Sohu.com Reports Third Quarter 2020 Unaudited Financial Results

BEIJING, Nov. 16, 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 third quarter ended September 30, 2020.

Third Quarter Highlights

As previously announced, on September 29, 2020, the Company's subsidiary Sogou Inc. ("Sogou") entered into a definitive Agreement and Plan of Merger (the "Sogou Merger Agreement") with THL A21 Limited, TitanSupernova Limited ("Parent"), and Tencent Mobility Limited, each of which is a direct or indirect wholly-owned subsidiary of Tencent, which contemplates that Parent will be merged with and into Sogou in an all-cash transaction (the "Sogou Merger"), and Sogou will become a wholly-owned indirect subsidiary of Tencent. As also previously announced, on September 29, 2020, the Company entered into a Share Purchase Agreement with Parent (the "Share Purchase Agreement"), pursuant to which the Company's wholly-owned subsidiary Sohu.com (Search) Limited ("Sohu Search") agreed to sell all of the Sogou Class A ordinary shares and Sogou Class B ordinary shares owned by it to Parent (the "Share Purchase"), shortly before the effectiveness of the Sogou Merger, at a purchase price of US$9.00 per share, which is equal to the per-share consideration under the Sogou Merger Agreement. In view of the Share Purchase Agreement, the results of operations for Sogou have been excluded from the Company's results from continuing operations in the Company's condensed consolidated statements of operations for the third quarter 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.

    --  Total revenues were US$158 million, down 6% year-over-year and 1%
        quarter-over-quarter.
    --  Brand advertising revenues were US$41 million, down 11% year-over-year
        and up 8% quarter-over-quarter.
    --  Online game revenues were US$101 million, down 6% year-over-year and 4%
        quarter-over-quarter.
    --  GAAP net loss from continuing operations attributable to Sohu.com
        Limited was US$15 million, compared with a net loss of US$33 million in
        the third quarter of 2019 and a net loss of US$77 million in the second
        quarter of 2020.
    --  Non-GAAP net loss from continuing operations attributable to Sohu.com
        Limited was US$7 million, compared with a net loss of US$30 million in
        the third quarter of 2019 and a net loss of US$75 million in the second
        quarter of 2020.

Dr. Charles Zhang, Chairman and CEO of Sohu.com Limited, commented, "In the third quarter of 2020, to further consolidate our core competitiveness and credibility, we continued to optimize our products, refine our technology, enhance the quality of premium content, and improve its distribution. At the same time, we kept exploring creative new and differentiated monetization opportunities. Benefiting from our more mature and sophisticated Sohu Video App and its advanced live broadcasting technology, we successfully hosted several innovative content marketing campaigns that could leverage the broad reach of our product portfolio. We saw positive feedback in terms of user interaction and from advertisers. For this quarter, despite the current challenging macroeconomic environment, our brand advertising revenue reached the high end of our prior guidance and achieved 8% quarter-over-quarter growth. Changyou's online games performed well for the third quarter of 2020, with revenue exceeding the high end of our prior guidance."

Third Quarter Financial Results

Revenues

Total revenues for the third quarter of 2020 were US$158 million, down 6% year-over-year and 1% quarter-over-quarter.

Brand advertising revenues for the third quarter of 2020 totaled US$41 million, down 11% year-over-year and up 8% quarter-over-quarter. The year-over-year decrease was mainly due to the continuous negative impact of the COVID-19 outbreak. The quarter-over-quarter increase was mainly due to increased revenues in the portal and video advertising businesses resulting from continuing efforts to boost revenues.

Online game revenues for the third quarter of 2020 were US$101 million, down 6% year-over-year and 4% quarter-over-quarter. The year-over-year decrease was mainly due to the natural decline in revenue of Legacy TLBB Mobile and TLBB Honor.

Gross Margin

Both GAAP and non-GAAP([1]) gross margin was 66% for the third quarter of 2020, compared with 63% in the third quarter of 2019 and 67% in the second quarter of 2020.

Both GAAP and non-GAAP gross margin for the brand advertising business in the third quarter of 2020 was 31%, compared with 31% in the third quarter of 2019 and 40% in the second quarter of 2020. The quarter-over-quarter margin decrease was mainly due to increased video content cost as a result of resumption of original content shooting with the easing of restrictions related to COVID-19 in China.

GAAP gross margin for online games in the third quarter of 2020 was 80%, compared with 78% in the third quarter of 2019 and 77% in the second quarter of 2020. Non-GAAP gross margin for online games in the third quarter of 2020 was 80%, compared with 78% in the third quarter of 2019 and 78% in the second quarter of 2020.


                        [1] 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; impairment charge
                         recognized for investments unrelated to
                         the Company's core businesses; income/
                         expense from the adjustment of
                         contingent consideration previously
                         recorded for acquisitions; 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 third quarter of 2020, GAAP operating expenses totaled US$115 million, down 7% year-over-year and up 9% quarter-over-quarter. Non-GAAP operating expenses were US$109 million, down 11% year-over-year and up 8% quarter-over-quarter. The change in operating expenses was mainly due to changes in marketing expenses.

Operating Profit/(Loss)

GAAP operating loss for the third quarter of 2020 was US$11 million, compared with an operating loss of US$17 million in the third quarter of 2019 and an operating profit of US$1 million in the second quarter of 2020.

Non-GAAP operating loss for the third quarter of 2020 was US$5 million, compared with an operating loss of US$17 million in the third quarter of 2019 and an operating profit of US$5 million in the second quarter of 2020.

Income Tax Expense

GAAP income tax expense was US$11 million for the third quarter of 2020, compared with income tax expense of US$15 million in the third quarter of 2019 and income tax expense of US$86 million in the second quarter of 2020. Non-GAAP income tax expense was US$10 million for the third quarter of 2020, compared with income tax expense of US$12 million in the third quarter of 2019 and income tax expense of US$83 million in the second quarter of 2020. For the second quarter of 2020, Changyou recognized an additional accrual of withholding income tax of US$88 million, as Changyou changed its policy for its PRC subsidiaries with respect to distribution of cash dividends after the completion of the privatization of Changyou.

Net Loss

GAAP net loss from continuing operations attributable to Sohu.com Limited for the third quarter of 2020 was US$15 million, or a net loss of US$0.39 per fully-diluted ADS, compared with a net loss of US$33 million in the third quarter of 2019 and a net loss of US$77 million in the second quarter of 2020.

Non-GAAP net loss from continuing operations attributable to Sohu.com Limited for the third quarter of 2020 was US$7 million, or a net loss of US$0.17 per fully-diluted ADS, compared with a net loss of US$30 million in the third quarter of 2019 and a net loss of US$75 million in the second quarter of 2020.

Liquidity

As of September 30, 2020, cash and cash equivalents and short-term investments were US$192 million.

Supplementary Information for Changyou Results

Third Quarter 2020 Operational Results

    --  For PC games, total average monthly active accounts([2]) were 2.0
        million, a decrease of 5% year-over-year and an increase of 5%
        quarter-over-quarter. Total quarterly aggregate active paying
        accounts([3]) were 1.0 million, flat year-over-year and an increase of
        11% quarter-over-quarter. The quarter-over-quarter increase was mainly
        due to improved performance of some of Changyou's older games, including
        TLBB PC, as a result of promotional activities.
    --  For mobile games, total average monthly active accounts were 3.8
        million, an increase of 9% year-over-year and 23% quarter-over-quarter.
        The year-over-year and quarter-over-quarter increases were mainly due to
        the launch of Illusion Connect in South Korea in the third quarter of
        2020. Total quarterly aggregate active paying accounts were 0.6 million,
        a decrease of 45% year-over-year and flat quarter-over-quarter. The
        year-over-year decrease reflected the natural declining life cycles of
        Changyou's older games, including Legacy TLBB Mobile and TLBB Honor.

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


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

Third Quarter 2020 Unaudited Financial Results

Total revenues for the third quarter of 2020 were US$104 million, a decrease of 6% year-over-year and 5% quarter-over-quarter. Online game revenues were US$101 million, a decrease of 6% year-over-year and 4% quarter-over-quarter. Online advertising revenues were US$3 million, a decrease of 1% year-over-year and 18% quarter-over-quarter.

GAAP gross profit for the third quarter of 2020 was US$83 million, a decrease of 4% year-over-year and 2% quarter-over-quarter. Non-GAAP gross profit for the third quarter of 2020 was US$83 million, a decrease of 3% year-over-year and 2% quarter-over-quarter.

GAAP operating expenses for the third quarter of 2020 were US$53 million, an increase of 4% year-over-year and quarter-over-quarter.

Non-GAAP operating expenses for the third quarter of 2020 were US$50 million, a decrease of 2% year-over-year and an increase of 4% quarter-over-quarter.

GAAP operating profit for the third quarter of 2020 was US$30 million, compared with an operating profit of US$35 million for the third quarter of 2019 and US$33 million for the second quarter of 2020.

Non-GAAP operating profit for the third quarter of 2020 was US$33 million, compared with a non-GAAP operating profit of US$35 million for the third quarter of 2019 and US$37 million for the second quarter of 2020.

Recent Developments

On September 29, 2020, Sogou entered into the Sogou Merger Agreement, and the Company and Sohu Search entered into the Share Purchase Agreement. The closing of the Share Purchase under the Share Purchase Agreement is expected to take place shortly prior to the completion of the Sogou Merger. If completed, the Share Purchase and the Sogou Merger will result in Sogou becoming a privately-held indirect wholly-owned subsidiary of Tencent, Sohu Search will receive aggregate consideration in the Share Purchase of approximately US$1.18 billion in cash, and Sohu will no longer have any beneficial ownership interest in Sogou.

Business Outlook

For the fourth quarter of 2020, Sohu estimates:

    --  Brand advertising revenues to be between US$37 million and US$42
        million; this implies an annual decrease of 11% to an annual increase of
        1% and a sequential decrease of 10% to a sequential increase of 2%.
    --  Online game revenues to be between US$140 million and US$150 million;
        this implies an annual increase of 6% to 14% and a sequential increase
        of 38% to 48%.
    --  Non-GAAP net income from continuing operations attributable to Sohu.com
        Limited to be between US$15 million and US$25 million; and GAAP net
        income from continuing operations attributable to Sohu.com Limited to be
        between US$10 million and US$20 million.

For the fourth quarter 2020 guidance, the Company has adopted a presumed exchange rate of RMB6.74=US$1.00, as compared with the actual exchange rate of approximately RMB7.03=US$1.00 for the fourth quarter of 2019, and RMB6.92=US$1.00 for the third 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 worldwide COVID-19 pandemic, 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; impairment charge recognized for investments unrelated to the Company's core businesses; income/expense from the adjustment of contingent consideration previously recorded for acquisitions; 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; impairment charge recognized for investments 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 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; impairment charge recognized for investments 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 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, impairment charge recognized for investments unrelated to the Company's core businesses, non-cash tax benefits from excess tax deductions related to share-based awards, and income/expense from the adjustment of contingent consideration previously recorded for acquisitions 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, impairment charge recognized for investments unrelated to the Company's core businesses, non-cash tax benefits from excess tax deductions related to share-based awards, and income/expense from the adjustment of contingent consideration previously recorded for acquisitions, and also excluded the 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, and income/expense from the adjustment of contingent consideration previously recorded for acquisitions, 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, and income/expense from the adjustment of contingent consideration previously recorded for acquisitions may recur in the future. 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; the effects of the COVID-19 virus on the economy in China in general and on Sohu's business in particular; the possibility that the Share Purchase and the Sogou Merger will not occur as planned if events arise that result in the termination of the Share Purchase Agreement and/or the Sogou Merger Agreement, or if one or more of the various closing conditions to the Share Purchase and/or the Sogou Merger are not satisfied or waived, and other risks and uncertainties regarding the Share Purchase Agreement and the Share Purchase, and the Sogou Merger Agreement and the Sogou Merger, that are discussed in the transaction statement on Schedule 13E-3 filed with the SEC on October 28, 2020. 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, November 16, 2020 (8:30 p.m. Beijing/Hong Kong time, November 16, 2020) following the quarterly results announcement. Participants can register for the conference call by navigating to http://apac.directeventreg.com/registration/event/7562279. 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 November 16 through November 25, 2020. The dial-in details for the telephone replay are:



              International:                      +1-646-254-3697



              Passcode:                                   7562279

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



                                                                                                                                                
              
                Sep. 30, 2020                       
     
       Jun. 30, 2020                       
     
     Sep. 30, 2019




              Revenues:



              Brand advertising                                                                                                                                                        $
              41,094                         $
              38,001                     $
           46,366



              Online games                                                                                                                                                                      101,324                                    105,937                             108,012



              Others                                                                                                                                                                             15,476                                     16,023                              13,121



              Total revenues                                                                                                                                                                    157,894                                    159,961                             167,499






              Cost of revenues:



              Brand advertising (includes stock-based                                                                                                                                            28,459                                     22,790                              31,992
    compensation expense of $240, $36, and $4,
    respectively)



              Online games (includes stock-based compensation                                                                                                                                    20,024                                     23,959                              23,286
    expense of $151, $152, and nil, respectively)



              Others                                                                                                                                                                              5,075                                      6,348                               6,746



              Total cost of revenues                                                                                                                                                             53,558                                     53,097                              62,024






              Gross profit                                                                                                                                                                      104,336                                    106,864                             105,475





              Operating expenses:



              Product development (includes stock-based                                                                                                                                          59,532                                     58,325                              55,734
    compensation expense of $2,469, $2,075, and $95,
    respectively)



              Sales and marketing (includes stock-based                                                                                                                                          40,250                                     32,969                              54,261
    compensation expense of $496, $93, and $35,
    respectively)



              General and administrative (includes stock-based                                                                                                                                   15,176                                     14,302                              12,967
    compensation expense of $2,516, $1,606, and $24,
    respectively)



              Total operating expenses                                                                                                                                                          114,958                                    105,596                             122,962






              Operating profit/(loss)                                                                                                                                                          (10,622)                                     1,268                            (17,487)





              Other income, net                                                                                                                                                                   7,859                                     10,720                               9,944



              Interest income                                                                                                                                                                     1,933                                      1,383                               1,166



              Interest expense                                                                                                                                                                  (1,352)                                   (1,431)                            (2,631)



              Exchange difference                                                                                                                                                               (2,043)                                     (171)                              1,516




              Income/(loss) before income tax expense                                                                                                                                           (4,225)                                    11,769                             (7,492)





              Income tax expense[4]                                                                                                                                           11,082                86,166                14,646



              Net loss from continuing operations                                                                                                                                              (15,307)                                  (74,397)                           (22,138)




              Net income/(loss) from discontinued operations, net of                                                                                                                           (42,181)                                   (8,692)                             33,938
    tax[5]




              Net income/(loss)                                                                                                                                                                (57,488)                                  (83,089)                             11,800





              Less: Net income/(loss) from continuing operations                                                                                                                                   (50)                                     2,640                              11,320
    attributable to the noncontrolling interest s
    hareholders




              Less: Net income/(loss) from discontinued                                                                                                                                        (27,874)                                   (5,799)                             23,399
    operations attributable to the noncontrolling
    interest shareholders






              Net loss from continuing operations attributable to                                                                                                                              (15,257)                                  (77,037)                           (33,458)
    Sohu.com Limited




              Net income/(loss) from discontinued operations                                                                                                                                   (14,307)                                   (2,893)                             10,539
    attributable to Sohu.com Limited




              Net loss attributable to Sohu.com Limited                                                                                                                                        (29,564)                                  (79,930)                           (22,919)






              Basic net loss from continuing operations per ADS                                                                                                                        $
              (0.39)                        $
              (1.96)                    $
           (0.85)
    attributable to Sohu.com Limited




              Basic net income/(loss) from discontinued operations                                                                                                                     $
              (0.36)                        $
              (0.07)                      $
           0.27
    per ADS attributable to Sohu.com Limited




              Basic net loss per ADS attributable to Sohu.com                                                                                                                          $
              (0.75)                        $
              (2.04)                    $
           (0.58)
    Limited




              ADS used in computing basic net income/(loss) per                                                                                                                                  39,286                                     39,271                              39,254
    ADS attributable to Sohu.com Limited






              Diluted net loss from continuing operations per ADS                                                                                                                      $
              (0.39)                        $
              (1.96)                    $
           (0.85)
    attributable to Sohu.com Limited




              Diluted net income/(loss) from discontinued                                                                                                                              $
              (0.36)                        $
              (0.07)                      $
           0.26
    operations per ADS attributable to Sohu.com Limited




              Diluted net loss per ADS attributable to Sohu.com                                                                                                                        $
              (0.75)                        $
              (2.04)                    $
           (0.59)
    Limited




              ADS used in computing diluted net income/(loss) per                                                                                                                                39,286                                     39,271                              39,254
    ADS attributable to Sohu.com Limited










              
                [4] Following completion of the Changyou privatization, Changyou changed its policy for its PRC subsidiaries with respect to distribution of cash
    dividends. As a result, Changyou recognized an additional accrual of withholding income tax of US$88 million for the second quarter of 2020.



              
                [5] On September 29, 2020, the Company entered into a Share Purchase Agreement with Tencent's subsidiary TitanSupernova Limited ("Parent"),
    pursuant to which the Company's wholly-owned subsidiary Sohu.com (Search) Limited agreed to sell all of the Sogou Class A ordinary shares and
    Sogou Class B ordinary shares owned by it to Parent at a purchase price of $9.00 per share. In view of the Share Purchase Agreement, the results of
    operations for Sogou have been excluded from the Company's results from continuing operations in the condensed consolidated statements of
    operations for the third quarter 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 are related to
    continuing operations only.


                                                                                                                                      
              
                SOHU.COM LIMITED


                                                                                                                           
              
                CONDENSED CONSOLIDATED BALANCE SHEETS


                                                                                                                                 
              
                (UNAUDITED, IN THOUSANDS)




                                                                                                                                                                   
              
                As of Sep. 30, 2020                  
     
     As of Dec. 31, 2019




              
                ASSETS



              Current assets:



              Cash and cash equivalents                                                                                                                                                                         $
         191,913                           $
         162,662



              Restricted cash                                                                                                                                                                                        111,210                                    3,290



              Short-term investments[6]                                                                                                                                                                                                        321,483



                 Account and financing receivables, net                                                                                                                                                              122,613                                  126,081



              Prepaid and other current assets                                                                                                                                                                       102,619                                   97,531



              
                   Held for sale assets (current)[7]                                                                                                                                                    1,433,171                                1,304,621




              Total current assets                                                                                                                                                                                 1,961,526                                2,015,668




              Long-term investments, net                                                                                                                                                                              35,294                                   30,987



              Fixed assets, net                                                                                                                                                                                      328,390                                  337,682



              Goodwill                                                                                                                                                                                                47,758                                   47,390



              Intangible assets, net                                                                                                                                                                                   5,640                                    9,922



              Restricted time deposits[6]                                                                                                                                                                             97,267                                      240



              Prepaid non-current assets                                                                                                                                                                               1,205                                    1,882



              Other assets                                                                                                                                                                                            34,979                                   30,413



              
                 Held for sale assets (non-current)[7]                                                                                                                                                                              217,680




              Total assets                                                                                                                                                                                    $
         2,512,059                         $
         2,691,864






              
                LIABILITIES



              Current liabilities:



                         Accounts payable                                                                                                                                                                       $
         111,303                           $
         121,318



                         Accrued liabilities                                                                                                                                                                         147,751                                  157,861



                         Receipts in advance and deferred revenue                                                                                                                                                     49,388                                   50,321



                         Accrued salary and benefits                                                                                                                                                                  85,065                                   86,666



                         Taxes payable                                                                                                                                                                                18,618                                   25,997



                         Short-term bank loans                                                                                                                                                                       100,000                                  114,528



                         Other short-term liabilities                                                                                                                                                                113,212                                   91,065



              
                           Held for sale liabilities (current)[7]                                                                                                                                         446,005                                  453,111




              Total current liabilities                                                                                                                                                                       $
         1,071,342                         $
         1,100,867






              Long-term accounts payable                                                                                                                                                                                 785                                      767



              Long-term bank loans                                                                                                                                                                                    92,000                                        0



              Long-term tax liabilities[8]                                                                                                                                                                           387,523                                  277,544



              Other long-term liabilities                                                                                                                                                                                828                                       83



              
                Held for sale liabilities (non-current)[7]                                                                                                                                                                            5,686




              Total long-term liabilities                                                                                                                                                                       $
         481,136                           $
         284,080




                                       Total liabilities                                                                                                                                                      $
         1,552,478                         $
         1,384,947








              
                SHAREHOLDERS' EQUITY:



                        Sohu.com Limited shareholders' equity                                                                                                                                                        283,941                                  428,454



                        Noncontrolling interest                                                                                                                                                                      675,640                                  878,463




                                   Total shareholders' equity                                                                                                                                                   $
         959,581                         $
         1,306,917






              Total liabilities and shareholders' equity                                                                                                                                                      $
         2,512,059                         $
         2,691,864






              
                [6] During the third quarter of 2020, Changyou redeemed its short-term financial products to support the company's operation, partly as the restricted time
    deposits used to secure the offshore bridge loans to repay the previous offshore bank loans related to the Changyou's privatization.



              
                [7] On September 29, 2020, the Company has entered into a Share Purchase Agreement with Tencent's subsidiary TitanSupernova Limited ("Parent"), pursuant
    to which the Company's wholly-owned subsidiary Sohu.com (Search) Limited has agreed to sell all of the Sogou Class A ordinary share and Sogou Class B
    ordinary shares owned by it to Parent at a purchase price of $9.00 per share. Sogou related assets and liabilities were classified as assets/liabilities held for sale.



              
                [8] Following completion of the Changyou privatization, Changyou changed its policy for its PRC subsidiaries with respect to distribution of cash dividends. As
    a result, Changyou recognized an additional accrual of withholding income tax of US$88 million in the second quarter of 2020.


                                                                                                                                                                                                                                                   
              
                SOHU.COM LIMITED


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


                                                                                                                                                                                                                                  
              
                (UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)




                                                                                                                                           Three Months Ended Sep. 30, 2020                                                                                     Three Months Ended Jun. 30, 2020                                                               Three Months Ended Sep. 30, 2019



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





                                                                                                                                                                240         
              (a)                                                                                                                                        36     
            (a)                                                                                                 4     
            (a)




              Brand advertising gross profit                                                                 $
              12,635                                           $
              240                                     $
         12,875                                     $
              15,211                                        $
            36                       $
              15,247                $
            14,374                               $
              4                           $
              14,378




              Brand advertising gross                                                                31%                                                                                                            31%                                              40%                                                                                        40%                              31%                                                                                  31%
    margin





                                                                                                                                                                151         
              (a)                                                                                                                                       152     
            (a)                                                                                                 0     
            (a)




              Online games gross profit                                                                      $
              81,300                                           $
              151                                     $
         81,451                                     $
              81,978                                       $
            152                       $
              82,130                $
            84,726                               $
              0                           $
              84,726




              Online games gross margin                                                              80%                                                                                                            80%                                              77%                                                                                        78%                              78%                                                                                  78%





                                                                                                                                                                  0         
              (a)                                                                                                                                         0     
            (a)                                                                                                 0     
            (a)



              Others gross profit                                                                            $
              10,401                                             $
              0                                     $
         10,401                                      $
              9,675                                         $
            0                        $
              9,675                 $
            6,375                               $
              0                            $
              6,375




              Others gross margin                                                                    67%                                                                                                            67%                                              60%                                                                                        60%                              49%                                                                                  49%





                                                                                                                                                                391         
              (a)                                                                                                                                       188     
            (a)                                                                                                 4     
            (a)




              Gross profit                                                                                  $
              104,336                                           $
              391                                    $
         104,727                                    $
              106,864                                       $
            188                      $
              107,052               $
            105,475                               $
              4                          $
              105,479




              Gross margin                                                                           66%                                                                                                            66%                                              67%                                                                                        67%                              63%                                                                                  63%








              Operating expenses                                                                            $
              114,958                                       $
              (5,481)                 
              (a)    $
         109,477                                    $
              105,596                                   $
            (3,774)       
          (a)    $
              101,822               $
            122,962                             $
            (154)          
           (a)    $
              122,808





                                                                                                                                                              5,872         
              (a)                                                                                                                                     3,962     
            (a)                                                                                               158     
            (a)




              Operating profit/(loss)                                                                      $
              (10,622)                                        $
              5,872                                    $
         (4,750)                                     $
              1,268                                     $
            3,962                        $
              5,230              $
            (17,487)                              $
            158                         $
              (17,329)




              Operating margin                                                                       -7%                                                                                                            -3%                                               1%                                                                                         3%                             -10%                                                                                 -10%






              Income tax expense[9]                                                                          $
              11,082                                         $
              (642)               
              (c,d)     $
         10,440                                     $
              86,166                                   $
            (3,140)     
          (c,d)     $
              83,026                $
            14,646                           $
            (2,468)        
           (c,d)     $
              12,178





                                                                                                                                                              5,872         
              (a)                                                                                                                                     3,962     
            (a)                                                                                               158     
            (a)


                                                                                                                                                              1,587         
              (c)                                                                                                                                   (3,619)    
            (c)                                                                                               448     
            (c)


                                                                                                                                                              1,171         
              (d)                                                                                                                                     1,934     
            (d)                                                                                             2,618     
            (d)




              Net loss before non-                                                                         $
              (15,307)                                        $
              8,630                                    $
         (6,677)                                  $
              (74,397)                                    $
            2,277                     $
              (72,120)             $
            (22,138)                            $
            3,224                         $
              (18,914)
    controlling interest





                                                                                                                                                              5,872         
              (a)                                                                                                                                     3,962     
            (a)                                                                                               158     
            (a)


                                                                                                                                                                           
              (b)                                                                                                                                     (421)    
            (b)                                                                                                 2     
            (b)


                                                                                                                                                              1,587         
              (c)                                                                                                                                   (3,619)    
            (c)                                                                                               448     
            (c)


                                                                                                                                                              1,171         
              (d)                                                                                                                                     1,934     
            (d)                                                                                             2,618     
            (d)




              Net loss from continuing                                                                     $
              (15,257)                                        $
              8,630                                    $
         (6,627)                                  $
              (77,092)                                    $
            1,856                     $
              (75,236)             $
            (33,492)                            $
            3,226                         $
              (30,266)
    operations attributable to
    Sohu.com Limited for diluted
    net loss per ADS




              Net income/(loss) from                                                                       $
              (14,307)                                        $
              1,462                                   $
         (12,845)                                   $
              (2,894)                                      $
            997                      $
              (1,897)               $
            10,285                             $
            1,351                           $
              11,636
    discontinued operations
    attributable to Sohu.com
    Limited for diluted net loss per
    ADS[10]




              Net loss attributable to                                                                     $
              (29,564)                                       $
              10,092                                   $
         (19,472)                                  $
              (79,986)                                    $
            2,853                     $
              (77,133)             $
            (23,207)                            $
            4,577                         $
              (18,630)
    Sohu.com Limited for diluted
    net loss per ADS




              
                Diluted net loss from                                                             $
              (0.39)                                                                                             $
         (0.17)                                    $
              (1.96)                                                                         $
              (1.92)               $
            (0.85)                                                                     $
              (0.77)
    continuing operations per
    ADS attributable to Sohu.com
    Limited




              
                Diluted net income/(loss) from                                                    $
              (0.36)                                                                                             $
         (0.33)                                    $
              (0.07)                                                                         $
              (0.05)                 $
            0.26                                                                        $
              0.30
    discontinued operations per
    ADS attributable to Sohu.com
    Limited




              
                Diluted net loss per ADS                                                          $
              (0.75)                                                                                             $
         (0.50)                                    $
              (2.04)                                                                         $
              (1.96)               $
            (0.59)                                                                     $
              (0.47)
    attributable to Sohu.com
    Limited




              Shares used in computing                                                            39,286                                                                                                          39,286                                            39,271                                                                                      39,271                            39,254                                                                                39,254
    diluted net income/(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 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.





              
                [9]  Following completion of the Changyou privatization, Changyou changed its policy for its PRC subsidiaries with respect to distribution of cash dividends. As a result, Changyou recognized an
    additional accrual of withholding income tax of US$88 million for the second quarter of 2020.



              
                [10] On September 29, 2020, the Company entered into a Share Purchase Agreement with Tencent's subsidiary TitanSupernova Limited ("Parent"), pursuant to which the Company's wholly-owned
    subsidiary Sohu.com (Search) Limited has agreed to sell all of the Sogou Class A ordinary share and Sogou Class B ordinary shares owned by it to Parent at a purchase price of $9.00 per share. In
    view of the Share Purchase Agreement, the results of operations for Sogou have been excluded from the Company's results from continuing operations in the condensed consolidated statements
    of operations for the third quarter 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 are related to continuing operations only.

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SOURCE Sohu.com Ltd.