Business Outlook

Sohu estimates total revenues for the third quarter 2008 to be between US$112 million to US$116 million, with advertising revenues of US$48.5 million to US$50.5 million and non-advertising revenues of US$63.5 million to US$65.5 million.

Sohu estimates brand advertising revenues for the third quarter of 2008 to be between US$47 million and US$49 million.

Sohu estimates online games revenues for the third quarter of 2008 to be between US$51.5 million and US$53.5 million.

Sohu estimates non-GAAP fully diluted earnings per share for the third quarter of 2008 to be between US$1.00 and US$1.05.

Assuming no new grants of share-based awards, Sohu estimates share-based compensation expense for the third quarter of 2008 to be between US$2.5 million and US$3 million. The estimated impact of this expense is expected to reduce Sohu's fully diluted earnings per share for the third quarter of 2008, under US GAAP, by US$0.06 to US$0.07.

Plan for Confidential Filing of Draft Registration Statement for IPO of Changyou.com*

Sohu also announced today that it plans to submit on a confidential basis to the U.S. Securities and Exchange Commission (the "SEC") a draft registration statement for a possible initial public offering (or "IPO") of American Depositary Shares (or "ADSs") representing ordinary shares of Changyou.com Limited (or "Changyou"), a recently-organized Cayman Islands company that is the Company's online games business subsidiary. The number and dollar amount of ADSs proposed to be offered and sold have not yet been determined.

Sohu's and Changyou's purposes for conducting the IPO, if commenced, include allowing Sohu to focus principally on its core online media, communications, search, and mobile value-added services businesses, and providing Changyou a sharper focus on the online games business and related strategic opportunities, with Sohu remaining Changyou's majority shareholder.

The IPO is expected to commence as market conditions permit, and is subject to Changyou's filing with the SEC a registration statement on Form F-1 in compliance with the U.S. Securities Act of 1933, as amended (or the "Securities Act"), and the SEC's declaring such registration statement effective.

*This announcement is being made pursuant to and in accordance with Rule 135 under the Securities Act. As required by Rule 135, this announcement is not intended to, and does not, constitute an offer of any securities for sale.

Non-GAAP Disclosure

To supplement the unaudited consolidated financial statements presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), Sohu's management uses non-GAAP measures of cost of revenues, operating expenses, net income and net income per share, which are adjusted from results based on GAAP to exclude the compensation cost of share-based awards granted to employees under Statement of Financial Accounting Standard 123R. 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 the share-based compensation expense from its non-GAAP financial measure is useful for itself and investors. Further, the amount of share-based compensation expense cannot be anticipated by management and business line leaders and these expenses were not built into the annual budgets and quarterly forecasts, which have been the basis for information Sohu provides to analysts and investors as guidance for future operating performance. As share-based compensation expense does not involve any upfront or subsequent cash outflow, Sohu does not factor this in when evaluating and approving expenditures or when determining the allocation of its resources to its business segments. As a result, the monthly financial results for internal reporting and any performance measure for commission and bonus are based on non-GAAP financial measures that exclude share-based compensation expense.

The non-GAAP financial measures are provided to enhance the investors' overall understanding of Sohu's current financial performance and prospects for the future. A limitation of using non-GAAP cost of revenues, operating expenses, net income and net income per share, excluding share-based compensation expenses is that the share-based compensation charge has been and will continue to be a significant recurring expense in our business for the foreseeable future. In order to mitigate these limitations we have provided specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables include details on the reconciliation between GAAP financial measures that are most directly comparable to the non-GAAP financial measures we have presented.

Notes to Financial Information

Financial information in this press release other than the information indicated as being non-GAAP is extracted from Sohu's unaudited financial statements prepared in accordance with generally accepted accounting principles in the United States.

On June 20, 2006, Sohu discontinued its own e-commerce platform of physical consumer goods. While processing the disposal of its e-commerce business, Sohu is reporting the related business activities as discontinued operations. Sohu's income statement separates out discontinued operations for both current and prior periods in order to focus on continuing operations and provide a consistent basis for comparing financial performance over time.

Safe Harbor Statement

This announcement contains forward-looking statements. It is currently expected 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 our 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, the uncertain regulatory landscape in the People's Republic of China, fluctuations in Sohu's quarterly operating results, Sohu's historical and possible future losses and limited operating history, and the company's reliance on online advertising sales, online games and wireless services (most wireless revenues are collected from a few mobile network operators) for its revenues. Further information regarding these and other risks is included in Sohu's annual report on Form 10-K for the year ended December 31, 2007, and other filings with the Securities and Exchange Commission.

Source:Xinhua