Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining Sohu's Second Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, there will be a Q&A session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference over to your host for today's conference call, Tip Fleming from Christensen. Please go ahead, sir.

Thank you, operator. Thank you all for joining us today to discuss Sohu.com's second quarter 2012 results. On the call are Chairman and Chief Executive Officer, Dr. Charles Zhang; Co-President and Chief Operating Officer, Belinda Wang; Co-President and Chief Financial, Carol Yu; also with us from Changyou are Chief Executive Officer, Tao Wong; President and Chief Operating Officer, Dewen Chen; and Chief Financial Officer, Alex Ho. Also with our are CEO of Sogou, Xiaochuan Wang; Vice President of Sohu and CEO of Sohu Video, Ye Deng Before management begins their prepared remarks, I would like to remind you of the Company's 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 statement. 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 Dr. Charles Zhang, Chairman and CEO. Charles, please proceed.

Thank you. Thanks to everyone for joining our call. We had a solid second quarter with total revenues rising nearly 30% from last year, despite challenges faced in our brand advertising business. As China’s economic growth continued to decelerate and we initiated some operational transitions in our online video business, revenue from brand advertising recorded only a low single-digit year-on-year increase. But overall, we are pleased with our performance at the group level as our search and online game segments both remained on a solid upward path. For Search, Sogou again posted triple-digit revenue growth on a year-on-year basis. Our online game subsidiary Changyou achieved a record result at both the top and the bottom-line, supported by strong performance with its MMO and web-based game franchises. We believe the blended results help demonstrate the resilience of our business mix and the benefit of having diversified operations. Now I would like to share some second quarter financial highlights with you. Total revenues were US$256 million, up 29% year-on-year and 13% quarter-on-quarter exceeding the high end of our guidance by US$6 million. Net brand advertising revenues were US$69 million, up 2% year-on-year and 14% quarter-on-quarter. Sogou revenues were US$30 million, up 123% year-over-year and 34% quarter-over-quarter. Online games revenue reached a quarterly record of US$137 million, up 35% year-on-year and 8% quarter-over-quarter. Non-GAAP diluted EPS were US$0.42. Now let me discuss our online video business in more detail. We remain optimistic about the online video industry. First, in China online video is already a top Internet application with over 350 million users. We believe brand advertisers will continue to allocate more advertising dollars to this segment. Second, this was related with the significant decline in the market prices of online video content, which would ease the industry’s content cost pressure. One of…

Thank you, Charles. In the second quarter, our brand advertising revenues met our prior guidance by industry’s fast-moving consumer [percentage] remained strong with revenues increasing by about 50% on last June. Revenue growth from Auto sector, our largest vertical, steady at 7%. But as Charles mentioned, the slowdown in economy continues to have an impact on some advertiser sentiment, demand from IT sector was soft and the growth from e-commerce sector was slowing. For the real estate sector, sentiment turned positive and we’re getting more orders coming from developers, however due to the slower cash collections and the prolonged DSO for this industry group, we are more conservative in our revenue recognition while sales proceeds that are now highly affirmative of (inaudible) collection will only be recognized upon cash proceeds. For games information portal 17173 business, we had a smooth transition since it was acquired by Changyou in late 2011. As always 17173 remains a portal of choice for online game companies in China. We expect an acceleration of the business for the remainder of the year as advertisers ramped up their promotions of games in advance of the summer business. Our Video business, we recorded a year-on-year revenue growth up 14% from the second quarter. As we touched on in the last conference call, we made the strategic decision to build a best video sales team for our video business. We are happy to report that this team is now in place, which consist of key team members from our portal sales and the recruitment of about 15 new video sales personnel. Obviously, it will take some time for them to develop a better grasp of our content offering and closer acquaintances with client and agencies. As this new team is only in its first month of operation, revenue…

Thank you, Belinda, and hello everyone. I will now take you through our financials for the second quarter. One, revenues; total revenues were US$256 million, up 29% year-over-year and 13% quarter-over-quarter. Brand advertising revenues were US$69 million, up 2% year-over-year and 14% quarter-over-quarter. Sogou revenues were US$30 million, up 123% year-over-year and 34% quarter-over-quarter. Of this, search-related revenues were US$29 million, up 111% year-over-year, and 33% quarter-over-quarter. Online games revenues reached a quarterly record US$137 million, up 35% year-over-year and 8% quarter-over-quarter. Wireless revenues were US$16 million, a year-over-year increase of 34% and quarter-over-quarter increase of 17%. Now, let me provide some more details about our other financials. From now on, most of the figures discussed will be on a non-GAAP basis. As a reminder, you can find a reconciliation of these non-GAAP measures in our official earnings release. Two, gross margins; non-GAAP gross margin in the second quarter were 61% compared with 65% in the previous quarter and 73% for the same period last year. Non-GAAP brand advertising gross margin for the second quarter was 26%. This low gross margin was mainly due to increases in content and bandwidth cost and an approximately US$15 million impairment loss of purchased video content. Excluding this US$15 million non-cash impairment charge, brand advertising gross margin for the second quarter would have been 48% compared with 40% in the first quarter of 2012 and 64% in the second quarter of 2011. The US$15 million impairment loss was triggered by the recent significant price decrease in video content, in some cases around 50% after peak price in 2011. Based on the report by an independent valuer, we assess that there would be impairment losses above US$15.3 million and hence recognized such as cost of revenues in the second quarter. The impairment was recorded by…

All right, thank you. (Operator Instructions) And your first question comes from the line of Dick Wei from JPMorgan. Please go ahead. Dick Wei – JPMorgan: Hello, thank you for taking my questions. My first question is on the Sohu’s strategy, in light of competition from social network, online video et cetera, how would the management position Sohu for future growth and how should we be looking maybe Sohu, the portal business over the next full year time? Thank you.

Well, so you can see that Sohu assumed a group level structure with mix of businesses that’s been pursued by subsidiary companies with its drive and innovation. So we have a pretty good handling or the share of the internet users’ online behavior. For example, we search basically through controlled gateway of people who get online; and for video, it’s the emerging new media platform for the Internet; and also for Sohu portal, we're basically becoming the leading – continue to be the leading news provider and also have a very good growth in the area of mobile, administer the mobile revolution that people getting news and content from mobile phones from Sohu. We did lose the battle of the micro-blog battlefield for the last two years, but with our continued exploration of our content and media offering and also its interactive nature and its Media 2.0, we hope that we will with our assets in search and in video and in other – in the adapt among user base, in desktop application and client software, we hope that we will come back with our usual strategy of the Media 2.0 social network type of services. It all depends on whether we can maintain or become a more innovative organization. Dick Wei – JPMorgan: Okay, thanks. And then if I can ask Carol maybe a financial question, if for that US$15 billion, is this I guess first of all, is it related to your self-produced content or it is from the contents you acquire and do you expect further write-downs over the next couple quarters? Thank you.

It’s relating to purchased video content, mostly TV drama series. We expect the content price to stabilize, and then we have already marked it down to optimal level, so I don’t expect any further write-downs. Dick Wei – JPMorgan: Okay. Thank you.

Thank you. And your next question comes from the line of Eddie Leung from Merrill Lynch. Just to remind to have one question at a time. Thank you. Please go ahead. Eddie Leung – Bank of America/Merrill Lynch: Sure, good evening. Just a follow-up question on the content cost, Carol, you mentioned that you don’t expect the content clients to drop further because you mentioned that has been stabilizing. So in that regard, so we expect next year we have, since the costs probably on per episode basis, relatively stable from this year, any guidance or any color about that would be great. Thanks.

We are seeing the per episode prices to come down to almost the 2011 level, and on a per episode basis, we are now around 500,000 up exclusive basis TV drama series, which we think is a lot more rational than the 1 million plus that we are seeing for the 2012 content that we purchased in 2011. Eddie Leung – Bank of America/Merrill Lynch: Got it. Thank you.

Thank you. And next question we have is from the line of Philip Wan from Morgan Stanley. Please go ahead. Philip Wan – Morgan Stanley: Hi, thank you for taking my questions. Could you please share with us the top five advertising categories for your brand advertising as well as your pay search business respectively? Thank you.

The top three categories will be transportation, real estate, FMCG. Philip Wan – Morgan Stanley: And how about…

For the search business? Philip Wan – Morgan Stanley: For you pay search business?

It would be medical, e-commerce and travel. Philip Wan – Morgan Stanley: Thank you.

All right. Thank you. Our next question comes from the line of Alicia Yap from Barclays. Please go ahead. Alicia Yap – Barclays Capital: Hi, thanks, good evening, everyone. Thanks for taking my questions. Can you actually elaborate how was the auto, estate doing in second quarter, and for 3Q what are the sentiment and growth for these two segments? Thank you.

Yeah, we saw a steady growth from auto industry as we mentioned in the previous script. The auto industry has 7% growth rate in the second quarter and we will continue to see a steady growth in the third quarter. In terms of the real estate, we have seen a good sentiment from this sector. As we mentioned in the script we have a conservative revenue booking starting from this year. So, yeah… Alicia Yap – Barclays Capital: I see. So but can I just follow up because it looks like your auto sector has steady growth, your real estate are doing fine and your FMCG also doing fine and your 17173 also doing fine. So what are some of the sectors that are weak in the second quarter and maybe in third quarter?

Let me just clarify it a bit. What Belinda explained about real estate is that we see orders coming in, but we are not booking just on an order basis for the real estate, because we are seeing longer DSO and slower collections. So we have become more conservative. For example, for first half we are actually seeing a decrease on the revenue basis for the real estate because we are booking revenue slower than before, but in terms of orders we are seeing maybe 20%, 25% growth, so that reconciles the difference. Alicia Yap – Barclays Capital: I see, great. Thank you.

And also we see a slower growth from e-commerce and IT sector.

All right, thank you. And your next question comes from the line of Fei Fang from Goldman Sachs. Please go ahead. Fei Fang – Goldman Sachs: Hi, thanks for taking my questions. Fei calling on behalf of Catherine Leung. My question is regarding video advertising trend versus non-video. Does the second quarter video segment and if so if the trend reflection of a broader market trend for the non-video business or was it more specific to your own exposure? Thanks.

You’re asking about the non-video sector, right? Fei Fang – Goldman Sachs: Yes.

Actually in terms of video sectors, we see a small single digit growth. Yeah. Fei Fang – Goldman Sachs: Single digit growth, okay. Okay, and are you expecting a similar growth rate in your 3Q guidance as well?

For non-video sector? Fei Fang – Goldman Sachs: Yes.

Yes. Fei Fang – Goldman Sachs: Okay, great. Thanks.

Thank you and your next question comes from the line of Ming Tao from [86 Research].

Welcome back Ming.

Thank you. Thanks Carol. Actually I have a question for you on the IPO plan of 7Road's. I think given the valuation multiple so low for China and other game companies, what was the rationale to IPO this entity, so I would like to hear your opinion here.

I will pass that question over to Alex.

Hi, Ming this is Alex. As we have laid out in the announcement that we are joining today together with Sohu under the Rule 135 under the Securities Act. That clearly layout the rationale for making such IPO plans. Our primary purpose for conducting the IPO is commensurate in creating a puppet market for 7Road shares, and attracting and retaining the talented employee by providing with equity incentive. Thanks Ming.

Thank you. Our new question comes from the line of (inaudible) from Citigroup. Please go ahead.

Good evening, everyone. Thanks for taking my questions. Would you please give me some guidance for the margin trend on both gross margin and operation margin? Thank you very much.

At the gross margin level, we expect search to be pretty stable and for brand advertising because we did this impairment charge in Q2, we expect the gross margin will bounce back to around high 40s percentage in Q3.

Thank you. What about the operating side?

On the operating side, we expect to be at the teens level.

Thank you very much.

All right, thank you. (Operator Instructions) Your next question comes from the line of Jiong Shao from Macquarie. Please go ahead. Jiong Shao – Macquarie Capital Securities: Thank you very much for taking my questions. Could you first tell us about roughly how much of your brand advertising revenue came from video in Q2 and also please remind us your typical amortization schedule for the content cost?

I’ll answer the easy question first. The amortization, as we amortize over a four six-month periods, which is two years, with the first six months amortization of 50%, the second six months of 30%, and then 10% each in the last two six-month periods. We do not disclose separately our video revenue, but yeah we do not disclose it. Jiong Shao – Macquarie Capital Securities: Okay then, if you can’t disclose, could I you another question then just on your Sogou business, could you just confirm with us with the recent deal with Alibaba how much of Sogou now you own and also your strategic relationship with Alibaba in terms you can crawl the [Taobao] database, how will that be impacted with now Alibaba actually doing a own, any of the Sogou shares? Thank you.

We owned about 63% of Sogou on a fully diluted basis as of now. The reason why we want to purchase the shares back from Alibaba is because as a willing buyer and a willing seller, so we made the deal and we feel that that we have a lot of confidence in the future of Sogou, so we are willing to make that cash investment, buying back the shares from Alibaba. The relationship with Alibaba hasn’t changed at all before or after the buyback of the shares. Jiong Shao – Macquarie Capital Securities: And so in the foreseeable future can we still crawl the Taobao database?

At least we didn’t hear any difference in terms of all of our business relationships with the Alibaba Group, not only the crawling but, I mean there are customers, we also have customers repurchase traffic from them, they advertise with us, there’s actually – it’s not just one single relationship. Jiong Shao – Macquarie Capital Securities: Okay, thank you very much for the helpful comments.

All right, thank you. (Operator Instructions)And our next is from the line of (inaudible) from Citigroup. Please go ahead.

Just wanted an update, give some update about Sogou Pinyin and the Sogou Browser. Do you provide the installation base of Sogou Browser and how much percentage of traffic coming from the Sogou Browser to Sogou Search? Thank you.

There 60% of our search traffic comes from the browser. What’s the first part of your question?

Install base of Sogou Pinyin.

Installation of Sogou Browser into (inaudible).

Installation of the browser.

Hello?

Yes.

Between 40% to 50%.

Okay. Thank you very much.

Welcome.

Thank you. And your next question comes from the line of Jialong Shi from CLSA. Please go ahead. Jialong Shi – CLSA:: Hi, thanks for taking my call. And I have a follow-up on the previous questions and Belinda you just mentioned the auto apps then grew 7% in 2Q and your non-video apps are expected to grow as single-digit in 3Q, so just double checking both growth rates are on a year-over-year basis?

Yeah, it’s on year-over-year basis. Jialong Shi – CLSA: Okay. I have another question, your search business. Just wonder if you guys can provide any colors on the ARPU and traffic acquisition cost as percentage of search revenue for 2Q and how do you see the trend for 3Q and 4Q?

You’re talking about our acquisition cost or our…? Jialong Shi – CLSA: TAC, traffic acquisition cost for your search business?

It’s just below 40% of our revenue. Jialong Shi – CLSA: Your search revenue?

Yes. Jialong Shi – CLSA: What is the ARPU for your search business for 2Q?

We’re a bit – can we connect to you on that question because I think our data is a bit confused right now. Can we get back to you? Jialong Shi – CLSA: Sure. No problem, thank you.

Jialong, okay? Thank you. Jialong Shi – CLSA: Yeah. Thank you.

That was our last question ladies and gentlemen. That does conclude our conference for today. Thank you for participating. You may all disconnect.