Second Quarter 2008 Total Revenues Reach US$102.0 million, Exceeding High End of Company Guidance by US$6.0 million, Up 162% Year-on-Year and 20% Quarter-on-Quarter; Second Quarter 2008 Non-GAAP Fully Diluted EPS of US$1.07, Exceeding High End of Company Guidance by 32 US Cents, up 417% Year-on-Year and 68% Quarter-on-Quarter.

Sohu.com Inc., China's leading online media, communications, search, online games and mobile value-added services company, today reported unaudited financial results for the second quarter ended June 30, 2008.
Second Quarter Highlights

-- Record high total revenues and record high for each revenue category: brand advertising, advertising, online games, and non-advertising revenues as well as net income. All such operating parameters exceed company guidance.

-- Brand advertising revenues of US$41.7 million, up 57% year-on-year and 26% quarter-on-quarter, beating high-end of company guidance by US$2.2 million.

-- Advertising revenues of US$43.4 million, up 53% year-on-year and 25% quarter-on-quarter.

-- Online games revenues of US$47.9 million, up 11.5 times year-on-year and 17% quarter-on-quarter. In-house developed massive multiplayer online role-playing game Tian Long Ba Bu ("TLBB") revenue up 17% quarter-on-quarter to US$45.5 million.

-- Non-advertising revenues of US$58.6 million, up 452% year-on-year and 17% quarter-on-quarter.

-- Total revenues of US$102.0 million, up 162% year-on-year and 20% quarter-on-quarter, exceeding the high end of company guidance by US$6.0 million.

-- Non-GAAP net income (i.e. excluding share-based compensation expenses) of US$42.3 million or US$1.07 per fully diluted share, exceeding the high end of company guidance by 32 US cents. Non-GAAP net income increased by 423% year-on-year and 69% quarter-on-quarter.

-- GAAP net income of US$40.2 million or US$1.02 per fully diluted share. GAAP net income increased by 604% year-on-year and 86% quarter-on-quarter.

-- Explanation of the Company's non-GAAP financial measures and the related reconciliations to GAAP financial measures are included in the accompanying "Non-GAAP Disclosure" and "Reconciliations to Unaudited Condensed Consolidated Statements of Operations."

"We are very pleased with our strong performance this quarter," said Dr. Charles Zhang, Chairman and CEO of Sohu.com. "Sohu achieved another milestone in the Company's history with total revenues exceeding $100 million which further demonstrated Sohu's leadership position in the China Internet space, driven by our strong media influence, premier content offerings and increased popularity of our products such as Sohu Blogs and Sogou Pinyin, and the growth of our online games business. We expect that penetration of the Internet in China will be escalated to an even higher level with the Beijing 2008 Olympic Games and that, combined with our technological advancements and portal strength, will help us to continue our success for the remainder of 2008 and beyond."

Ms. Belinda Wang, Co-President and Chief Marketing Officer of Sohu.com, said, "This quarter we continued to experience strong growth in brand advertising revenues. The growing momentum reflects the overall expansion of the China Internet market, increased shift in advertising budgets from offline to online, the robust pace of advertising spending leading up to the Beijing 2008 Olympic Games, as well as our significant traffic increase, which further enhances the overall effectiveness of advertisers' marketing campaigns on the Sohu platform."

Dr. Gong Yu, Chief Operating Officer of Sohu.com, added, "During the second quarter, Sohu continued its strategy of offering high-quality content. These initiatives and improvements all add up to our profound progress in increasing new users and user 'stickiness', which has reinforced Sohu's leading position among China Internet companies. As the Internet Content Sponsor for the Beijing 2008 Olympic Games, Sohu has been well prepared to provide the most comprehensive, authoritative and first-hand coverage of the Olympics and Team China."

Second Quarter Financial Results

Total revenues for the second quarter ended June 30, 2008 were US$102.0 million, compared to revenues of US$84.8 million for the first quarter ended March 31, 2008, and US$39.0 million for the second quarter ended June 30, 2007.

Gross margin of 76% for the second quarter of 2008, was flat with the previous quarter and up from 61% in the same period of 2007. Non-GAAP gross margin was 76% in the second quarter of 2008, flat with the previous quarter and up from 62% in the same period of 2007. The year-on-year gross margin expansion was mainly from the contribution of TLBB.

Net income for the second quarter of 2008 was US$40.2 million or US$1.02 per fully diluted share. Non-GAAP net income for second quarter of 2008 was US$42.3 million or US$1.07 per fully diluted share. This compares to non-GAAP net income of US$25.1 million or US$0.64 per fully diluted share for the first quarter of 2008 and US$8.1 million or US$0.21 per fully diluted share for the second quarter of 2007.

Advertising revenues for the second quarter of 2008 totaled US$43.4 million, a 25% quarter-on-quarter increase and a 53% year-on-year increase. Advertising revenues, consisting of US$41.7 million in brand advertising and US$1.7 million in sponsored search, accounted for 43% of total revenues in the second quarter of 2008. Brand advertising revenues for the second quarter of 2008 increased 26% quarter-on-quarter and 57% year-on-year.

Advertising gross margin for the second quarter of 2008 was 64%, up from 63% in the previous quarter and up from 62% in the second quarter of 2007. Non-GAAP advertising gross margin for the second quarter of 2008 was 65%, up from 64% in the previous quarter and 64% in the second quarter of 2007.

For the second quarter of 2008, Sohu's non-advertising revenues, which are derived mainly from online games and wireless value-added services, were US$58.6 million, representing 57% of total revenues. Online games revenues for second quarter of 2008 were US$47.9 million, increasing 17% quarter-on- quarter and 11.5 times year-on-year, reflecting the growth of TLBB since its commercial launch in May 2007. Wireless revenues were US$9.2 million, increasing 7% quarter-on-quarter and 39% year-on-year. Non-advertising gross margin was 84%, down from 85% in the previous quarter and up from 56% in second quarter of 2007. Non-GAAP non-advertising gross margin was 84%, down from 85% in the previous quarter and up from 56% in second quarter of 2007. The year-on-year increase was mainly due to the contribution of TLBB.

For the second quarter of 2008, Sohu's operating expenses totaled US$37.2 million. Non-GAAP operating expenses totaled US$35.4 million, up 15% from the previous quarter and up 111% year-on-year. The year-on-year increase was primarily due to continued investments in product development, marketing expenses for Sohu branding, as well as an increase in bonuses to reward employees for their contribution to Sohu's good results. The quarter-on- quarter increase was mainly due to Olympic-related marketing spending.

For the second quarter of 2008, income tax expense was US$0.6 million, compared to US$9.2 million for the previous quarter and US$0.2 million for the same period last year.

In the first quarter of 2008, Sohu accounted for its PRC income tax based at a statutory tax rate of 25%. Given Sohu's technological centric business with strong research and development capabilities, in the second quarter, we were informed by the relevant tax bureau that some of our operating entities will be entitled to certain tax holidays and will be subject to 0% income tax rate for full year 2008 and 12.5% for 2009 through 2011. Accordingly, in the second quarter, Sohu adopted a 0% income tax rate for these entities and reversed a US$4.1 million related income tax provision that was made in the first quarter of 2008. We expect our overall effective PRC income tax rate for the rest of 2008 to be in the low teens.

Ms. Carol Yu, Co-President and CFO of Sohu.com, commented, "The second quarter of 2008 marks the fourth consecutive quarter in which we reported record total revenue and record total net income. These set of results speak for themselves about the Company's strategy and management's execution capabilities."