Good evening, ladies and gentlemen. Thank you for standing by. Welcome to the Sohu first quarter 2008 earnings conference call. (Operator Instructions) I would like to turn the conference over to Miss Brandi Piacente. Please go ahead, Madam.

Thank you for joining Sohu.com to discuss our first quarter results. On the call today are Chairman and Chief Executive Officer, Dr. Charles Zhang; Co-President and Chief Marketing Officer, Belinda Wang; Co-President and Chief Financial Officer, Carol Yu; Chief Operating Officer, Gong Yu; and Vice President of Online Game Business, Wang Tao. Before management begins their prepared remarks, I would like to read you the Safe Harbor statement in connection with today’s conference call. Except for the historical information contained herein, the matters discussed in this call 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 statements. Potential risks and uncertainties include, but are not limited to, Sohu's historical and possible future losses, limited operating history, uncertain regulatory landscape in the People’s Republic of China, fluctuations in quarterly operating results, and the company’s reliance on online advertising sales, online game revenues, and mobile phone related wireless revenue for its revenues. Further information regarding these and other risks are included in Sohu's annual report on Form 10-K and other filings with the Securities and Exchange Commission. Now, let me turn the call over to Dr. Charles Zhang, Chairman and CEO. Charles.

Thank you, Brandi. Hello, everyone. Welcome to Sohu's first quarter financial results conference call. I am right now actually at the base camp of Mount Everest at 5100 meters high, participating and leading a team reporting about the torch relay on the Mount Everest area, so I will speak really slowly because of having 60% of the oxygen of ground level. We are thrilled to report another excellent quarter, the first quarter of 2008, with the third consecutive in which we reported record total revenue, record revenues in each category, as well as record non-GAAP net income. Let me first begin by giving you some highlights of our financial results. For the first quarter of 2008, our total revenue grew by 30% quarter-on-quarter, reaching $84.8 million. Brand advertising revenue once again excelled, reaching $33.2 million, representing a 3% quarter-on-quarter growth and 41% year-on-year increase. Online game revenue reached $41 million, up 71% quarter-on-quarter. Non-GAAP net income increased by 48% quarter-on-quarter to $25.1 million. All of those milestones exceeded our first quarter guidance and most of them exceeded our expectations by a rather wide margin. We believe that these results are made possible only by our long-term strategic vision on the Chinese Internet space, such as our elite position at the official Internet content sponsor of Beijing 2008 Olympic Games and by our continued cutting edge advantage in our technological development, such as our in-house developed online game Tian Long Ba Bu. Now I will begin by discussing Sohu's major achievement. First, Beijing 2008 Olympic Games -- as the Olympic torch was lit in Athens on March 24th, momentum of Chinese Internet users and advertisers reached a new peak. As the sole official Internet content sponsor of the Beijing 2008 Olympic Games, Sohu continued to provide first-hand and authoritative Olympic reporting,…

Thank you, Charles. We continue to be excited about the robust trend driving the strong momentum of the Chinese online advertising market. Despite a generally weak season in the industry for the first quarter of the year, we were able to achieve yet another record in terms of brand advertising revenues. We can squarely attribute this result to the continued shifting of advertising from offline to online and robust momentum in the advertiser spending as the 2008 Beijing Olympic Games are only about 100 days away. For the first quarter, the top three industries in brand advertising were automobile, online games, and the real estate, the same as in the previous quarter. The fastest growing sectors during the first quarter was online games, which continued to experience strong momentum, posting 170% increase over last year’s levels due to strong trends of the online game business in China. With the Olympic Games drawing close, as Charles mentioned, we are pleased with the acceleration on the advertiser spending starting from the torch relay as reflected in our second quarter guidance. Based on the signed [inaudible] contracts and the deals in final negotiations in 2008 for Olympic partners, sponsors, and suppliers, we expect that they will increase their spending by 50% to 100% year-on-year with Sohu. This is even more impressive considering that those partners, sponsors, and suppliers had already extended their ad spending with Sohu by 74% year-on-year in 2007. Historically, we normally adjust the price semi-annually and our last price increase was in October 2007. Starting in April 2008, we increased our average prices by 38% sequentially from the last price increase, which will be effective for three months to June, 2008. We have not seen much push-back from clients so far. Looking ahead at the full year of 2008, we expect brand advertising revenue to grow by 40% to 45% year-on-year. With that, I would now like to turn the call to Gong Yu, Chief Operating Officer, for the review of website operations.

Thank you, Belinda. As Sohu continues to leverage opportunities surrounding the Olympics our premier content offerings and the news reporting capabilities have been highly recognized by many well-known entrepreneurs and thought leaders in China. The impact and the reach of our online reporting capabilities across China are well-respected by the industry and have further positioned Sohu as one of the most powerful online media sources in China. We have worked continuously to provide premier content and innovative products to our users. As a result, during the quarter we saw unique visitors increase 41% year-on-year, which again represents the strong attraction we have to Internet users. We are confident that with our continuous efforts, we will further attract users to Sohu, especially during the 2008 Beijing Olympic Games on the [kipson] and Sohu platform. With that, I would like to turn the call to Carol, Co-President and Chief Financial Officer, for a review of Sohu's financial results. Carol.

Thank you, Gong Yu and hello, everyone. I will now provide the review of the financial results for the first quarter of 2008. One, revenues -- starting with top line results, total revenues hit a record of $84.8 million, representing an increase of 30% sequentially and 156% year-on-year. Not only did each of the revenue categories exceed our expectations but also passed all-time records. One, advertising -- total advertising revenues reached $34.8 million, as we achieved a sequential increase of 3% and a year-on-year increase of 36%. Brand advertising -- brand advertising revenues totaled $33.2 million, representing 3% sequential increase and a year-on-year increase of 41%. Sponsored search revenues were $1.6 million, representing a 5% sequential increase and a 23% decline year-on-year. The year-on-year decline was mainly due to the strengthening of the anti-fraudulent click policy, based on more sophisticated algorithms. Two, non-advertising revenues -- non-ad revenues totaled $50.1 million, representing an increase of 58% sequentially and a five-fold increase year-on-year. Online games revenues were $41 million, an increase of 71% quarter-on-quarter and 24 times year-on-year, due to the strong performance of TLBB. For the first quarter, revenues from TLBB and Blade Online were $38.9 million and $2.1 million respectively. Wireless revenues were $8.6 million, a quarter-on-quarter increase of 17% and year-on-year increase of 54%. Sohu is well-positioned to minimize risk associated with the wireless sector, as it now represents only 10% of our total revenue. Two, gross margins -- as you may know, under SFAS-123R, share-based compensation expenses are charged to the quarter’s revenue and operating expenses. Total share-based compensation expense for the first quarter of 2008 was $3.5 million. As we believe excluding the share-based compensation expense from our non-GAAP financial measure of net income makes a more meaningful comparison of Sohu operation results and improves investors’ understanding…

(Operator Instructions) Our first question is from the line of Catherine Leung at Citigroup.

Good evening and congratulations on a very strong set of results. I have two questions. The first question is that it is our belief that the costs associated with being the Olympic sponsor are quite significant and these costs will likely come to an end when the Olympics are done. Could you give us some sense of the magnitude of the likely cost savings in 2009 versus 2006 -- I’m sorry, 7, 8, and where the cost savings will come from? And I have a follow-up question.

To answer your first question, we have always emphasized the costs of the Olympic sponsorship is not as big an amount as the market has widely rumored, so that is false news. Second is we do give out -- in Charles’ script, we do give out a number today saying that the marketing expense relating to current year that is surrounding our Olympic marketing efforts done by Sohu ourselves, that will be around $14.5 million. Those are non-recurring in 2009.

And are there any significant content costs in terms of you’re building a new portal for the Olympics and obviously building a very strong editorial and reporting team for the Olympics.

I think for those part, yes, we are actually having a very strong focus on our Olympic reporting but we do not -- we have not hired massively for that effort. We are basically reallocating our internal resources to make that effort, so you will not see a big decline in terms of our content or HR related costs in that respect for next year.

Thanks. My second question is regarding your online gaming business. Charles had already discussed in his presentation that one of the real strengths and differentiators of your gaming business is that you have the 17173 website and that you have the ability to better tailor your games to the needs and the wants of the gaming community. Could you please elaborate a little further on how exactly that works and how much of a strength that is for Sohu and significantly why that set-up really makes your company less dependent on superstar developers than might be the case at some other gaming companies? Thank you.

Well, we do have superstar game developers, to start with. But yes, you are right -- the fact that we own 17173, which is not only a very powerful marketing platform for our games but is also a very reliable product development or product definition tool for us. Effectively is -- our game and our games developer will work closely with our 173 team to make sure that whatever they come up with -- the expansion packs and the new games and the games that we licensed would all match to the appetite of the potential game players. So that would ensure success of the games that we are going to launch.

Okay, great. Thank you.

Thank you. Our next question is from the line of Jenny Wu with Morgan Stanley.

Congratulations on a very great quarter. I have two questions. The first one regarding your online games; would you please update us about your online game pipeline and the related game launch timetable? Thank you.

Well, the pipeline remains unchanged. We have two games in operation. Everybody knows Tian Long Ba Bu. The second game will be [inaudible], which is on track, very much so, launched fourth quarter of the year. And then the third game being a licensed game, which will be the middle of next year.

Okay, thank you. And my second question is regarding your online advertising. Firstly, following the April advertising rate hike, are you going to have another rate hike approaching the Olympic Games?

Well, actually yeah. As I introduced in my presentation, we have adjusted our price. The last time it was around October 2007 and starting in April 2008, we [fix] our price by 38% from the last price increase. And actually, we are trying to increase the price on our Olympic channel during the Olympic Games [inaudible], and in the meantime we are going to increase our advertising capacity on the front page and the news channel at that time.

Okay, thank you. And the company guided a very strong quarter for online advertising in the second quarter of ’08. So based on the company’s visibility so far, would you please guide us -- is that growth largely coming from the increased disbanding from the existing advertisers or mainly from the new advertisers?

I think both. We are getting the increased investment from our traditional clients, especially those who had invested in the Olympic Games, those Olympic partners, sponsors, and suppliers. And in the meantime, also invite the investment from the non-sponsors as part of the new clients for Sohu.

Okay. Thank you very much.

Thank you. Our next question is from the line of Dick Wei with J.P. Morgan.

Congrats on a very good quarter. The first question is can you give us -- you mentioned about full year advertising guidance of 40% to 45%. I wonder if you can roughly break out the seasonality we expect to see in 3Q and 4Q this year.

Well, we give out guidance for the second Q already, so -- I mean, you can work that out. So for the latter half of the year, you can imagine that -- I mean, you will see probably some sort of a spike in Q3 and then tail off a little bit in Q4, but at the present moment, we don’t give that out.

Okay. Tails off a bit meaning maybe a single digit decline or [inaudible] have that visibility yet on the --

Well, I think it would be -- obviously decline as compared to Q3.

Okay and the second question I have is regarding your margin. As you mentioned, Carol, that the non-GAAP net margin is very strong, like 21% last year to 30% this year. And I guess if you didn’t use the 25% tax rate, you would probably see like a high net margin as well. I understand I guess the shift is mainly due to you get higher revenue contribution from online games, but can you give out the roughly net margin breakdown between games and on the advertising? And also, in the longer term how do we see the gross margins for both businesses? I know like games at 92% and what is it, the brand advertising now is at 67 or so. Do you see this increase or decrease in the next couple of quarters or next year? Thanks.

In terms of margins, if you look back in Sohu's numbers prior to having the big ramp-up in the game revenue, I think if you compare margins then and our margins today, if we take out the games business it is actually relatively stable in terms of both of the growth at the net level. But if you add in games, then obviously the picture changes a lot. The games business, as we have just mentioned, it would be between like in the 80s in terms of gross. In terms of net, it would be 50. So depending on the mix of those revenues, the net margin number will change. But if you split the two businesses, that is probably what you are looking at.

Great. Thanks a lot.

Thank you. Our next question is from the line of Wallace Chung with Credit Suisse.

Congratulations on the great results. Two quick questions -- my first one is do we expect any -- again, incremental pressure related to the Olympics, do we expect any incremental bandwidth and server costs during the Olympics? And the second question, again also related to the Olympics is assuming you are going to spend like $14.5 million incremental marketing spending and percent and perhaps other incremental costs as well, should we expect that like during first quarter, we are going to see quite a substantial amount of advertising revenue, given the fact that management should try to create some incremental returns from all this spending? Thank you.

Wallace, exactly what’s the question?

I think my question would be -- actually, I’m not asking for specific guidance but points because you indicate that in the second quarter, first quarter, all the marketing expenses that will be accounted for around $14.5 million and potentially there could be other incremental costs as well, that assuming you may generate incremental advertising revenue to cover the costs, that could be one of the indication of the first quarter revenue.

Yes, we do. We will generate incremental advertising revenues during the third quarter.

And assuming there will be quite a certain kind of margin that you are assuming that you can generate?

No.

Okay.

We don’t manage the business that way. If you look at -- it’s actually the flip side of the coin, Wallace. Our advertisers advertise with us during the Olympics, during the third quarter because of the Olympics because that generates the best results for them. So we do the same thing. In this end, we are the advertisers so we want to spend money when it generates the best returns and that’s the third quarter. So that’s how you look at it.

All right, thank you. And just the first question regarding incremental bandwidth and server costs, please?

Yes, we do. We will. We have already lined all of those up. But if you compare that to the $10 million that we are going to book in Q3 in terms of marketing expenses, bandwidth and server costs are relatively cheap.

Okay. Thank you. Thanks a lot and again, congratulations on the great results.

Thank you. Our next question is from the line of Wendy Huang with Bear Stearns.

Good evening, everyone. Thanks for taking my question. First, could you just comment on gaming’s gross margin in this quarter? The gross margin further increased by 4%. Is this 92% gross margin sustainable or should we be more optimistic, maybe expect some further expansion from the current level?

I think it is sustainable but it is not expandable. 92% is already very high. I mean, we still have to pay certain bandwidth costs and servers for that, so --

Okay. Secondly is about your wireless gross margin in this quarter declined by 2%, despite that revenue increased very strong this quarter. So could you give us some color on that? Your wireless gross margin declined by 2% despite the strong revenue growth.

None of us really studied into the wireless gross margin, so my apologies. We’ll find that out and send you by e-mail.

Okay, thank you. And in your guidance, it seems that you guided 15% to 16% wireless revenue growth. Could you maybe give us some color whether as many from the SMS or from other wireless business segments? Because in the first quarter, SMS --

We believe there is a better market, so it is due to improved market conditions. And also with the Olympics ramping up, our special role as a very rich resources owner of a lot of Olympic-related resources, I mean, we are also -- we will capitalize on those and turn that into revenue on the run-up to the Olympics, so that’s also part of the reason.

So basically the Olympics benefits the wireless business overall?

Yes, and to us in particular.

Thanks, Carol. Thank you.

Thank you. Our next question is from the line of Eddie Leung with Merrill Lynch.

Good evening, everyone. Congratulations on a great quarter. I have two questions. Firstly, I apologize if I have missed the data, but can I get the number of brand advertisers in the first quarter and how many of them are Olympic sponsors, suppliers, and partners?

Wait a second. We’re checking our notes. The number of the advertisers in the first quarter is 602. How many of those are Olympic sponsors we’ll find out and we’ll get back to you.

Thank you. And my second question is could you talk a little bit about your M&A strategy related to portals and number two, whether you guys are also thinking about investing in some of these smaller game studios in order to boost your pipeline, or you guys are basically happy with your in-house development team right now? Thanks.

We do not preclude any M&A opportunities in the games development side. We will be very open-minded in terms of acquiring development teams, should there be -- we’ll be opportunistic, basically.

But how about regarding speculation on a potential merger with another portal?

Well, that’s speculation. We don’t comment on that.

Okay. Thank you. Thank you very much, guys.

Thank you. Our next question is from the line of Leah Hao with Goldman Sachs. Please go ahead.

Good evening. Nice quarter, guys. Just two questions; with TLBB going very strong this quarter and probably very strong for the next couple of quarters, I was wondering if you have any updated outlook on the potential game cycle for this particular game?

We are very confident that this will be a long life game. We are not anxious to milk the game the game and like make it short-lived. We are doing everything to preserve the life. We have no reason to believe that it would not be as good as the other games that have reached to this scale, which has been like -- I mean, other games with this size in the market has been there for five or six years, so there is no reason for us to believe why this would not be a similar game.

That’s great. And the second question is a little bit kind of a follow-up; with the game revenue sort of surpassing your advertising revenue from this quarter already and it looks like that way for the next couple of quarters as well, and with another game in your pipeline, I understand strategically you probably still see yourself mainly as an advertising company but at what point, with gaming revenue sites up so quickly that you sort of see yourself tilting a little bit towards more of a game operator or developer/operator instead of just a pure branded advertising company?

We view ourselves as an Internet company, so we have different lines. We have a search business, we have our portal business, we have our games. So it’s not that we are now from a media company to a games company. It’s not like that. We are an Internet company that offers users a range of services that they welcome.

Thank you very much.

Thank you. Our next question is from the line of Ming Zhao with SIG.

Thank you. Good evening and congratulations again. Two questions; first question is on TLBB; if I remember correctly, you guys said the ARPU level, you are looking at about 170 to 180. This quarter, you already surpassed that. But if I look at the top game in the market, their PCU was three times yours and the ARPU is 1.5 times yours. How should we look at TLBB scores in the future, in the next couple of years? Do you think we can get there? That’s the first question.

Well, TLBB is only one year old, so we are looking to -- like what we said in the past, I mean, we still maintain revenue growth to be between 5% to 10% quarter on quarter, and then a piece of good news is that PCU now just surpassed 600,000 as compared to 500 that we last announced. So we are just slowly working up. I mean, we’re not in a hurry. We know there is room to grow the game but we’re in no hurry.

Okay, great. The second question is just a broad question -- if we look at the next couple of years, can we say -- let’s say what will be the next TLBB and have you had any plans for the World Cup and the next Olympics -- not this one, but the next Olympics?

I don’t really get you, Ming.

I just want to get a sense about your long-term strategy and my question is what other revenue segment can we expect to be the next gold mine? And have you had any plans for the next World Cup games and the next Olympic Games?

Ming, we’d rather to it than say it, so just hang in there. We’ll deliver. We’d rather do it than say it.

Great. Thank you.

Thank you. We would like to thank everyone for participating in today’s call. Please feel free to contact us with any additional questions that you may have. Thanks and have a great day.