Sohu.com Reports First Quarter 2020 Unaudited Financial Results

BEIJING, May 18, 2020 /PRNewswire/ -- Sohu.com Limited (NASDAQ: SOHU), China's leading online media, video, search and gaming business group, today reported unaudited financial results for the first quarter ended March 31, 2020.

First Quarter Highlights([1])

    --  Total revenues were US$436 million([2]), up 6% year-over-year and down
        11% quarter-over-quarter.
    --  Brand advertising revenues were US$26 million, down 40% year-over-year
        and 39% quarter-over-quarter.
    --  Search and search related advertising revenues([3]) were US$238 million,
        up 1% year-over-year and down 13% quarter-over-quarter.
    --  Online game revenues were US$133 million, up 35% year-over-year and 1%
        quarter-over-quarter.
    --  GAAP net loss attributable to Sohu.com Limited was US$20 million,
        compared with a net loss of US$54 million in the first quarter of 2019
        and a net loss of US$18 million in the fourth quarter of 2019.
    --  Non-GAAP net loss attributable to Sohu.com Limited was US$18 million,
        compared with a net loss of US$52 million in the first quarter of 2019
        and net income of US$7 million in the fourth quarter of 2019.
    --  Excluding the profit/loss generated by Sogou, non-GAAP net loss
        attributable to Sohu.com Limited was US$8 million, compared with a net
        loss of US$51 million in the first quarter of 2019 and a net loss of
        US$6 million in the fourth quarter of 2019.

Dr. Charles Zhang, Chairman and CEO of Sohu.com Limited, commented, "During the first quarter of 2020, the COVID-19 outbreak inevitably impacted the overall economy and the advertising industry as well. Facing these challenges, we continued to explore new opportunities and differentiated development strategies. For Sohu Media Portal, as a mainstream media platform, we continued to refine the product to generate and distribute a large amount of timely and accurate information, especially regarding the pandemic and its prevention. For Sohu Video, we proactively explored new opportunities in the live broadcasting of medical and health-related content, and provided unique content and valuable information to our audiences. We will continue to explore diversified revenue sources and ways to further narrow losses. For Changyou, online games performed well during the first quarter, mainly driven by the solid performance of both TLBB PC and Legacy TLBB Mobile. The privatization of Changyou was completed on April 17th, after which Changyou's profit will be wholly attributable to Sohu.com Limited. Going forward, we plan to increase the integration of resources and combine Changyou onto Sohu's platforms. For Sogou, despite the challenging environment during COVID-19, Sogou's core Search business continued to outperform the industry. The Search and Mobile Keyboard recorded new highs in terms of traffic and user base, respectively."


                        [1] As Changyou's cinema advertising business
                         ceased operations during the third quarter of
                         2019, its results of operations have been
                         excluded from the Company's results from
                         continuing operations in the condensed
                         consolidated statements of operations and are
                         presented in separate line items as
                         discontinued operations. Retrospective
                         adjustments to the historical statements have
                         been made in order to provide a consistent
                         basis of comparison. Unless indicated
                         otherwise, results presented in this release
                         are related to continuing operations only, and
                         exclude results from the cinema advertising
                         business.


                        [2] On a constant currency (non-GAAP) basis,
                         if the exchange rate in the first quarter of
                         2020 had been the same as it was in the first
                         quarter of 2019, or RMB6.74=US$1.00, US$ total
                         revenues in the first quarter of 2020 would
                         have been US$451 million, or US$15 million
                         more than GAAP total revenues, and up 10%
                         year-over-year.


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

First Quarter Financial Results

Revenues

Total revenues for the first quarter of 2020 were US$436 million, up 6% year-over-year and down 11% quarter-over-quarter.

Total online advertising revenues, which include revenues from the brand advertising and search and search-related advertising businesses, for the first quarter of 2020 were US$263 million, down 5% year-over-year and 17% quarter-over-quarter.

Brand advertising revenues for the first quarter of 2020 totaled US$26 million, down 40% year-over-year and 39% quarter-over-quarter. The decrease was mainly due to seasonality and the negative impact on the brand advertising industry from the outbreak of the COVID-19.

Search and search-related advertising revenues for the first quarter of 2020 were US$238 million, up 1% year-over-year and down 13% quarter-over-quarter.

Online game revenues for the first quarter of 2020 were US$133 million, up 35% year-over-year and 1% quarter-over-quarter. The year-over-year increase was mainly due to the contribution of TLBB Honor, as well as improved performance of some of Changyou's older games, including TLBB PC and Legacy TLBB Mobile, as a result of content updates and promotional activities, and higher player engagement during the quarter.

Gross Margin

Both GAAP and non-GAAP([4]) gross margin was 37% for the first quarter of 2020, compared with 41% in the first quarter of 2019 and 52% in the fourth quarter of 2019.

Both GAAP and non-GAAP gross margin for the online advertising business for the first quarter of 2020 was 10%, compared with 23% in the first quarter of 2019 and 39% in the fourth quarter of 2019.

Both GAAP and non-GAAP gross margin for the brand advertising business in the first quarter of 2020 was nil, compared with 20% in the first quarter of 2019 and 31% in the fourth quarter of 2019. The margin decrease was mainly due to decreased revenues as a result of the outbreak of the COVID-19.

GAAP gross margin for the search and search-related advertising business in the first quarter of 2020 was 11%, compared with 24% in the first quarter of 2019 and 40% in the fourth quarter of 2019. Non-GAAP gross margin for the search and search-related advertising business in the first quarter of 2020 was 11%, compared with 24% in the first quarter of 2019 and 41% in the fourth quarter of 2019. The year-over-year and quarter-over-quarter decreases primarily resulted from increases in traffic acquisition cost as a percentage of search and search-related advertising revenues.

Both GAAP and non-GAAP gross margin for online games in the first quarter of 2020 was 79%, compared with 86% in the first quarter of 2019 and 75% in the fourth quarter of 2019. The year-over-year decrease in gross margin was mainly due to an increase in revenue-sharing payments related to TLBB Honor.


                            [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; a one-time impairment
                             charge recognized for an investment
                             unrelated to the Company's core
                             businesses; 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 first quarter of 2020, GAAP operating expenses totaled US$186 million, down 12% both year-over-year and quarter-over-quarter. Non-GAAP operating expenses were US$182 million, down 13% year-over-year and 11% quarter-over-quarter. The year-over-year decrease in operating expenses was mainly due to decreased marketing expenses for Sohu ex Sogou and Changyou, partially offset by promotional spending by Changyou for TLBB Honor. The quarter-over-quarter decrease was mainly due to decreased marketing expenses.

Operating Profit/(Loss)

GAAP operating loss for the first quarter of 2020 was US$24 million, compared with an operating loss of US$42 million in the first quarter of 2019 and an operating profit of US$42 million in the fourth quarter of 2019.

Non-GAAP operating loss for the first quarter of 2020 was US$20 million, compared with an operating loss of US$39 million in the first quarter of 2019 and an operating profit of US$49 million in the fourth quarter of 2019.

Income Tax Expense

GAAP income tax expense was US$14 million for the first quarter of 2020, compared with income tax expense of US$11 million in the first quarter of 2019 and income tax benefit of US$1 million in the fourth quarter of 2019. Non-GAAP income tax expense was US$11 million for the first quarter of 2020, compared with income tax expense of US$9 million in the first quarter of 2019 and income tax benefit of US$4 million in the fourth quarter of 2019.

The income tax benefit in the fourth quarter of 2019 included a one-time tax benefit of US$19 million that was recognized as a result of some of Changyou's subsidiaries having been granted preferential tax rates upon their receipt of 2018 Key National Software Enterprise status or 2018 Software Enterprise status.

Net Income/(Loss)

GAAP net loss attributable to Sohu.com Limited for the first quarter of 2020 was US$20 million, or US$0.52 loss per fully-diluted ADS, compared with a net loss of US$54 million in the first quarter of 2019 and a net loss of US$18 million in the fourth quarter of 2019. Non-GAAP net loss attributable to Sohu.com Limited for the first quarter of 2020 was US$18 million, or a net loss of US$0.47 per fully-diluted ADS, compared with a net loss of US$52 million in the first quarter of 2019 and a net income of US$7 million in the fourth quarter of 2019.

Liquidity

As of March 31, 2020, cash and cash equivalents and short-term investments held by the Sohu Group, minus short-term bank loans, were US$1.53 billion, compared with US$1.51 billion as of December 31, 2019.

Completion of Changyou Privatization

The previously-announced planned privatization of Changyou was completed on April 17, 2020. After the effectiveness of the transaction, Changyou's net income/loss will be wholly attributable to Sohu.com Limited. Following completion of the privatization, Changyou changed its policy for its PRC subsidiaries with respect to distribution of cash dividends. As a result, it is expected that Changyou will recognize an additional accrual of withholding income tax of US$88 million for the second quarter of 2020.

Supplementary Information for Changyou Results

First Quarter 2020 Operational Results

    --  For PC games, total average monthly active accounts([5]) were 2.1
        million, an increase of 11% year-over-year and a decrease of 5%
        quarter-over-quarter. Total quarterly aggregate active paying
        accounts([6]) were 1.0 million, an increase of 11% year-over-year and
        flat quarter-over-quarter. The year-over-year increases were due to
        improved performance of some of the older games, including TLBB PC, as a
        result of content updates and promotional activities, and higher player
        engagement resulting from the COVID-19 lockdown during the quarter.
    --  For mobile games, total average monthly active accounts were 3.4
        million, an increase of 26% year-over-year and a decrease of 8%
        quarter-over-quarter. The year-over-year and quarter-over-quarter
        changes were mainly due to TLBB Honor, which was launched during the
        third quarter of 2019. Total quarterly aggregate active paying accounts
        were 1.0 million, an increase of 67% year-over-year and a decrease of 9%
        quarter-over-quarter. The year-over-year increase was mainly due to the
        contribution of TLBB Honor. The quarter-over-quarter decrease reflected
        the natural declining life cycles of the older games, including Legacy
        TLBB Mobile.

                            [5] Monthly active accounts
                             refers to the number of
                             registered accounts that are
                             logged in to these games at
                             least once during the month.


                            [6] Quarterly aggregate active
                             paying accounts refers to the
                             number of accounts from which
                             game points are utilized at
                             least once during the
                             quarter.

First Quarter 2020 Unaudited Financial Results

Total revenues for the first quarter of 2020 were US$136 million, an increase of 32% year-over-year and 1% quarter-over-quarter. Online game revenues were US$133 million, an increase of 35% year-over-year and 1% quarter-over-quarter. Online advertising revenues were US$3 million, a decrease of 19% year-over-year and 21% quarter-over-quarter.

GAAP and non-GAAP gross profit for the first quarter of 2020 were both US$107 million, an increase of 23% year-over-year and 6% quarter-over-quarter.

GAAP operating expenses for the first quarter were US$54 million, an increase of 32% year-over-year and 1% quarter-over-quarter. The year-over-year increase in operating expenses was mainly due to an increase in marketing and promotional spending for TLBB Honor, as well as an increase in share-based compensation expenses as new share-based awards took effect in the fourth quarter of 2019.

Non-GAAP operating expenses for the first quarter were US$51 million, an increase of 23% year-over-year and flat quarter-over-quarter.

GAAP operating profit for the first quarter of 2020 was US$52 million, compared with an operating profit of US$45 million in the first quarter of 2019 and US$47 million in the fourth quarter of 2019.

Non-GAAP operating profit for the first quarter of 2020 was US$56 million, compared with a non-GAAP operating profit of US$45 million in the first quarter of 2019 and US$50 million in the fourth quarter of 2019.

Business Outlook

For the second quarter of 2020, Sohu estimates:

    --  Total revenues to be between US$410 million and US$445 million.
    --  Brand advertising revenues to be between US$32 million and US$37
        million; this implies an annual decrease of 16% to 27% and a sequential
        increase of 25% to 45%.
    --  Sogou revenues to be between US$260 million and US$280 million; this
        implies an annual decrease of 8% to 14% and a sequential increase of 1%
        to 9%.
    --  Online game revenues to be between US$102 million and US$112 million;
        this implies an annual increase of nil to 10% and a sequential decrease
        of 16% to 24%.
    --  Excluding the expected accrual during the second quarter of withholding
        income tax of approximately US$88 million discussed above, non-GAAP net
        income/loss attributable to Sohu.com Limited to be between a net loss of
        US$5 million and a net income of US$5 million, and non-GAAP income/loss
        per fully-diluted ADS to be between a net loss of US$0.13 per
        fully-diluted ADS and a net income of US$0.13 per fully-diluted ADS;
        excluding the expected accrual of withholding income tax, GAAP net loss
        attributable to Sohu.com Limited to be between nil and US$10 million,
        and GAAP loss per fully-diluted ADS to be between nil and US$0.25.
    --  Excluding the profit/loss generated by Sogou, and further excluding the
        expected accrual of withholding income tax, non-GAAP net income
        attributable to Sohu.com Limited to be between nil and US$10 million;
        and GAAP net income/loss attributable to Sohu.com Limited to be between
        a net loss of US$4 million and a net income of US$6 million.

For the second quarter 2020 guidance, the Company has adopted a presumed exchange rate of RMB7.07=US$1.00, as compared with the actual exchange rate of approximately RMB6.81=US$1.00 for the second quarter of 2019, and RMB6.97=US$1.00 for the first quarter of 2020.

This forecast reflects Sohu's management's current and preliminary view, which is subject to substantial uncertainty, particularly in view of the potential ongoing impact of the COVID-19 virus, which remains difficult to predict.

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 ADS, 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; a one-time impairment charge recognized for an investment unrelated to the Company's core businesses; 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. 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; the one-time impairment charge recognized for an investment unrelated to the Company's core businesses; 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; the one-time impairment charge recognized for an investment unrelated to the Company's core businesses; 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, the one-time impairment charge recognized for an investment unrelated to the Company's core businesses, 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, a one-time impairment charge recognized for an investment unrelated to the Company's core businesses, 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 ADS, 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 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; 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; the impact of the U.S. TCJA; and the effects of the COVID-19 virus on the economy in China in general and on Sohu's business in particular. Further information regarding these and other risks is included in Sohu's annual report on Form 20-F for the year ended December 31, 2019, and other filings with the Securities and Exchange Commission.

Conference Call and Webcast

Sohu's management team will host a conference call at 7:30 a.m. U.S. Eastern Time, May 18, 2020 (7:30 p.m. Beijing/Hong Kong time, May 18, 2020) following the quarterly results announcement.

Participants can register for the conference call by navigating to https://apac.directeventreg.com/registration/event/5796408. Once preregistration has been completed, participants will receive dial-in numbers, an event passcode, and a unique registrant ID.

To join the conference, please dial the number you receive, enter the event passcode followed by your unique registrant ID, and you will be joined to the conference instantly. Please dial in 10 minutes before the call is scheduled to begin.

A telephone replay of the call will be available after the conclusion of the conference call at 10:30 a.m. Eastern Time on May 18 through May 25, 2020. The dial-in details for the telephone replay are:



              International:                      +1-646-254-3697



              Passcode:                                   5796408

The live Webcast and archive of the conference call will be available on the Investor Relations section of Sohu's Website at http://investors.sohu.com/.

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 www.sohu.com; interactive search engine www.sogou.com; developer and operator of online games www.changyou.com/en/ and 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 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 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, established by Dr. Charles Zhang, one of China's internet pioneers, is in its twenty-fourth year of operation.

For investor and media inquiries, please contact:

In China:



              Ms. Pu Huang



              Sohu.com Limited



              Tel:                          
              +86 (10) 6272-6645


               E-mail:    
              
                ir@contact.sohu.com

In the United States:




     Ms. Linda Bergkamp



     Christensen



     Tel:                                
              +1 (480) 614-3004


      E-mail:    
           
     lbergkamp@christensenir.com



                                                                                                                                              
              
                SOHU.COM LIMITED


                                                                                                                               
              
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                                                                             
              
                (UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)




                                                                                                                                                                                                                                          
              
                Three Months Ended



                                                                                                                                                                  Mar. 31
                , 20                                                Dec. 31
                , 20                       Mar. 31
           , 20
                                                                                                                                                                              20                                                                       19                                         19




              Revenues:



              Online advertising



                      Brand advertising                                                                                                                                                     $
              25,580                                                       $
              41,599                        $
           42,981



                      Search and search-related advertising                                                                                                                                          237,589                                                                  274,590                                234,130




                           Subtotal                                                                                                                                                                  263,169                                                                  316,189                                277,111




              Online games                                                                                                                                                                           133,360                                                                  131,689                                 99,054



              Others                                                                                                                                                                                  39,471                                                                   41,769                                 35,106




                                 Total revenues                                                                                                                                                      436,000                                                                  489,647                                411,271






              Cost of revenues:



              Online advertising



                     Brand advertising (includes stock-based                                                                                                                                          25,519                                                                   28,677                                 34,305
    compensation expense of $-40, $2, and $38,
    respectively)



              Search and search-related advertising (includes                                                                                                                                        212,210                                                                  163,384                                178,824
    stock-based compensation expense of $77, $256, and
                                                                                                                                                                     $27, respectively)




              Subtotal                                                                                                                                                                               237,729                                                                  192,061                                213,129




              Online games (includes stock-based compensation                                                                                                                                         28,389                                                                   33,181                                 14,362
    expense of $161, $137, and $0, respectively)



              Others                                                                                                                                                                                   8,568                                                                   12,198                                 14,051




                      Total cost of revenues                                                                                                                                                         274,686                                                                  237,440                                241,542






              Gross profit                                                                                                                                                                           161,314                                                                  252,207                                169,729





              Operating expenses:



              Product development (includes stock-based                                                                                                                                              103,412                                                                  105,425                                100,434
    compensation expense of $2,429, $4,594, and $1,019,
    respectively)



              Sales and marketing (includes stock-based                                                                                                                                               62,841                                                                   78,375                                 80,550
    compensation expense of $-415, $797, and $120,
    respectively)



              General and administrative (includes stock-based                                                                                                                                        19,296                                                                   26,901                                 23,088
    compensation expense of $1,561, $1,518, and $911,
    respectively)



              Goodwill impairment and impairment of intangibles                                                                                                                                                                                                                                       7,245
    assets acquired as part of business acquisitions



                     Total operating expenses                                                                                                                                                        185,549                                                                  210,701                                211,317






              Operating profit/(loss)                                                                                                                                                               (24,235)                                                                  41,506                               (41,588)





              Other  income/(expense) , net                                                                                                                                        10,645                                                   
              (13,787)[7]                                    14,219



              Interest income                                                                                                                                                                          2,126                                                                    1,508                                  3,793



              Interest expense                                                                                                                                                                       (2,275)                                                                 (2,501)                               (5,501)



              Exchange difference                                                                                                                                                                      2,225                                                                  (2,324)                               (2,662)




              Income/(loss) before income tax expense/(benefit)                                                                                                                                     (11,514)                                                                  24,402                               (31,739)


                                                                                                                                                                                                       13,600                                                                    (954)                                11,178


              Income tax expense/(benefit)




              Net income/(loss) from continuing operations                                                                                                                                          (25,114)                                                                  25,356                               (42,917)




              Net loss from discontinued operations, net of tax                                                                                                                                                                                                                                     (4,255)



              Net income/(loss)                                                                                                                                                                     (25,114)                                                                  25,356                               (47,172)





              Less: Net income/(loss) from continuing operations                                                                                                                                     (5,008)                                                                  42,451                                 10,644
    attributable to the noncontrolling interest shareholders



              Less: Net loss from discontinued operations                                                                                                                                                                                                                                           (1,387)
    attributable to the noncontrolling interest shareholders






              Net loss from continuing operations attributable to                                                                                                                                   (20,106)                                                                (17,095)                              (53,561)
    Sohu.com Limited



              Net loss from discontinued operations attributable to                                                                                                                                                                                                                                 (2,868)
    Sohu.com Limited




              Net loss attributable to Sohu.com Limited                                                                                                                                             (20,106)                                                                (17,095)                              (56,429)






              Basic net loss from continuing operations per ADS                                                                                                                                       (0.51)                                                                  (0.44)                                (1.37)
    attributable to Sohu.com Limited




              Basic net loss from discontinued operations per ADS                                                                                                                                                                                                                                    (0.07)
    attributable to Sohu.com Limited




              Basic net loss per ADS attributable to Sohu.com Limited                                                                                                                       $
              (0.51)                                                      $
              (0.44)                       $
           (1.44)




              ADS used in computing basic net loss per ADS attributable                                                                                                                               39,270                                                                   39,263                                 39,236
    to Sohu.com Limited






              Diluted net loss from continuing operations per ADS                                                                                                                                     (0.52)                                                                  (0.45)                                (1.37)
    attributable to Sohu.com Limited




              Diluted net loss from discontinued operations per ADS                                                                                                                                                                                                                                  (0.07)
    attributable to Sohu.com Limited




              Diluted net loss per ADS attributable to Sohu.com Limited                                                                                                                     $
              (0.52)                                                      $
              (0.45)                       $
           (1.44)




              ADS used in computing diluted net loss  per ADS                                                                                                                                         39,270                                                                   39,263                                 39,236
    attributable to Sohu.com Limited





                            [7] Other expenses in the fourth quarter of 2019 mainly included an impairment charge of approximately US$23 million recognized for the quarter for an investment unrelated to the Company' core businesses, and an impairment loss of approximately US$9
                             million on certain Sogou equity investments.


                                                              
       
                SOHU.COM LIMITED


                                                          
       
         CONDENSED CONSOLIDATED BALANCE SHEETS


                                                            
       
             (UNAUDITED, IN THOUSANDS)




                                                                            
              
                As of Mar. 31, 2020                  
     
     As of Dec. 31, 2019




     
                ASSETS



     Current assets:



                Cash and cash equivalents                                                                                $
         571,662                           $
         305,126



     Restricted cash                                                                                                            8,592                                    8,661



     Short-term investments                                                                                                 1,039,818                                1,316,833



                Account and financing receivables, net                                                                        231,862                                  260,716



                Prepaid and other current assets                                                                              130,210                                  124,332



                          Total current assets                                                                              1,982,144                                2,015,668




     Long-term investments, net                                                                                               103,895                                   94,332



     Fixed assets, net                                                                                                        426,632                                  447,688



     Goodwill                                                                                                                  53,168                                   52,923



     Intangible assets, net                                                                                                    10,307                                   11,437



     Restricted time deposits                                                                                                                               240



     Prepaid non-current assets                                                                                                 1,622                                    1,882



     Other assets                                                                                                              62,498                                   65,620



                              Total assets                                                                             $
         2,640,266                         $
         2,689,790






     
                LIABILITIES



     Current liabilities:



                Accounts payable                                                                                         $
         321,993                           $
         253,403



                Accrued liabilities                                                                                           244,845                                  249,810



                Receipts in advance and deferred revenue                                                                      113,496                                  118,222



                Accrued salary and benefits                                                                                    90,730                                  110,833



                Taxes payable                                                                                                  93,859                                  102,686



                Short-term bank loans                                                                                          84,540                                  114,528



                Other short-term liabilities                                                                                  145,700                                  149,311



                          Total current liabilities                                                                    $
         1,095,163                         $
         1,098,793






     Long-term accounts payable                                                                                                   755                                      767



     Long-term tax liabilities                                                                                                281,677                                  277,544



     Other long-term liabilities                                                                                                4,321                                    5,769



     Total long-term liabilities                                                                                         $
         286,753                           $
         284,080




                              Total liabilities                                                                        $
         1,381,916                         $
         1,382,873






     
                SHAREHOLDERS' EQUITY:



               Sohu.com Limited shareholders' equity                                                                          403,122                                  428,454



               Noncontrolling interest                                                                                        855,228                                  878,463



                          Total shareholders' equity                                                                   $
         1,258,350                         $
         1,306,917






     Total liabilities and shareholders' equity                                                                        $
         2,640,266                         $
         2,689,790


                                                                                                                                                                                                                                 
              
                SOHU.COM LIMITED


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


                                                                                                                                                                                                                
              
                (UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)




                                                                                                                                     Three Months Ended Mar
                . 31                                                                      Three Months Ended Dec
                . 31                                                                  Three Months Ended 
           Mar. 31
                                                                                                                                                          , 2020                                                                                                           , 2019                                                                                                 , 2019



                                                                                                   GAAP                          
              
                Non-GAAP                                  Non-GAAP                                                GAAP                          
              
                Non-GAAP                                     Non-GAAP                           GAAP                       
        
              Non-GAAP                                  Non-GAAP
                                                                                                                                           Adjustments                                                                                                                                             Adjustments                                                                                                                  Adjustments





                                                                                                                                                             (40)   
              (a)                                                                                                                                      2    
             (a)                                                                                                         38    
            (a)




              Brand advertising gross profit                                                                   $
              61                                          $
              (40)                           $
              21                                     $
              12,922                                            $
              2                             $
         12,924                    $
            8,676                                  $
              38                           $
             8,714




              Brand advertising gross                                                               0%                                                                                                  0%                                                 31%                                                                                                    31%                            20%                                                                                      20%
    margin



                                                                                                                                                               77    
              (a)                                                                                                                                    256    
             (a)                                                                                                         27    
            (a)




              Search and search-related                                                                    $
              25,379                                            $
              77                        $
              25,456                                    $
              111,206                                          $
              256                            $
         111,462                   $
            55,306                                  $
              27                          $
             55,333
    advertising gross profit




              Search and search-related                                                            11%                                                                                                 11%                                                 40%                                                                                                    41%                            24%                                                                                      24%
    advertising gross margin





                                                                                                                                                               37    
              (a)                                                                                                                                    258    
             (a)                                                                                                         65    
            (a)




              Online advertising gross profit                                                              $
              25,440                                            $
              37                        $
              25,477                                    $
              124,128                                          $
              258                            $
         124,386                   $
            63,982                                  $
              65                          $
             64,047




              Online advertising gross                                                             10%                                                                                                 10%                                                 39%                                                                                                    39%                            23%                                                                                      23%
    margin





                                                                                                                                                              161    
              (a)                                                                                                                                    137    
             (a)                                                                                                              
            (a)




              Online games gross profit                                                                   $
              104,971                                           $
              161                       $
              105,132                                     $
              98,508                                          $
              137                             $
         98,645                   $
            84,692                
              $                                             $
             84,692




              Online games gross margin                                                            79%                                                                                                 79%                                                 75%                                                                                                    75%                            86%                                                                                      86%








              Others gross profit                                                                          $
              30,903                        
              $                         
     (a)               $
              30,903                                     $
              29,571                        
              $                       
     (a)                     $
         29,571                   $
            21,055                
              $                       
     (a)                 $
             21,055




              Others gross margin                                                                  78%                                                                                                 78%                                                 71%                                                                                                    71%                            60%                                                                                      60%







                                                                                                                                                              198    
              (a)                                                                                                                                    395    
             (a)                                                                                                         65    
            (a)




              Gross profit                                                                                $
              161,314                                           $
              198                       $
              161,512                                    $
              252,207                                          $
              395                            $
         252,602                  $
            169,729                                  $
              65                         $
             169,794




              Gross margin                                                                         37%                                                                                                 37%                                                 52%                                                                                                    52%                            41%                                                                                      41%








              Operating expenses                                                                          $
              185,549                                       $
              (3,575)   
     (a)              $
              181,974                                    $
              210,701                                       $
             (6,909)  
     (a)                    $
         203,792                  $
            211,317                               $
            (2,050)   
     (a)                $
             209,267







                                                                                                                                                            3,773    
              (a)                                                                                                                                  7,304    
             (a)                                                                                                      2,115    
            (a)




              Operating profit/(loss)                                                                    $
              (24,235)                                        $
              3,773                      $
              (20,462)                                    $
              41,506                                         $
             7,304                             $
         48,810                 $
            (41,588)                                $
            2,115                        $
             (39,473)




              Operating margin                                                                     -6%                                                                                                 -5%                                                  8%                                                                                                    10%                           -10%                                                                                     -10%










              Income tax expense                                                                         $
              (13,600)                                        $
              2,195    
     (c,d)           $
              (11,405)                                       $
              954                                         $
             2,737   
     (c,d)                    $
         3,691                 $
            (11,178)                                $
            1,778                         $
             (9,400)











                                                                                                                                                            3,773    
              (a)                                                                                                                                  7,304    
             (a)                                                                                                      2,115    
            (a)


                                                                                                                                                            (855)   
              (c)                                                                                                                                (2,490)   
             (c)                                                                                                      (744)   
            (c)


                                                                                                                                                            1,910    
              (d)                                                                                                                                  1,907    
             (d)                                                                                                      1,531    
            (d)


                                                                                                                                                                                                                                                                                                                   23,154    
             (e)




              Net income/(loss) before non-                                                              $
              (25,114)                                                    4,828                                  (20,286)                                    $
              25,356                                                   29,875                                    55,231                 $
            (42,917)                                $
            2,902                        $
             (40,015)
    controlling interest







                                                                                                                                                            3,773    
              (a)                                                                                                                                  7,304    
             (a)                                                                                                      2,115    
            (a)


                                                                                                                                                          (2,761)   
              (b)                                                                                                                                (5,416)   
             (b)                                                                                                      (798)   
            (b)


                                                                                                                                                            (855)   
              (c)                                                                                                                                (2,490)   
             (c)                                                                                                      (744)   
            (c)


                                                                                                                                                            1,910    
              (d)                                                                                                                                  1,907    
             (d)                                                                                                      1,531    
            (d)


                                                                                                                                                                                                                                                                                                                   23,154    
             (e)




              Net income/(loss) from                                                                     $
              (20,441)                                                    2,067                                  (18,374)                                  $
              (17,613)                                                  24,459                                     6,846                 $
            (53,808)                                $
            2,104                                   (51,704)
    continuing operations
    attributable to Sohu.com
    Limited for diluted net loss
    per ADS




              Net loss from discontinued                                                                                                                                                                                                                                                                                                                                                     (2,842)                                                                                  (2,842)
    operations attributable to
    Sohu.com Limited for diluted
    net loss per ADS




              Net income/(loss) attributable                                                                       (20,441)                                                    2,067                                  (18,374)                                              (17,613)                                                  24,459                                     6,846                           (56,650)                                          2,104                                   (54,546)
    to Sohu.com Limited for
    diluted net loss per ADS




              
                Diluted net income/(loss)                                                       $
              (0.52)                                                                                            (0.47)                                    $
              (0.45)                                                                                             0.17                   $
            (1.37)                                                                                   (1.32)
    from continuing operations per
    ADS attributable to Sohu.com
    Limited




              
                Diluted net loss from                                                                                                                                                                                                                                                                                                                                              (0.07)                                                                                   (0.07)
    discontinued operations per
    ADS attributable to Sohu.com
    Limited




              
                Diluted net income/(loss) per                                        (0.52)                                                                                              (0.47)                                              (0.45)                                                                                                   0.17                          (1.44)                                                                                   (1.39)
    ADS attributable to Sohu.com
    Limited




              Shares used in computing                                                          39,270                                                                                               39,270                                               39,263                                                                                                  39,396                          39,236                                                                                    39,236
    diluted net loss per ADS
    attributable to Sohu.com
    Limited








              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.



              (e) To adjust for a one-time impairment charge recognized for an investment unrelated to the Company's core businesses

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