO) has grown to become the second largest search engine by mobile queries in China. It also owns and operates Sogou Input Method, the largest Chinese language input software. Sohu.com, established by Dr. Charles Zhang, one of China's internet pioneers, is in its twenty-third year of operation.

For investor and media inquiries, please contact:

In China:

Mr. Eric Yuan

Sohu.com Limited

Tel:

+86 (10) 6272-6593

E-mail:

In the United States:


Ms. Linda Bergkamp

Christensen

Tel:

+1 (480) 614-3004

E-mail:

 

 


SOHU.COM LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)




Three Months Ended


Twelve Months Ended




Dec. 31, 2018


Sep. 30, 2018


Dec. 31, 2017


Dec. 31, 2018


Dec. 31, 2017


Revenues:












Online advertising












        Brand advertising

$

57,222

$

56,958

$

71,751

$

231,945

$

314,066


        Search and search-related advertising


276,666


255,130


247,054


1,022,456


801,199


             Subtotal


333,888


312,088


318,805


1,254,401


1,115,265


Online games


94,106


95,971


109,383


389,788


449,533


Others


54,204


51,763


81,442


238,840


296,164


                   Total revenues


482,198


459,822


509,630


1,883,029


1,860,962














Cost of revenues:












Online advertising












       Brand advertising (includes stock-based
compensation expense of $-34, $-14, $-1,034, $-707 and
$-415, respectively)


42,485


44,059


82,932


184,474


363,592


            Search and search-related (includes stock-based 
     compensation expense of $-48, $235, $535, $669 and
     $540, respectively)


 

183,678


 

167,664


 

118,683


 

664,164


 

412,904


Subtotal


226,163


211,723


201,615


848,638


776,496


       Online games (includes stock-based compensation
expense of $7, $-3, $1, $-31 and $73, respectively)


14,499


14,902


17,097


60,981


62,775


Others


35,633


33,716


56,987


162,102


195,895


        Total cost of revenues


276,295


260,341


275,699


1,071,721


1,035,166














Gross profit


205,903


199,481


233,931


811,308


825,796














Operating expenses:












     Product development (includes stock-based
compensation expense of $919, $2,362, $14,048, $6,132
and $$23,547,  respectively)


108,611


107,164


122,767


441,161


412,173


     Sales and marketing (includes stock-based
compensation expense of $216, $201, $3,976, $405 and
$5,915, respectively)


102,112


106,056


116,179


400,579


413,045


     General and administrative (includes stock-based
compensation expense of $470, $-1,062, $1,486, $-4,372
and $15,816, respectively)


26,828


35,078


35,829


113,724


122,874


     Goodwill impairment and impairment of intangibles via
acquisitions of businesses


16,369[6]


-


-


16,369


86,882


       Total operating expenses


253,920


248,298


274,775


971,833


1,034,974














Operating loss


(48,017)


(48,817)


(40,844)


(160,525)


(209,178)














Other  income


13,073


28,822


4,321


64,167


6,658


Interest income


6,457


4,658


7,357


24,079


24,138


Interest expense


(5,279)


(6,174)


(2,567)


(17,538)


(4,088)


Exchange difference


(378)


7,970


(4,059)


9,026


(14,385)


Loss before income tax expense


(34,144)


(13,541)


(35,792)


(80,791)


(196,855)


 

Income tax expense/(benefit)


(69,557)


(13,145)


233,785


(13,432)


273,148


Net income/(loss)


35,413


(396)


(269,577)


(67,359)


(470,003)














        Less: Net income attributable to the noncontrolling

interest shareholders


 

20,773


 

33,870


 

24,558


 

92,723


 

84,523


 

Net loss attributable to Sohu.com Limited


14,640


(34,266)


(294,135)


(160,082)


(554,526)














Basic net income/(loss) per ADS attributable to Sohu.com 
Limited

$

0.37

$

(0.88)

$

(7.56)

$

(4.11)

$

(14.27)


ADS used in computing basic net loss per ADS attributable
to Sohu.com Limited


39,069


38,936


38,888


38,959


38,858














Diluted net income/(loss) per ADS attributable to Sohu.com
Limited

$

0.37

$

(0.89)

$

(7.57)

$

(4.13)

$

(14.30)


ADS used in computing diluted net loss  per ADS

attributable to Sohu.com Limited


39,234


38,936


38,888


38,959


38,858




[6] The impairment was mainly related to Changyou's 17173.com website business. The launch of new initiatives for the 17173.com website fell behind schedule in the fourth quarter of 2018, and the profit outlook of the business remained uncertain. In addition, due to more stringent regulations, there was a significant decline in the number of new game launches in the market, so the number of games marketed on 17173.com also fell. As a result, Changyou determined that the future performance of 17173.com would likely fall short of expectations, and that impairment charges were required.


 

 

SOHU.COM LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED, IN THOUSANDS)




As of Dec. 31, 2018


As of Dec. 31, 2017

ASSETS





Current assets:





           Cash and cash equivalents

$

819,713

$

1,366,115

Restricted cash


5,974


1,908

Short-term investments


1,041,395


818,934

           Accounts receivable, net


242,361


250,468

           Prepaid and other current assets


207,117


192,676

                     Total current assets


2,316,560


2,630,101

Long-term investments


108,356


90,145

Fixed assets, net


504,998


529,717

Goodwill


53,263


71,565

Intangible assets, net


24,118


23,060

Restricted time deposits[7]


244,179


271

Prepaid non-current assets


3,107


4,211

Other assets


43,928


40,169

                         Total assets

$

3,298,509

$

3,389,239






LIABILITIES





Current liabilities:





           Accounts payable

$

295,954

$

288,394

           Accrued liabilities


301,915


343,106

           Receipts in advance and deferred revenue


124,782


127,758

           Accrued salary and benefits


112,898


102,087

           Taxes payable


93,569


96,541

           Short-term bank loans


129,677


61,216

           Other short-term liabilities


124,085


136,300

                     Total current liabilities

$

1,182,880

$

1,155,402






Long-term accounts payable


752


1,157

Long-term Bank Loans 


302,323


122,433

Long-term tax liabilities


259,603


293,010

Total long-term liabilities

$

562,678

$

416,600

                         Total liabilities

$

1,745,558

$

1,572,002






 

SHAREHOLDERS' EQUITY:





          Sohu.com Limited shareholders' equity


588,840


750,634

          Noncontrolling Interest


964,111


1,066,603

                     Total shareholders' equity

$

1,552,951

$

1,817,237






Total liabilities and shareholders' equity 

$

3,298,509

$

3,389,239


[7] In October 2018, to roll over matured offshore financing facilities, Changyou entered into a bank loan agreement pursuant to which it has drawn down U.S. dollar-denominated loans in the aggregate amount of US$220 million that are secured by restricted time deposits of RMB1.7 billion (approximately US$244 million). All of the loans carry a floating rate of interest based on the LIBOR. All of the loans are due to be repaid, and accordingly the restricted time deposits released, in 2021.

                

 

SOHU.COM LIMITED

RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATION MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES

(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)




Three Months Ended Dec. 31, 2018


Three Months Ended Sep. 30, 2018


Three Months Ended Dec. 31, 2017



GAAP


Non-GAAP
Adjustments


Non-GAAP


GAAP


Non-GAAP
Adjustments


Non-GAAP


GAAP


Non-GAAP
Adjustments


Non-GAAP
























(34)

(a)





(14)

(a)





(1,034)

(a)


Brand advertising gross profit

$

14,737

$

(34)

$

14,703

$

12,899

$

(14)

$

12,885

$

(11,181)

$

(1,034)

$

(12,215)

Brand advertising gross
margin


26%




26%


23%




23%


-16%




-17%





(48)

(a)





235

(a)





535

(a)


Search and search-related 
advertising gross profit

$

92,988

$

(48)

$

92,940

$

87,466

$

235

$

87,701

$

128,371

$

535

$

128,906

Search and search-related 
advertising gross margin


34%




34%


34%




34%


52%




52%
























(82)

(a)





221

(a)





(499)

(a)


Online advertising gross profit

$

107,725

$

(82)

$

107,643

$

100,365

$

221

$

100,586

$

117,190

$

(499)

$

116,691

Online advertising gross
margin


32%




32%


32%




32%


37%




37%
























7

(a)





(3)

(a)





1

(a)


Online games gross profit

$

79,607

$

7

$

79,614

$

81,069

$

(3)

$

81,066

$

92,286

$

1

$

92,287

Online games gross margin


85%




85%


84%




84%


84%




84%







































Others gross profit

$

18,571

$

-

(a) $

18,571

$

18,047

$

-

(a) $

18,047

$

24,455

$

-

(a) $

24,455

Others gross margin


34%




34%


35%




35%


30%




30%











































(75)

(a)





218

(a)





(498)

(a)


Gross profit

$

205,903

$

(75)

$

205,828

$

199,481

$

218

$

199,699

$

233,931

$

(498)

$

233,433

Gross margin


43%




43%


43%




43%


46%




46%







































Operating expenses

$

253,920

$

(1,605)

(a) $

252,315

$

248,298

$

(1,501)

(a) $

246,797

$

274,775

$

(19,510)

(a) $

255,265











































1,530

(a)





1,719

(a)





19,012

(a)


Operating loss

$

(48,017)

$

1,530

$

(46,487)

$

(48,817)

$

1,719

$

(47,098)

$

(40,844)

$

19,012

$

(21,832)

Operating margin


-10%




-10%


-11%




-10%


-8%




-4%


























































Income tax benefit/(expense)

$

69,557

$

(74,160)

(c,d)$

(4,603)

$

13,145

$

(1,286)

(c,d)$

11,859

$

(233,785)

$

214,819

(d)$

(18,966)

















































































1,530

(a)





1,719

(a)





19,012

(a)






267

(c)





3,861

(c)





-







(74,071)

(d)





-






214,819

(d)


Net income/(loss) before non-
controlling interest

$

35,413


(72,274)


(36,861)

$

(396)

$

5,580

$

5,184

$

(269,577)

$

233,831

$

(35,746)











































1,530

(a)





1,719

(a)





19,012

(a)






(976)

(b)





(2,571)

(b)





(17,545)

(b)






267

(c)





3,861

(c)





-







(74,071)

(d)





-






214,819

(d)


Net income/(loss) attributable
to Sohu.com Limited for
diluted net  loss per ADS

$

14,511


(73,250)


(58,739)

$

(34,685)

$

3,009


(31,676)

$

(294,543)

$

216,286


(78,257)

Diluted net income/(loss) per
ADS attributable to Sohu.com
Limited

$

0.37




(1.50)

$

(0.89)




(0.81)

$

(7.57)




(2.01)

 

Shares used in computing
diluted net  loss  per ADS
attributable to Sohu.com
Limited


39,234




39,069


38,936




38,936


38,888




38,888




















Note:

(a)    To eliminate the impact of share-based awards as measured using the fair value method. This adjustment does not have an impact on income tax expense.

(b)   To adjust Sohu's economic interests in Changyou and Sogou attributable to the above non-GAAP adjustments. This adjustment does not have an impact on income tax expense.

(c)    To adjust for a change in the fair value of the Company's investment in Hylink and the income tax effect.

(d)   To adjust for the effect of the U.S. TCJA.

 

 

SOHU.COM LIMITED

RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATION MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES

(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)




Twelve Months Ended Dec. 31, 2018


Twelve Months Ended Dec. 31, 2017



GAAP


Non-GAAP
Adjustments


Non-GAAP


GAAP


Non-GAAP
Adjustments


Non-GAAP


















(707)

(a)





(415)

(a)


Brand advertising gross profit

$

47,471

$

(707)

$

46,764

$

(49,526)

$

(415)

$

(49,941)

Brand advertising gross
margin


20%




20%


-16%




-16%


















669

(a)





540

(a)


Search and search-related
advertising gross profit

$

358,292

$

669

$

358,961

$

388,295

$

540

$

388,835

Search and search-related 
advertising gross margin


35%




35%


48%




49%


















(38)

(a)





125

(a)


Online advertising gross profit

$

405,763

$

(38)

$

405,725

$

338,769

$

125

$

338,894

Online advertising gross
margin


32%




32%


30%




30%


















(31)

(a)





73

(a)


Online games gross profit

$

328,807

$

(31)

$

328,776

$

386,758

$

73

$

386,831

Online games gross margin


84%




84%


86%




86%








































Others gross profit

$

76,738

$

-

(a)$

76,738

$

100,269

$

-

(a)$

100,269

Others gross margin


32%




32%


34%




34%































(69)

(a)





198

(a)


Gross profit

$

811,308

$

(69)

$

811,239

$

825,796

$

198

$

825,994

Gross margin


43%




43%


44%




44%



























Operating expenses

$

971,833

$

(2,165)

(a)$

969,668

$

1,034,974

$

(45,278)

(a)$

989,696































2,096

(a)





45,476

(a)


Operating loss

$

(160,525)

$

2,096

$

(158,429)

$

(209,178)

$

45,476

$

(163,702)

Operating margin


-9%




-8%


-11%




-9%



























Income tax benefit/(expense)

$

13,432

$

(75,281)

(d,e)$

(61,849)

$

(273,148)

$

214,819

(d)$

(58,329)































2,096

(a)





45,476

(a)






-






5,754

(c)






(74,071)

(d)





214,819

(d)






3,634

(e)





-



Net loss before non-
controlling interest

$

(67,359)

$

(68,341)

$

(135,700)

$

(470,003)

$

266,049

$

(203,954)












































2,096

(a)





45,476

(a)






(7,574)

(b)





(20,624)

(b)






-






5,754

(c)






(74,071)

(d)





214,819

(d)






3,634

(e)






-


Net loss attributable to
Sohu.com Limited for diluted
net loss per ADS

$

(160,959)


(75,915)


(236,874)

$

(555,791)

$

245,425

$

(310,366)














Diluted net loss per ADS
attributable to Sohu.com
Limited.

 

$

(4.13)



$

(6.08)

 

$

(14.30)



$

(7.99)

 

ADS used in computing
diluted net loss per ADS
attributable to Sohu.com
Limited


38,959




38,959


38,858




38,858


Note:

(a)      To eliminate the impact of share-based awards as measured using the fair value method.

(b)     To adjust Sohu's economic interests in Changyou and Sogou attributable to the above non-GAAP adjustments.

(c)      To adjust impairment loss of available-for-sale securities of an investee that is unrelated to the Company's current business operations.

(d)     To adjust for the effect of the U.S. TCJA.

(e)      To adjust for a change in the fair value of the Company's investment in Hylink and the income tax effect.

 

 

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