Dear Shareholders:
I would like to thank you again for your continued support of Sohu.com as we enter our thirteenth year of operation. In 2008, our experienced management team continued to focus on generating returns for our shareholders, and our team’s execution abilities generated impressive financial results across every major business category.

Before I discuss our 2008 financial results, we would like to highlight one achievement that we are most proud of. In just two short years, Sohu’s online game business was developed from nascency to one of the top massively multiplayer online role-playing game (MMORPG) operators in China.

Its success was further endorsed when on April 2, 2009, Sohu’s MMORPG subsidiary Changyou.com successfully completed an initial public offering (IPO) of American Depositary Shares on Nasdaq. Changyou’s ADSs traded up 25% on the first day of trading and the public debut was one of the most successful IPOs in the US markets in nearly 12 months. The successful IPO provides Changyou with the platform and resources to become one of the most renowned companies in the MMORPG industry, and enables Changyou to compete head to head with first tier players.

As Changyou’s majority shareholder, holding approximately 68.5% of the total outstanding equity interest and controlling approximately 80.8% of the total voting power, Sohu will continue to provide strong leadership and support to bolster Changyou’s sharpened focus on the MMORPG business, and harvest as the long term beneficiary of Changyou’s outstanding performance in years to come.

2008 Financial Highlights
By offering differentiated content and innovative and cutting-edge technological products to our users and advertisers, we achieved record total revenues and record net income for 2008. The following is a snapshot of some important metrics:
1. Total revenues of US$429.1 million for fiscal 2008 were 2.3 times that of fiscal 2007.
2. Brand advertising revenues increased 51% year-on-year to US$169.3 million, reflecting our sponsorship of the 2008 Beijing Olympics and the successful implementation of our media strategy.
3. Online game revenues increased to US$201.8 million for fiscal 2008 or 4.8 times our 2007 online game revenues.
4. Net income of US$158.6 million for fiscal 2008 was 4.5 times that of fiscal 2007.

Sohu ended the year with a strong cash position of $314.4 million and a debt-free balance sheet. This impressive performance reflects our strong execution of our long-term strategic vision to be a leading Internet company. With the successful IPO of Changyou.com, our cash balance increased to US$ 508 million as of April 30, 2009.

2008 Olympic Achievements
Sohu’s many historical achievements surrounding the 2008 Beijing Olympics enabled us to achieve great momentum with advertisers, acquire volumes of new users and become a powerful media platform wellknown throughout the country.

Through our real-time reporting capabilities we were able to provide the most timely, comprehensive and authoritative coverage of the Olympic Games and Team China and emerge as the undisputed “Portal of Choice” throughout our country.

Our comprehensive nationwide branding and marketing campaigns, including TV advertising, bus banners, billboards and LED exposure in 26 first and second tier cities in China, dramatically increased the public’s awareness of Sohu’s distinct portal strength and further elevated our brand value. The strength and influence of our portal during this important time period was further reflected in the exponential growth of our daily unique visitors. Most of these new users have stayed with us, paving the way to the success of our media strategy and the power of the Sohu brand.

Sohu Media Platform
Our combined approach of offering differentiated content, innovative and cutting edge technological products, as well as the successful execution of our media strategy has elevated Sohu to a highly influential and dominant online platform. In 2008, our participation in the Beijing Olympics and other historic events significantly elevated the public’s awareness and recognition of Sohu’s brand throughout millions of households and businesses in China.

In early 2009, we have continued to build Sohu’s influence and visibility as a socially responsible media platform by investing in our brand name, technology development and product enhancements.

In addition to massive marketing campaigns aimed at elevating Sohu to an even more dominant media platform, we are also upgrading our groundbreaking internet tools such as Sohu Pinyin, Sogou Browser, search engine, and upcoming SNS products to enhance user experiences. At the same time, we are investing in the expansion of our cutting edge and differentiated content such as our high definition online video content to enrich our product offerings and increase the stickiness to our portal.

Online Game Business
Through Changyou.com, we currently operate two MMORPGs: Tian Long Ba Bu (TLBB), our first in-house developed MMORPG and the licensed Blade Online. Changyou also has three pipeline games scheduled to begin open beta testing in 2009 and 2010, including the in-house developed Duke of Mount Deer as well as the licensed Immortal Faith and Legend of the Ancient World.

TLBB had an excellent year in terms of revenue growth and user adoption. In only the second year of its product life, TLBB generated revenues of US$188.9 million in fiscal 2008, or 5.4 times that of fiscal 2007. As of December 2008, TLBB had more than 44 million registered accounts, up from 23 million at the end of 2007. Peak concurrent users reached approximately 740,000, up from approximately 530,000 in the fourth quarter of 2007, setting a new record.

We have licensed TLBB to Vietnam, Taiwan and Hong Kong, where it has quickly gained acceptance. We are continuing to evaluate licensing opportunities to export the game outside of China, and plan to launch the game in Malaysia and Singapore in the second quarter of 2009.

A revitalized Blade Online continues to demonstrate sustained growth and retain user interest. For the quarter ended December 31, 2008, peak concurrent users of Blade Online achieved a record high of 95,000 users.

Stock Repurchase Program
In the fourth quarter of 2008, our Board of Directors authorized a stock repurchase program of US$150 million, our largest program to date. We subsequently purchased 501,686 million shares in the open market during the fourth quarter at an average price of $39.86 and total consideration of US$20 million.

This is our third buyback program executed during the past five years, with previous programs totaling a repurchase of 2.9 million shares. These purchases speak to management’s great confidence in Sohu’s business, growth prospects and value. Sohu will continue to execute the stock repurchase program on an opportunistic basis in 2009.

Given the continuing growth of the Internet population and Sohu’s strategic vision and competitive positioning, we believe we will continue to enjoy material business growth in the future. We clearly have the leadership, vision and necessary disciplines in place to continue to return value to our shareholders and capture ongoing opportunities as they arise. We look forward to sharing with you another strong year at Sohu.com.

Sincerely,
Charles Zhang
Chairman and CEO
Sohu.com Inc.

Download Sohu.com 2008 Annual Report

PDF format, 1.1MB, 162Pages.

Sohu is a leading Internet company in China, providing hundreds of millions of Chinese with news, information, entertainment and communication. Substantially all of our operations are conducted through our indirect wholly owned China-based subsidiaries and VIEs. We operate one of the most comprehensive matrices of Chinese language Web properties and one of the most popular online games in China. Our business consists of advertising business and non-advertising business.

Our advertising business offers premier content to our users free of charge and provides advertising services to advertisers on our matrix of Chinese language Web properties consisting of:

• www.sohu.com, a leading mass portal and online media destination;
• www.17173.com, a leading game information portal;
• www.focus.cn, a top real estate Website;
• www.chinaren.com, a leading online alumni club; and
• www.sogou.com, an interactive proprietary search engine.

Our advertising business comprises brand advertising and sponsored search services. Brand advertising services provide advertisements on our portal websites to large companies that expect to build up their brand awareness online. Brand advertising services are one of our two core businesses, generating 39.5% of total revenues of $429.1 million for the year ended December 31, 2008. Sponsored search services provide priority placements in our search directory and pay-for-click services to customers, especially small and medium-size enterprises.

Our non-advertising business principally includes online games and wireless value-added services. We operate two massively multi- player online role-playing games (or MMORPGs), Tian Long Ba Bu (or TLBB) and Blade Online (or BO). TLBB is our first in- house developed MMORPG and has been one of the most popular online games in China. Our online game business is the other core business, generating 47.0% of total revenues of $429.1 million for the year ended December 31, 2008. We also offer wireless value- added services such as news, weather forecast, chatting, entertainment information, ringtone and logo downloads subscribed over mobile phones.

We were incorporated in Delaware in August 1996 as Internet Technologies China Incorporated, and launched our original Website, itc.com.cn, in January 1997. In February 1998, we re-launched our Website under the domain name Sohu.com and, in September 1999, we renamed our company Sohu.com Inc. Over the years, we have built one of the most comprehensive networks of Web properties in China and our successful online game business.

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