Ladies and gentlemen, thank you for standing by. Welcome to the Sohu third quarter 2008 earnings conference call. (Operator Instructions) At this time, I would like to turn the conference over to Miss Brandi Piacente, Investor Relations. Please go ahead.

Thank you for joining Sohu.com to discuss our third quarter results. On the call today are Chairman and Chief Executive Officer, Dr. Charles Zhang; Co-President and Chief Financial Officer, Carol Yu; Chief Operating Officer, Gong Yu; Vice President of Online Game Business, Wang Tao; and Senior Finance Director, Alex Ho. 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 conference 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, the current global financial and credit markets crisis and its potential impact on the Chinese company, 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. Thank you for joining us today. We are very pleased to report another strong quarter of financial results. The third quarter of 2008 marks the fifth consecutive quarter in which we reported record total revenues, record revenues in every category, and record net income. For the third quarter of 2008, our total revenue grew by 18% quarter on quarter and 134% year-on-year to $120.7 million. Brand advertising revenue increased by 18% quarter on quarter and 66% year-on-year to $49.4 million. Online game revenue reached $54.6 million, an increase of 14% quarter on quarter and 330% year-on-year. Non-GAAP net income was $42.8 million, up 1% quarter on quarter and 266% year-on-year. Excluding the one-time $4.1 million income tax reversal in the second quarter, our non-GAAP net income for the third quarter actually would have grown a strong growth of 12% quarter on quarter. All of these metrics exceeded the high-end of company guidance. By every account, Sohu had an enviable third quarter. Now I would like to make a few comments on the Chinese economy and what we are seeing in our business. Although the global macroeconomic environment continues to be volatile and many economies are showing slowing growth, China relatively speaking continues to enjoy decent GDP growth. Based on a recent report published by the National Bureau of Statistics, for the third quarter China’s GDP growth was 9% year-on-year. September PMI increased by 2.8 to 51.2 [inaudible]. During the national holiday from September 29th to October 5th, total retail sales of consumer goods climbed by 21% year-on-year. China’s economy is expected to be fueled by domestic consumption. Global companies look to China for their future growth. Just to name a few, Nike expects their future orders in China to be up nearly 50% while Coca-Cola’s…

Thank you, Charles. Through the massive Olympic reporting period, we not only greatly enhanced our brand value and also further expanded our reporting competitiveness and expertise [inaudible]. We demonstrated our ability to provide the most authoritative, timely, comprehensive, interactive, and professional reporting on historic events far better than any of our competitors. Based on the market research of eight different third-party research institutions, such as CTR, the Center of the China Internet, iResearch, [inaudible] and a list of international [inaudible] media [inaudible] and who applied various [inaudible] and assembling techniques, Sohu outperformed its competitors in Olympic reporting on 39 performance indicators. Here are some examples -- according to CTR, 76.6% of all Chinese Internet users obtained Olympic information through Sohu's website, which was 5.6% more than the second-highest traffic website that reported on the event. According to CTR, an impressive 81.2% of all Internet users in China watched the events live on Sohu's portal. According to iResearch, 37.1% of Sohu users during the Olympics have previously been frequent users of other portals, which demonstrated our success in attracting new users to our website and [inaudible] users from our competition. According to [inaudible] Media [inaudible], 35.9% of high income Internet users selected Sohu as their first choice for portals, which is 8.7% higher than the number two portal. These are powerful results that show the strength of our brand, power of our portal, and attractiveness of our content. During the Olympic Games, daily unique visitors to Sohu's portal increased by 100% year-on-year. We are pleased to report that a large portion of these new users stayed with Sohu after the Olympic Games. During the month of September, average daily unique visitors to the Sohu portal grew by 73% year-on-year. Even for October, our average daily unique visitors is growing north of 80% year-on-year. The fastest growing channels were our homepage, news, sports, and our entertainment channels. In order to maintain the momentum of our new user acquisitions, we will continue to be innovative in developing new products and maintain Sohu's leadership position as a mainstream media portal. At this time, I would like to turn the call over 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 a review of the financial results for the third quarter of 2008. Starting with the top line results, total revenues reached a record high of $120.7 million, representing an increase of 18% sequentially and 134% year-on-year. Not only did each of the revenue categories exceed our expectations but all surpassed all-time records. Total advertising revenues reached $51.1 million, as we achieved a sequential increase of 18% and a year-on-year increase of 62%. Brand advertising revenues totaled $49.4 million, representing an 18% sequential increase and a year-on-year increase of 66%. Sponsored search revenues were $1.7 million, representing a 3% sequential increase and flat with last year. Non-advertising revenues totaled $69.5 million, representing an increase of 19% sequentially and 248% year-on-year. Online games revenues were $54.6 million, an increase of 14% quarter on quarter and 330% year-on-year, due to the continued strong performance of TLBB and successful revitalization of Blade Online. For the third quarter, TLBB's revenue in Mainland China increased by 11% quarter on quarter to $48.3 million, while its overseas revenues grew 25% to $2.7 million, leaving TLBB's total revenue to $51 million. Revenue from a revitalized Blade grew to 52% to $3.6 million. Just to give some operating statistics for Blade Online as well for the third quarter, peak concurrent users of Blade increased by 11% sequentially to 82,000. Active paying accounts increased 19% sequentially to 146,000 and average revenue per user increased 25% sequentially to RMB169. Wireless revenues were $14.5 million, a quarter on quarter increase of 58% and year-on-year increase of 112%. The quarter on quarter increase was primarily because: A, our making a one-off tax provision of $2.1 million in the second quarter, which was netted against wireless revenues; and B, stabilization of wireless-related regulatory…

(Operator Instructions) Our first question comes from the line of Dick Wei with J.P. Morgan.

Thanks for taking the questions and congratulations on a good quarter. For interest of time, I’ll only ask one question -- for 2009, what is the highest growing advertising category that you expect? Thanks.

Sorry, Dick, the line is a little bit cutting in and out. What’s your question again?

Which categories will see highest growth next year -- autos or FMCG or what sectors do you expect to see sector growth?

Well, from the Q3 experience, it’s fast-moving consumer -- FMCG, actually consumer electronics -- well, due to the Olympics has been doing really well in Q3. FMCG has been growing for the last few quarters. It has been among the top three fastest growing categories, so we believe that fast-moving consumer goods will continue to grow next year. The largest categories of advertising, auto and real estate, it’s really up to -- it’s not clear but -- it’s hard to say. It really depends on how the government stimulus package or the policy to stimulate domestic consumption and also the real estate market call it. But fast-moving consumer goods definitely are, will be one of the fastest growing categories.

As mentioned in our prepared remarks, up to now we don’t see any changing in the advertiser spending with us, at least, for the major categories such as autos, FMCG, as well as real estate. So maybe it’s a little early to tell into 2009 but this is everything that we are seeing today.

Okay, thanks.

Thank you. Our next question comes from the line of Jason Brueschke with Citigroup.

Thank you. Good evening, everyone. Congratulations on the quarter and thank you all very much for your thorough prepared remarks. I have two questions both about advertising -- the first involves the budget shifts between offline and online and the second involves pricing. In terms of the budget shift, there’s clearly a long-term trend going on in China as well as around the world from budgets going from traditional media to online media, and my question is do you think that that trend will materially accelerate in 2009 versus the rate of that trend that you saw in 2008? And could you maybe give us some maybe anecdotal examples based upon your preliminary discussions of where an advertiser is planning to spend materially more online with you guys versus what they did in ’08? And then my second question involves pricing -- you indicated that you are moving your price increases up to I believe October 1st. Could you, Carol, maybe discuss the dynamics around the pricing environment that you face? Clearly you have significantly more traffic. You have a much stronger brand as a result of the Olympics and then there is this budget effect issue that we just talked about. And my question is can, in discussing the dynamics, do you believe that your ability to increase your pricing in 2008 positions -- sorry, in 2009, do you believe that it positions you to probably make up from any potential weakness that you may find from maybe one or two particular categories, such as, for example, if real estate is weak, your ability to increase pricing across all your other verticals more than makes up for that in terms of revenue. If you could discuss the dynamics, that would be helpful. Thanks.

First of all, generally speaking for the shift of offline to online, I can only qualitatively describe. Basically first of all, the Internet penetration in China has reached a critical mass. I think it is probably now at the 300 million mark, so it represents quite a large portion of the high income population in China. So the Internet became from in the past only as an additional media to now a mainstream media that if anything happens, you always need to use the Internet. And this media presence of the Internet in China are more dominant or more stronger than the equivalent in the U.S. because in the U.S., traditional media are quite strong, competitive and the Internet media can only seek some new path or new business models. But in China -- so through the 2008, there are a number of events. As I mentioned, the Olympic torch relay, the Mount Everest ascend of the torch and the earthquake, and also Olympic events in Beijing and also the Chinese space shuttle -- all these important events, the Internet has played a much stronger role, even compared with 2007. So we do see that it is a choice, that’s why advertisers, they have to -- I mean, before it’s only an additional allocation to just make their marketing more complete. But now it seems that they have to rely on it, that’s why it’s a general trend that has been I think not -- it’s accelerating but it’s really growing fast, this trend.

Great, thanks, and regarding the pricing?

On the pricing side, up until now I have been talking to the street that everything we are seeing, I would just use three words to conclude that it’s business as usual. So to start with, we are not seeing any weaknesses yet in the real estate sector, and in fact it’s a very good and typical example of shifting offline to online as we see, even as the real estate developers are having a smaller budgets, they are seeing Internet advertising is more effective than before, so we are not seeing that but going back to your question on pricing, we are not seeing any push-back from the advertisers yet and we are -- the pricing really reflects what we have been talking about is a higher and stronger, a more influential media with a higher user base and -- this is the first factor and the second factor is a more effective marketing because the results are directly measurable. So --

I think the brand also played a role because after the Olympics, Sohu enjoyed a better branding and also people view Sohu as a platform of premium content that you have to -- really have opinions, have good views, you have to go to Sohu. That’s because of the premiere position we can ask for a better price.

Perfect. That’s helpful, that’s exactly what I needed. Thank you.

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

Good morning. Congratulations on a great quarter. Just a quick question I think on -- Charles, recently you have made comments to some [inaudible], talk about some potential interesting acquisitions, sort of a target in the China market. Can you give us a little bit more color on your future plans in terms of M&A? Thank you.

Well, actually the world is really getting smaller and transparent. Actually I think first of all, I think that article is not exactly what I said, so it’s really -- so I think you should disregard that article because I didn’t say that Sohu will do, you know, really start acquisition spree, right? So I was talking generally about investment about, you know, some good opportunity to buy some cheap things, and maybe myself or maybe the company or maybe whatever. So I really didn’t specifically say about Sohu's acquisition, so disregard that article. But in terms of acquisition, it is with our cash position and with this basically venture capital and everything are backing off and people are asking [inaudible], so there is some -- probably some good candidates out there and we will basically to launch our radar and to look for them. But there’s no specific plans right now but we do -- it’s a logical thinking, so we are looking into this.

So Wallace, as a general advice, read Sohu IT in order to get the correct news. Thank you.

Thank you very much.

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

Good evening, everyone. I have a couple of questions. To start with, could you give us an update on the number of brand advertisers for the quarter, as well as more color on the major advertiser categories and the growth areas -- perhaps some numbers would be helpful. Thanks.

Number of advertisers, it increased slightly from Q2. It’s still in the -- it’s closer to 700 as of -- for the quarter, the third quarter of 2008 as compared to 650 for Q2. And regarding the categories, I think Charles has done it in his prepared remarks. The top three industries remains automobiles, FMCGs, and real estate, and the fastest growing is consumer electronics, FMCGs, and financial services.

But there would not be any say rough percentage of contributions and growth rates, right?

We typically tell the street that -- because doing a quarter is very misleading, so we did say that the top three industries, the three that I just mentioned, account for between 50% to 60% of our total brand ad revenues.

Understood. And my next question is more on the online games sector. If things like online games didn’t show up as the top categories in the third quarter. Should I assume it’s only because of the Olympics and there were not many game launches, and the growth actually, the visibility on that sector is actually pretty good in the fourth quarter?

Yes.

Okay. Thank you.

Thank you. Our next question comes from the line of Tian Hou with Pali Capital.

Good evening. Congratulations on a good quarter. I have a couple of questions. The first one is for [Gong Yu] -- would you please give me some color on the new game pipeline? And remember last quarter earnings and you guys said you were going to have a bigger testing for Duke of Mountain Deer. I just wonder how the game is going. That’s my first question. I will have a follow-up question after you give me the answer.

Charles had mentioned that we started the technical closed beta for our newly licensed game, Immortal Faith, and Duke of Mountain Deer’s closed beta is on track, so we don’t have much more to add.

Is it still -- are you guys still going to have a closed beta in Q4?

Yes.

Okay. The second question is regarding wireless value-added services. So wireless value-added services in Q4, it seems like on a very steady trend, Q3 on a very steady trend of growth, so I was just wondering, what do you see the future in this area, a future trend in this area?

In the future, wireless value-added service will basically stabilize and then grow, but probably not as fast as -- yeah, it will grow but third quarter it definitely grew faster but normally -- it will continue to grow.

Okay. The next question is about the tax rate -- in Q4, [inaudible] we see a huge tax increase. I understand where they come from and so what about going forward -- how should we model the tax rate?

You mean Q3, you have a big tax increase? Are you referring to Q3?

Yeah, in Q3 the tax is the $5 million. I understand it’s because of the reversal, so going forward --

Yeah, the reversal for the previous quarter, so the previous quarter looks low. So Q3 is a normalized quarter, so we did say that the tax rate of 11% will remain for the rest of the year until the end of the year and starting ’09, we expect it to be in the mid-teens.

Okay, that’s great. Thank you. That’s all my questions.

Thank you. Our next question comes from the line of Victor Tseng with Deutsche Bank.

Thank you for taking my call. I have a specific question on TLBB -- so we have amassed active paying accounts of 1.68 million as of third quarter. I just want to get a sense of how much this gamer base is driving the bulk of the games revenue -- what is the percentage of APA making up say 80% of this game’s revenue?

We don’t give out that data.

I know from like an industry trend, it’s more skewed towards say like 10% of the APA generally generates the bulk of the online games revenue, so from that perspective, if the economy continues to deteriorate, do you see ARPU spend kind of getting affected eventually or how -- what is our sense in this respect?

We don’t give out specific metrics like the ones that you just mentioned but I would say that ours would be a lot less skewed than what you have just mentioned, and you can see from our ARPU, we are actually working very hard, like what Charles has said, we are trying to keep ARPU flat and growing revenue by growing users.

Okay. All right, thank you.

Thank you. Our next question comes from the line of Richard Ji with Morgan Stanley.

Charles and Carol, thanks for taking my call and it’s a great quarter. One question -- actually you have clearly benefited substantially from your official Olympics sponsorship which helped both the online traffic and also your brand awareness. Given that the Olympics are over, I’m just curious about your long-term content strategy -- how will you differentiate yourself from a content perspective and those of your major competitors, and what will be the perceived cost commitment to develop a differentiated content? Thank you.

First of all, the basics, the -- continue to provide the best news because our world is becoming so volatile in every sense. There are so many events every day, every month, so reporting, best reporting, quality content and as we demonstrated over the past year, you know, the report about the earthquake, the space shuttle, all these things, Sohu has been really up front. And also working with definitely the technology side to continue to deliver the best, fastest system and download speed and also the user generated content, the Sohu blogs continue to generate quality opinions and quality views. And these are the basics. And then there’s the additional efforts in the new areas, which is video, so we have a good -- a very good experience with video reporting during the Olympics. For example, the CCTV, the broadcast, the live broadcast of the Olympics and also the original content, Sohu entertainment reports and Sohu Beijing report. So on the video front, and also working with over 100 television stations and so these are the important areas, which actually the video advancement, the video development also actually bring new opportunities for brand advertising because the traditional TV advertisers will actually shift some of the allocation to online video. So this basically -- basically it’s just continue to do good, you know, do things -- and then with some vertical industries, like auto industry and health and fashion industry, to provide deep reporting, reporting of [inaudible] and also industry-specific services and all these. So this is really a whole new comprehensive, systematic management. Really it’s the whole thing -- it’s really, really compete on all fronts rather than only one thing.

Understood. That’s very helpful.

And of course I think worth mentioning is our desktop strategies, which is the Sogo Pinyun method which already occupies 50% of the Chinese PC, would also represent some opportunities for our content platform and also for our Sogo search, which we are not giving up.

Thank you, Charles.

Thank you. Our next question comes from the line of Ming Zhao with SIG. Please go ahead.

Thank you for taking my questions. Good evening. I have two questions here -- first, Carol, can you give us a rough breakdown of the Olympic related costs and expense during 3Q? And obviously the aggregate amount as well. The second question is based on your observations so far, actually your DSO has come down quite significantly. So in the 3Q, have you seen any slow-down in spending in real estate and how the collection, the cash collection of the real estate advertising go in the third quarter? Thank you.

I did mention in the prepared remarks that we have cost of $6 million that go into cost of revenue, Olympic related content cost, and $11 million mainly goes into the sales and marketing line, which is under operating expenses. So it’s an aggregate amount of $17 million Olympic related expenses. That’s the first question. The second question, as I mentioned in my call, that we are very closely monitoring all accounts and we haven’t seen anything that would surprise us or worry us in that respect. So like what Charles has said, I think we are in a lucky world, that we are more sheltered than the rest of our counterparts in other parts of the world that we actually haven’t felt the pain, at least not up until today.

So you said the $11 million is in the sales and marketing expense -- what about the product and development? Did you incur any costs over there? Because it seems there’s an increase quarter over quarter.

That would be very minimal, if any. The bulk of the Olympic related expenses will be marketing and content.

Okay. Thank you very much.

Thank you. At this time, I would like to turn the conference back over to Ms. Piacente for any closing remarks.

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. Thank you.

Thank you, ladies and gentlemen. That does conclude our conference for today. If you would like to listen to a replay of today’s conference, please dial 1-800-405-2236, or 303-590-3000, using the access code of 11120865, followed by the pound key. ACT would like to thank you for your participation. You may now disconnect.