Tip Fleming – IR, Christensen Charles Zhang – Chairman and CEO Belinda Wang – Co-President and COO Carol Yu – Co-President and CFO

Catherine Leung – Citigroup Dick Wei – JP Morgan Eddie Leung – Banc of America/Merrill Lynch Jenny Wu – Morgan Stanley Wallace Cheung – Credit Suisse Kathy Chen – Goldman Sachs Ming Zhao – Susquehanna Financial Group Paul Wuh – Samsung Wendy Huang – RBS Gene Munster – Piper Jaffray James Lee – CLSA

Ladies and gentlemen, welcome to the 1Q, 2010 earnings conference call on the 26th of April 2010. Throughout the recorded presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. (Operator Instructions). I would now hand the conference over to Mr. Tip Fleming from Christensen. Please go ahead, sir.

Thank you, operator and thank you for joining us today to discuss Sohu.com's first quarter 2010 results. On the call today our Chairman and Chief Executive Officer, Dr. Charles Zhang; Co-President and Chief Operating Officer, Belinda Wang, Co-President and Chief Financial Officer, Carol Yu; Chief Executive Officer of Changyou.com, Tao Wang; Chief Financial Officer of Changyou.com, Alex Ho; and Sohu's Senior Finance Director, James Deng. Before management begins their remarks today, 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. For more information about the potential risks and uncertainties, please refer to the Company's filings with the Securities and Exchange Commission including its registration statement and most recent Annual Report on Form 10-K. Now let me turn the call over to Charles, Chairman and CEO. Charles, please proceed.

Thank you. Hello everyone, welcome to our call. I am pleased to report another solid quarter with results in line with our expectations. During the quarter, total revenues were $129.5 million which was up 12% year-over-year and had up our expectations. Brand advertising revenues were $39.5 million, which was up slightly compared with the same quarter last year, and it was in line with our expectations. Online game revenues hit another record reaching $72.1 million, which was up 17% year-over-year and 2% compared to last quarter. Non-GAAP net income before deducting the shares of net income pertaining to the non-Controlling Interest in Changyou was $48.4 million, which was ahead of our guidance. I will let Carol go through the rest of the financials in more detail. I will talk about our business strategy. We continue to execute our strategies through in our portal and online game businesses. We're significantly ramping up our library of the exclusive and licensed video content as many of the great media companies in China and around the world partner with us. By combining license content with our own in-house produced material. We are able to expand and promote our full offerings or rapidly growing online community. Our online game business also continues to produce encouraging results. Aggregate peak concurrent users surpassed 1 million for the first time, which clearly shows our growing momentum as we retain existing users and attract new one. Strategic releases of updates proved to be successful in reinforcing the popularity of our existing games. Meanwhile, we've been focusing on diversifying our game portfolio through greater efforts on developing the differentiated games in our 2010 pipeline. I'd like to start by discussing some of our key initiatives and the major achievements in our portal business. For the video site, our extensive efforts…

Thank you Charles. For the first quarter, gross brand advertising revenues before business tax was $43.2 million. Net brand advertising revenues was $59.5 million which is less than year-over-year. We also online games and will as the industry contributed the lot of the share our brand at a tightening revenues accounting for more than 50% of the total during the quarter. The first quarter is typically a slow quarter for advertising given the Chinese New Year Holidays but we expect revenues at peak cuts at more marketing activities are expected ahead of the approaching World Cup and World Expo. We expect also IT related and FMCG to be major contributors to our revenue growth in the year 2010. On auto side according to the China Passenger Car Association also sold in China are expected to grow by 25% in 2010. We believe advertisers will be more willing to advertise with leading internet content that has a nationwide marketing reach and stronger media influence. We expect modest revenue growth in this category for this year and IT related aside as the Chinese economy is strongly recovering, Chinese consumers are more confident in economic growth and its disposable income comes continuous to increase. Therefore advertisers are going to be spending most to promote their product. We will see nice growth from consumer electronics; in addition we will see stronger growth from telecommunications as 3G is gaining popularity in China. And we expect modest revenue growth for faster moving consumer goods in the second quarter and the full year. Advertisers keep shifting budgets to online media from conventional media. In addition, advertisers are allocating more budgets to so called video channel looking the increasing popularity of our comprehensive content offering and our careful growth. It's only above for the second quarter we expect cost run advertising revenue before business taxes to be $56 million to $58 million and net brand advertising revenues should be $51 million to $53 million. We are presenting a growth of 70% to 22%. For the full year of 2010 we expect brand advertising revenue to grow around 20% year-over-year, or around 26% over the past two years as compared to the year of 2008. Now I would like to turn the call over to our CFO, Carol Yu who will discuss with you the quarter's financials. Carol?

Thank you Belinda and hello everybody. I would like to walk you through our financials for the first quarter. One, revenue, for the first quarter total revenues was $129.5 million representing a 5% decrease sequentially and a 12% increase a year over year. Brand advertising revenue totaled $39.5 million representing a year-on-year increase of 1% and a sequential decrease of 14%. Online game revenues grew to $72.1 million, an increase of 2% sequentially and an increase of 17% year-on-year. Wireless revenues were $13.3 million, a sequential decrease of 15% and the year-on-year decrease of 1%. The quarter-over-quarter decrease was mainly attributable to the implementation of several measures to tighten controls over wireless value added services by the network operators. For the second quarter of 2010 we expect wireless revenues to decrease about 15% quarter-over-quarter because of the continued tightening of controls by operators. Most of the remaining figures I will be discussing will be non-GAAP. The Impact of share-based awards, including share-based compensation expense and related non-cash income tax expense are charged to the quarter's cost of revenue, operating expenses and income tax expense. For the first quarter, total share-based compensation expense was $6.5 million and non-cash income tax expense was $0.5 million. We believe excluding the impacts of share-based compensation awards from our non-GAAP financial measures of net income makes a more meaningful comparison of Sohu's operational results and improves investors' understanding of our performance. So we will also use non-GAAP measures in this discussion to explain margins, cost, and expense items. Two, gross margins. Non-GAAP gross margin for the first quarter was 75%, which was even with last quarter and down slightly from the 76% during the first quarter of last year. Brand advertising non-GAAP gross margin for the first quarter was 59%, down from 65% both last…

Thank you, madam. (Operator Instructions). And the first question comes from Catherine Leung. Please go ahead. Catherine Leung – Citigroup: Hi. Good evening. My question is on your brand advertising business, particularly is it gross margin decline. Do you had a particular budget for acquiring video content this year, and can you share with us a little bit more on how you analyze what type of video contents acquire considering that online video is generally still early in the line of monetization phase and for the latest it that -- are you seeing heightened competition for quality copyrighted video content this year? Thank you.

I will let Charles say.

Well, the selection of video content. We select the video according to the producers, the history of the track records of the producers and actors and actress and the directors everything. We have a committee for evaluating the potential, the quality of our production and also we are – we have a strategy of both buying the exclusive content and non-exclusive with the mixture of two because with the exclusive content and why that we had resale to other parties to compensate for some of the revenue income, and also we have its our competitive strategy. So, that our competitors will not be able to have that content if we have a exclusive right if we don't want them and also to help us to fight piracy. So, it's a combination and some of it in order to have a full library or content, we also have large percentage of non-inclusive account which account much less. So, it's a very and also normally we buy, we find the content for buying the rights for three or five years. That means we'll to have them and to be competitive for not only this year, but next few years.

Talking with you – you asked about budget, right? I think we won't be able to disclose that. Catherine Leung – Citigroup: Okay. Maybe can I just --

What is your last question? Can you speak slowly because the line is cutting in and out? Catherine Leung – Citigroup: Sorry. My question was; are you seeing increased competition for the copyrighted video content this year and since we are still early in the monetization of this type of video content. How do you think about the economics in terms of how much to bid for the content?

Yes. We see increased competition, and also actually our sales efforts is based on the production. If we buy a right of a content, a drama, TV series, we will be able to immediately sell to certain a amount of enterprising related to this particular production and we also calculated the cost of bandwidth and the potential growth of the bandwidth cost, is really a -- but because of the video content is such a important and central part of our media strategy throughout the internet in China to be really a full form of media. It's our central strategy, so to remain to be competitive it's very important. So, you know its early stage and the cost, they are costly, we're assuming to continue to our strategy, combining content. Catherine Leung – Citigroup: Understood.

And as mentioned in the call, we are actually very pleased about the enthusiastic response from advertisers. I think what we are early, we got in and made a foothold in this area and we are surely be wining in the long-term. Catherine Leung – Citigroup: Okay. I understood, thank you.

Thank you.

Thank you. Our next question comes from Dick Wei. Please go ahead. Dick Wei – JP Morgan: Hi. Thanks for taking my question. Just follow-up questions on the video side of things; I wonder if Charles can discuss what is -- what are the competitive advantages that Sohu has on the retail front versus other portal, or versus other vertical sides in the sense Sohu has lots of cash, it can investment it for the long-term, but as far as from the user from the advertiser and from the I guess the content provider at the studio perspective, what are the kind of the key highlights for Sohu versus the competitor? Thanks.

Well, it's really a combined a competitive advantage, first of all definitely we have more money, cash-rich comparing with some other independent leading sites and also we have our TV Channels offer a higher definition video than other, and thirdly we have better, we are in a better position to negotiate the content of purchase contract because our portal influence, our entertainment channel is a tax-based entertainment channel, it is a tax-based entertainment, also serve as a very important PR marketing and a PR platform for the production and for a lot of entertainment companies, so that give us a advantage in leverage in buying quality content versus other smaller or independent video sites. There is really a combined and content advantage.

Belinda has something to supplement.

Yes, more points added to Charles comment. First of all, Sohu is the media platform and when we launched our video channel we actually function as the broadcasting channel. So, when we sell these platforms to our advertisers so we yearly combined these two functions together. For example, when we sell very ad TV sale as to our advertisers will combine media influence and broadcasting channel influence together. So, that means our ROI on the single TV series is much higher than other competitors. So, for the full year of 2010 we expect our advertising revenue from video channels three fold compared to the last year. Dick Wei – JP Morgan: Belinda just quick follow up, is it possible to I wonder for the advertisers that you talked to, have you been kind of slowly moving to some of the TV ad agency while than the traditional internet agency, if you can comment on that? Thanks.

I think both, yes. Some of the -- into active ad agencies, the role of work together with some traditional advertising agencies to shift more budget to the traditional media to online platform especially on the online video platform, and also some because most of the people -- I think that the China Broadcasting Bureau has launched the 61 Regulation that actually means most the traditional TV stations has limited advertising timeframe for the advertisers. So, those were a help some of the traditional advertising to shift the TV budget to the online platform. So, that means that some of the traditional advertising agencies have to help advertisers to think about how to advertising on the online platform. So, I think both channels are making efforts on that. Dick Wei – JP Morgan: Great. Thank you very much.

Thank you. The next question comes from Eddie Leung. Please go ahead sir.

Good evening everyone. I have a couple of questions. The first is regarding your brand advertising. Could you comment on the outlook at the view as a fragment? Banc of America/Merrill Lynch: Good evening everyone. I have a couple of questions. The first is regarding your brand advertising. Could you comment on the outlook at the view as a fragment?

Yes, actually we see much more strict government policy and regulations on the advertising industry, which may have impact on the sales volumes in some regions especially on some first-tier cities. So, there might be some unpredictable pictures in our real estate advertising revenue from some regions and in some cities this year. Eddie Leung – Banc of America/Merrill Lynch: Understood, and then also a follow-up questions on online video. Do you guys have plans to precede the on-purchase or on some of the video advertisements to your advertisers before your bid for certain content? (Foreign Language)

Belinda is shaking her head that means no. Eddie Leung – Banc of America/Merrill Lynch: Understood, and finally just a quick question. One last question, just a housekeeping question; could you give us the number of advertisers for the quarter?

This quarter, the number of the advertisers is 608. Eddie Leung – Banc of America/Merrill Lynch: Thank you very much.

Thank you. The next question comes from Jenny Wu. Please go ahead. Jenny Wu – Morgan Stanley: Thank you for taking my question. Sogou Pinyin. Given Google Doc's exit from China, what's your view of impact on industry and what's your strategy to improve your market position and revenue from paid search? I found some news release at yesterday's same price they mentioned Charles told them it will launched at a larger scale promotion for Sohu this year. Just curious what's the marketing budget for these? Thank you.

Well Google is moving out of China definitely left some phase or market share for other competitor -- other search engines to get in because for the users, people actually need an alternative search engine not just one search engine. So, our strategy is first of all we are able to -- we are confident and we will continue doing that research or even in that more because of the Google moving out, and more importantly because our success with the client and software Sogou Pinyin, which already have 80% of the market share. Based on that we launched the Sogou Browser, which is a much more comprehensive application of our ongoing activities than key input. So, that the Sogou Browser's impact will help with search engine search is more direct and more, the commission rate is very high into search. So, we launched in Q1 we launched the Sogou Browser version 4.0. So, it's already getting very good feedback from users because of its innovation of acceleration and fast download and everything. And so this year we will continue to improve the product interface and also the search quality of Sogou Search and at the same time to based on the Sogou Pinyin to launch and capture a larger sizeable market share of Sogou Browser. So, with Sogou Pinyin and Sogou Browser and the quality improvement of Sogou Search we expect to capture a certain market share of the search market, which is growing very fast, continues to grow very fast and big. Jenny Wu – Morgan Stanley: Thank you and how about the --

I can't comment on how much percentage of share we've had to catch up now. Jenny Wu – Morgan Stanley: Okay. Thank you and how about you're marketing budgets for this year?

The total marketing budget for the company as a whole remains unchanged as a percentage of sales. So, but we haven't allocated to the individual project yet. So, you can just assume that the marketing will be at pretty similar levels. Jenny Wu – Morgan Stanley: Sure. Okay. Thank you, Carol. Thank you, Charles.

Thank you.

Thank you. The next question comes from Wallace Cheung. Please go ahead. Wallace Cheung – Credit Suisse: All right. Just a quick questions on the numbers that in the Sohu economic interest in Changyou in the first quarter in one of the information that I get is like 70.4%. Is it down from 74% in the fourth quarter?

We could add some additional investing in Q1, but I don't have the detailed numbers in front of me, but you can just talk with my IR team regarding the actual numbers, but it could have some investing taking place during Q1. Wallace Cheung – Credit Suisse: So, Sohu is not selling shares on Changyou if I am right?

No. we've not sold any share. Wallace Cheung – Credit Suisse: Okay. Thank you very much.

Thank you. The next question comes from Kathy Chen. Please go ahead. Kathy Chen – Goldman Sachs: Hi. I had a question on the wireless value-added services side. Can you share with us an update on when we can see either WAP or any recovery in the wireless value-added driven roughly in the second half?

I think this is more of the question for the operators because we really can't predict the regulatory environment, but like what we've been preaching in the past, wireless for us is less so far revenues that more show as 3G comes as an additional access channels than one day all of these smart phones will become access devices to whatever internet services that we'll be offering. So, we are less concerned as to all these WAP Regulations. Kathy Chen – Goldman Sachs: Okay. Thanks. I've one more question in terms of follow-up on the cost side. Could you share with us any guidance for full-year margins for the portal business?

Would probably be at the similar levels as we guided in Q1 and Q2. Kathy Chen – Goldman Sachs: Okay. Thank you.

Welcome.

Thank you. The next question comes from Ming Zhao. Please go ahead. Ming Zhao, your line is now open. Ming Zhao – Susquehanna Financial Group: Okay. Thank you. Thanks for taking my question. Good evening. I just wanted to ask about the second quarter that brand advertising revenue guidance, which shows pretty strong quarter-on-quarter pickup, I wonder one if there is any affect from the real estate industry policies and two what are the verticals that you see particular strength there? Thank you.

I think what we expect in the second quarter, we expect automobile and IT-related and FMCG and other games just to the major countries users, same here for the revenue. Ming Zhao – Susquehanna Financial Group: All right. Thanks.

Actually as I explained earlier, we will see some unpredictable pictures on the real estate revenue in some regions and the cities because of the strict government policy and regulations in the advertising industry. Ming Zhao – Susquehanna Financial Group: Are you saying that you used a word some certainty here, are you seeing some pickup in there or talking from probably illustrating the short-term?

I think what Belinda is saying that the policy just came about 10 days ago, and is real early to tell and the advertisers or the real estate developers have been, has to gauge how the market reacts to those policies and how they should react to the market response. So, it would take us some time before we really know what the impact on their advertising budget especially on online. Ming Zhao – Susquehanna Financial Group: All right. Thank you.

Welcome.

Thank you. The next question comes from Paul Wuh. Please go ahead. Paul Wuh – Samsung: Hi. If you could give us a better sense, I understand that real estate is a big question mark. I think that they said Belinda you mentioned 20% year-over-year growth on the advertising sites for 2010. Do you think that is kind of in line with what the industry is growing or do you think you're getting share, and secondly could you comment a little bit about framework agreements and how many more frame -- your visibility for the rest of the year in general for advertising? Thank you.

Yes. Thank you for question. Actually in the year of 2010, we expect automobile as you related, online game and FMCG to be the major contributors to our revenue growth. In terms of their framework contract that we so far we have closed up to 70% of our framework contract with our advertisers. Paul Wuh – Samsung: And what about your market share, do you think that you will grow in the same at the market, or you gaining market share relatively?

I think we are in line with the market, yes with the market grows. Paul Wuh – Samsung: Okay. Great. Thank you very much.

Welcome.

Thank you. The next question comes from Wendy Huang. Please go ahead. Wendy Huang – RBS: Hi. Actually just one question on the gaming side, what expectations was for the licensed game Chinese Hero and could you give us an update of the competitors in China right now after three quarters firm? (Foreign Language)

We are not too certain about how the operating, specific operating data for Da Hua Shui Hu in Taiwan and since their games is going to begin Open-beta in May. Right now it's early for us to tell us and giving out expectations from here. Wendy Huang – RBS: Okay. Thank you.

Thank you. The next question comes from Gene Munster. Go ahead. Gene Munster – Piper Jaffray: Hi. Good evening and it was talked about in one of the previous questions, you have a strong improvement in the brand and advertising business in the June quarter on a year-over-year basis some of the growth rate still lag, what some of your competitors are talking about, I guess my question is how should we think about Sohu's year-over-year brand and advertising growth rate in the context to some of other numbers that we hear out there. Are they difficult comps, or we should look more to industry kind of growth, brand and advertising into the back half of the year, is that probably the best way to think about it?

Sorry. I missed your question. Can you just speak slowly? Gene Munster – Piper Jaffray: Some of your competitors are talking about higher year-over-year growth rate to brand and advertising versus the number that you put up, and you've had some more difficult comps? My question is, is how should we think about Sohu's brand and advertising growth rate, is it a share losing situation, is it a difficult comp? If it's difficult comps, should we expect to see more industry like brand and advertising growth in the back half of 2010?

Well, I have always been explaining that it's very misleading just to compare just too just based on the one year basis. So, that's why we included in the script that over a two year period, we expect to grow by 26%. So, I think that's a guideline to use whether that we are losing or gaining market share, but as you look back over the past many years we -- and some of our other competitors have been going hand-in-hand, neck-to-neck for many, many year. We -- 2009 has been quite unusual for some of our competitors, so I think it would be better to gauge our results and performance looking at two year in aggregate. Gene Munster – Piper Jaffray: Okay. Great, and then quick second question. Can you remind us again, I know you said this is a script, but when we should start to expect revenues from DMD?

I think the revenue will come in three months time after they open-beta launch of DMD. Gene Munster – Piper Jaffray: Great. Thank you.

Thank you. The next question comes from James Lee. Please go ahead. James Lee – CLSA: Thank you for taking my questions. Can you help us understand maybe a little bit more about your real estate uncertainty by letting us know how much is your revenue exposures is tied to maybe larger cities like Beijing and Shanghai and also if you could help us understand maybe your net margin or your portal business. I notice that, that's a little bit lower than your peers and can you understand, help us understand what delta is, as your post margins actually are pretty comparable, looks like it's below the gross margin and that's where the difference is? Are you spending more on sales and marketing? That's more aggressive than your peers in the secondary market, or are you spending more on R&D because you place high emphasis on innovation such as video search and so on? Thank you.

Maybe I can just jump in to help Belinda on the first question. I know I'm repeating myself, the policy just came out 10 days ago, and everything is still very fluid. So, it's very difficult for us to quantify what impact it would have on us, but for better or for worse last year has been a very difficult year for our real estate vertical. So, as I have explained both of the market environment in the start of last year, as well as our own internal turnover issue, we've been losing market share. So, as a result the real asset vertical has been decreasing imported in terms of our overall portfolio revenue contributor, so that to us could be a favor as compared to some of our bigger, some of our other competitors who has been doing really well on the real estate vertical. On the margin side, like when I've said before we have, we will be relatively stable in terms of growth net margins. The pattern of our spending would be again pretty similar to what will be, what you actually saw on Q1. James Lee – CLSA: Okay. Thank you so much for your help, Carol. If I may ask another question here, follow-up, can you help us to understand in terms of your real estate revenue exposure in larger markets like Beijing and Shanghai and secondly I was wondering if you can talk about the delta of your margins, of your cost structure below the gross margin line. It seems like you're spending more on sales and marketing and also R&D for the portal business. I was wondering maybe –

I will answer the second question, and Belinda maybe you can help.

Yeah. As I explained earlier, there might be some on particular core factors in some major cities like Beijing and the Shanghai, because of these regulations have been released to -- was released 10 days ago, so it's not the conclusion yet. So, we are still waiting to see it.

Thank you. There appears to be no further questions. I'll hand it over.

Thank you everyone for joining the call today. If you have further questions, please don't hesitate to contact the company or us directly. Thank you again for joining. Good bye.

This concludes the 1Q 2010 earnings conference call. Thank you for participating. You may now disconnect.