Good evening, ladies and gentlemen. Thank you for standing by. Welcome to Sohu’s fourth quarter 2007 earnings conference call. (Operator Instructions) I would now like to turn the conference over to Brandi Piacente. Please go ahead.

Thank you for joining Sohu.com to discuss our fourth quarter and fiscal 2007 year-end 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 Senior Director 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 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, 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 fourth quarter and fiscal 2007 year-end financial results conference call. I am very pleased to report another outstanding quarter with record total revenues and earnings. We also achieved record results for the full year ended December 31, 2007. We are even more pleased to report that we exceeded our raised guidance in each of our revenue categories and earnings for the fourth quarter announced on December 4th. This is a true testament to the strength and accelerated momentum of each of our major business units. For the fourth quarter, brand advertising revenue reached $32.2 million, representing 46% year-on-year growth. For fiscal 2007, brand advertising revenue grew by 42% year-on-year, despite the FIFA World Cup in 2006. For the fourth quarter, online game revenue reached $24 million, up more than 10 times year-on-year. For 2007, online game revenues grew by almost four times year-on-year to $42.1 million. For the fourth quarter, total revenues climbed by 90% year-on-year and reached $65.3 million. For fiscal 2007, it increased by 41% year-on-year to $189 million. Additionally, non-GAAP net income in the fourth quarter increased by 110% to $17 million, and increased by 33% to $43.7 million for 2007. Sohu's focus on technological innovation and leadership, as well as our strategic vision and execution, have been the cornerstones of our success over this past year. Our long-term commitment to provide Internet users with the best content offerings and innovative online products enable us not only to further enlarge our user base and increase stickiness, but also to capture an accelerating level of advertising dollars to Sohu websites. Here I would like to emphasize that I am not only confident that fiscal 2008 will be another great year for Sohu's brand advertising business. Instead, with A, the expected…

Thank you, Charles. We are excited about the trends driving the strong momentum in the Chinese online advertising market for the first quarter, the top three industries in brand advertising were automobile, online games, and real estate. The fastest growing sectors were online games, fast-moving consumer goods, and financial services. For the first quarter, the online games vertical increased more than 130% year-on-year, because many new titles launched and the associated expansion of marketing activities. With numerous IPOs in 2007 within the sector, online game companies are becoming more aggressive in ad spending and promotional campaigns. Fast-moving consumer goods grew by more than 100% year-on-year, despite being transitionally heavy offline advertisers, the steady conversion ad spend to online platform have continued. Financial services increased by more than 90% year-on-year due to [heightening] activity in the Chinese stock market and increasing ad spending from banks and [funds]. As Charles mentioned, we are seeing strong momentum as the Olympic Games draws closer. In the fourth quarter, Olympic partners, sponsors, and suppliers, almost doubled their ad spending with Sohu year-on-year. For the full year of 2007, their ad spending with Sohu increased by 74% year-on-year. Looking ahead for 2008, we believe the growth of our brand advertising business will continue to be robust, primarily driven by the increasing ad spending of Olympic sponsors and the direct competitors. With that, I would now like to turn the call to Gong Yu, Chief Operating Officer, for a review of website operations.

Thanks, Belinda and Sohu continues to establish its opportunities surrounding the Olympics. We furthered our role as the leading online media in China. It brings Sohu's brand recognition and leadership to even higher levels in 2007. As we gear up for Beijing 2008 Olympic Games, our premier content offering and news reporting capabilities have been highly recognized by many well-known entrepreneurs and thought leaders in the areas of politics, economics, science, technology, entertainment, and international affairs. One example is that in January 2008, Sohu organized the 2008 New Visions Forum in Beijing. It brought together over 400 government officials, permanent [inaudible], industry leaders, media elite and the like. During this industry session, China’s well-respected visionaries expressed their in-depth views on recent eye-catching events that covered many topics, such as political, social, and economic outlook for 2008. They were broadcasted across China through Sohu's portal. The impact and reach of our online reporting abilities across China is well-respected by the industry and has further positioned Sohu as one of the most authoritative online media sources in China. We are all proud of this achievement and look forward to furthering our development as history unfolds. With that, I would like to turn the call to Carol, Co-President and Chief Financial Officer, for a review of Sohu's --

Thank you, Gong Yu and hello, everyone. I will now provide a review of our financial results for the fourth quarter and fiscal year ended December 31, 2007. Revenues -- for the fourth quarter, total revenues hit a record $65.3 million, exceeding the high end of our guidance by $7.8 million, representing an increase of 27% sequentially and 90% year-on-year. Not only did each of the revenue categories exceed our guidance, which was raised in early December, some exceeded our expectations by a wide margin and reached all-time records. Advertising -- with total advertising revenues of $33.7 million, we achieved a sequential increase of 7% and a year-on-year increase of 35%. Brand advertising revenues totaled $32.2 million, representing a quarter-on-quarter increase of 8% and year-on-year increase of 46%. Sponsored search revenues were $1.5 million, representing a 12% quarter-on-quarter decrease and a 48% decline year-on-year. The year-on-year decline was mainly due to the strengthening of our anti-fraudulent click policy, based on more sophisticated algorithms starting in mid-2006. For the fourth quarter, through better integration with Sohu portal and fine-tuning of featured search products, such as picture and music, daily page views of Sogo has increased by about 10% sequentially. Non-ad revenues totaled $31.6 million, exceeding the high end of our guidance by over $6 million, representing an increase of 58% sequentially and 236% year-on-year. Online games revenues were $24 million, an increase of 89% quarter-on-quarter and over 10 times year-on-year, due to the strong performance of TLBB. For the fourth quarter, revenues from TLBB and Blade online were $22 million and $2 million respectively. Wireless revenues were $7.3 million, a quarter-on-quarter increase of 7% and year-on-year increase of 9%. Sohu is well-positioned to minimize risks associated with the wireless sector, as it now only represents 11% of our total revenue. Gross…

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

Good morning, everyone. Congrats on another very strong quarter. I have two questions -- first question, you are expecting -- is that 2008 advertising guidance, are you able to give some sense of how things are looking for the Olympic period and also the 2008, that would be good. Secondly, I think Charles earlier mentioned about the one-time marketing spending, about $2.5 million. I just wonder if it is only in Q1. Do you plan to make more of these one-time spendings during Q2, Q3, during the actual Olympic period? Thanks.

Yes, I expected that question, and you expect my answer. We gave out our Q108 guidance of -- I mean, if you take the high end, it would be about 40% year-on-year growth. I think after the Chinese New Year, we’ll have a better sense for the rest of the year but things continue to look good, or else we won’t be able to give out a year-on-year guidance of 40%, on top of a 42% for 2007. That is, assuming a stable currency, so that’s excluding the impact of any further RMB appreciation. So that answers your first question. The second question is yes, we do expect to continue to have further marketing campaigns to enhance our brand value but we will continue to monitor very closely our operating margin and net margin to ensure that we deliver also very good earnings quarter after quarter to the street.

Lastly, I just want to reconfirm your prior guidance -- you are still shooting for the mid-20s levels non-GAAP net margin. That is still your target?

Yes.

Great, thanks a lot and congrats again.

Thank you.

Thank you. Our next question comes from the line of Jenny Wu with Morgan Stanley. Please go ahead.

Congratulations on a good quarter and my first question is regarding your advertising pricing strategy. Number one, did Sohu increase the advertising pricing rate card in the first quarter of ’08? If so, by how much? Secondly, did Sohu meanwhile cut back the discount rate? If so, by how much? And lastly, is there going to be another price hike before the Olympic Games? And again, if so, by how much? Thank you.

When you say discount, you mean what sort of discount? Are you talking about base agencies or whatever, because --

Yeah, yeah, right.

Okay.

Yeah, we did raise the price in Q1 but I want to emphasize and reiterate that advertising is not very -- advertising spending is not very correlated with price increase. It is really the overall spending or the budget a company has for spending on the websites.

Okay. Is there any quantitative data for ’08?

We haven’t released our price in January and the increase of the whole total price is about 15%.

Okay. Is there any other price hike before the Olympic Games?

It is not clear yet but think of considering increasing the investment from the Olympic sponsors and the limited advertising space, we’ll think about increasing our price during the third quarter.

And my last question is regarding your first quarter guidance. It looks not very strong. I understand if you’re leaning towards seasonality and apart from that, is there any other reason behind? Thank you.

Well, it’s a traditionally slow quarter. It’s seasonality. I think like what I said before, Jenny, you look at 40% growth after a 42% growth, I think that’s very strong.

Okay. Thank you very much.

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

Good morning, everyone. Let me add my congratulations and wish you all a happy new year. I have two categories of questions. First of all, the extraordinary strength that you guys saw in the fourth quarter in brand advertising, could you tell us how much of that would you characterize as Olympic related and how much of it would you characterize as independent of the Olympics? As a follow-on to that, could you tell us, is the strength that you are seeing primarily from new customers or I think as Charles indicated, is it just the demand environment is so strong that you are also seeing price increases from your existing clients? And then finally, my question on your new branding efforts -- can you give some color on exactly how you are going to be positioning Sohu in the market? Is this anything different than the way you positioned Sohu in the past? Maybe if you could just give us some color on that. Thanks.

So the ad spending correlated to Olympics or not Olympics -- first question.

In the first quarter, Olympic --

In the fourth quarter.

In the fourth quarter, yeah. In the first quarter, Olympic partners, sponsors, and suppliers almost doubled their ad spending with Sohu year over year.

For the fourth quarter of 2007.

And for the full year of 2007, their ad spending with Sohu increased by 74% year-on-year.

So fourth quarter is partly related to the Olympic spending but not all.

Are you seeing an up-tick in addition to these new customers or is this primarily the driver of growth in the fourth quarter was Olympic spending from the Olympic partners, which you already have?

The up-tick should start more in Q2, right? Q2 and Q3 for the Olympic effect.

I think as we draw closer to the Olympics, you’ll see that impact growing more. And -- I mean, Jason, I understand that you want a number from us but it’s very difficult because I would say that the overall ad market in China, whether it’s Olympic -- you can categorize that as I would say 60% to 70% relating to the Olympics because you’ve got Olympic partners and sponsors advertising aggressively, so their competitors could not just sit there and do nothing. I mean, you can see in the Internet industry right, so that is a more previously competing against each other. That would drive up advertising spending. So I would say that the market as a whole, because of the Olympics drawing near, people are spending more in terms of pushing and marketing their products aggressively.

Okay, that’s helpful. And then the other half of that was just are you -- I’m sorry?

As Carol just said, it’s very hard to quantify how much is Olympic related and how much is not. But definitely people are planning to spend money in Q4 and they are planning and especially when 2008, they will spend more. The trend is up.

Okay, and then the other way I was kind of looking at that was if you think about your total number of clients, are you seeing a series of new advertisers who haven’t advertised on Sohu in the past? Are you seeing an up-tick yet from that, or is that mostly what the new branding campaign that you are starting in Q1, is that really intended to broaden the base of advertisers in addition to the expected increase in advertising spend around the Olympics?

I just give you the number for the full year of 2007, our client number is about 1,070. Compared to the year of 2006, is about 850.

Great. That’s perfect. And then maybe the final question was the new branding campaign, could you help us understand how you are planning on positioning Sohu in the market with this campaign, maybe vis-à-vis your competitors? Thanks.

Our new branding campaign, you mean, who do we position ourselves?

Yes.

Basically Sohu will be the portal of choice of the Olympics. Anyone who -- beside television, there will be another interactive channels 24 hours a day and seven days a week reporting through text and pictures and video, and also interactivity through our web 2.0 products. So a lot athletes will communicate with the users through their blogs through our cooperation with the --

Yes, Team China.

Team China. That’s where the Chinese Internet users are most interested in, and also as we -- as I said, our marketing campaign will be timed closely with the Olympics, the pace and the events. One of the most important ones is the torch relay project that started in March, late March and we will extend it for over 100 days outside China and within China. There will be two paths -- one is really on the low altitude. Another one is really the torch that ascend on the top of Mount Everest. Both torch relay projects, Sohu as the official sponsor will send a team and closely report, especially the exciting moment when the torch is on top of the Mount Everest. It will be a huge media event and Sohu will be the sponsor, the website to report this event.

Okay, thanks, everyone.

So in short, it’s --

So portal of choice for the Olympics and we expect during the Olympics, people will -- everyone in China and the world will know that Sohu is a choice for the Olympics. That’s why we will expect a user to switch. Even for people, for users that never use the Sohu before, after the Olympics they will start to use Sohu and that’s why we said that beyond 2008, in 2009 we will see a larger user base and market share, so that it will improve our brand advertising click-through rate so that we expect the post-Olympic brand advertising growth will continue, rather than just the one-time Olympic effect. It’s really the user switch, end user base.

Great. Thank you, guys.

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

Congratulations on the good results. I’m Thomas asking questions on behalf of Eddie Leung. Two questions -- can you provide a breakdown of 2G and 2.5G revenues under the wireless business? And my second question is what is the tax rate for 2008 after the implementation of the new tax rule this year? Thanks.

The breakdown for the wireless business was already sent to you in the worksheet, so if you haven’t got that, we will resend that. The tax rate, because we -- basically all of our operating entities in China are [inaudible] entities, so the tax rate will -- the new rules will not hit us as much as the local entities, so it will remain largely unchanged, with the exception that for some of the entities, we are already moving into from the tax holiday period to the tax pay, but the results, the EPS guidance that we gave out has already taken that into consideration.

Okay, thanks.

Thank you. (Operator Instructions) Our next question comes from the line of Leah Hao with Goldman Sachs. Please go ahead.

Congratulations on the good quarter. My first question regarding the advertising market, overall health of the advertising market, basically I was wondering -- with the new addition of advertisers, what kind of revenue concentration you are seeing from the top accounts? Or do you see the smaller accounts actually spent more money and dilute the total revenue concentration among the top spenders?

It remains pretty stable.

Okay, so would it be fair to say that the new account addition doesn’t contribute as much as the increase in spending from the top accounts still for the next year?

I think you will see both growing. You’ll see top accounts actually spending more and then -- but their percentage didn’t go up. The concentration to these accounts didn’t go up because we’ve got new accounts that keep coming in.

Okay. Thank you. And also related to the advertising side, what is your expectation related to seasonality or the allocation of the total full year ’08 budget into the quarters? I know it’s still early for you to say but what would be the -- your expectation as of now?

Our expectation right now, the seasonality of course I mean -- typically it’s Q2 and Q3 being the most heavy spend quarters, as far as ad spend is concerned. So you will see that spike even more acute this year with the Olympics. I think that’s pretty obvious.

Right, or I guess in other words, on a year-on-year basis, would you see -- would you expect Q4 of ’08 will post a pretty big drop-off versus Q4 of ’07 on a year-on-year basis for branded advertising?

I don’t think so because you will -- actually post Olympics, you will see a lot of celebrations and after, post-events coming. We would actually -- the seasonality will be a spike for Q3 but we don’t see a major fall-off after the Olympics.

There is going to be a long tail of the Olympics effect.

Thank you. That’s helpful. Lastly, regarding your marketing budget for full year of ’08, what is your plan regarding the increase in marketing expense for breaking down by different categories, either it’s game, you know, for Tian Long Ba Bu, or branded advertising, what will be the approximate proportion with your marketing budget, please?

I think online games will have its regular marketing spending as previous quarters. It’s because the quality of the game continues to get new users by itself without a large spending on marketing. Our marketing will continue to be the overall Sohu brand and also the Sohu media platform, and the web 2.0 products and blogs and the space products for 2008 definitely will continue to spend on Sogo, the search engine and Pinyin method, which we still hope that in the future will provide a growth engine for Sohu. Here I want to -- because it seems not many people are asking questions about Tian Long Ba Bu and online games and the focus is on advertising, here I want to point out a link, an important point is that Tian Long Ba Bu's game is a little bit different from other standalone game companies’ game, by pure marketing and really our marketing campaign to get users. Tian Long Ba Bu grows out of the Sohu platform and we now already have 23 million registered users and daily active users, 1.5 million active users every day. And we have a game information portal, 17173, which will help us. We made the right acquisition a few years ago so that that game information portal helps us to capture the online game boom, the advertising dollar. At the same time, the 17173 platform also helped to get new users for Tian Long Ba Bu but the users of Tian Long Ba Bu actually increased the stickiness of the overall Sohu platform, so that daily 1.5 million average users will also be the Sohu Passport users and the Sohu Matrix users, and that will basically to overlap and to interact with the existing Sohu Matrix users to make the user base larger and stickier. That will improve the group click-through rate of brand advertising. So that means Tian Long Ba Bu and Sohu games is not a standalone game. It will help -- Tian Long Ba Bu's growth will help overall Sohu brand advertising in the future. That’s a very important point that is sometimes missed by the street.

Thank you.

Thank you. Our next question comes from Wendy Huang with Bear Stearns. Please go ahead.

Good morning. Thanks for taking my questions. First, in terms of your advertiser categories, you just mentioned in your prepared remarks that advertising expenditures from financial advertisers grew 90% year over year, so going forward, do you expect the same robust growth in 2008? Will you be affected by the market weakness? And I have a follow-up.

We still expect a high growth rate from financial categories in 2008 because of the banks and the funds will continue to invest online heavily.

Okay, thanks. And secondly in terms of your direct sales force, could you maybe provide some data about the year-over-year growth in terms of a sales team expansion?

The headcount for the direct sales team grew about 30% in 2007.

So how much of your -- what percentage of your advertising revenue is generated by the direct sales and how much is generated by the agency sales?

The direct sales accounts for about 10% of the total revenue in 2007.

Finally, in terms of the Focus Media, Focus Media recently having and trying to consolidate the new media agencies in China, so will that affect your brand advertising business?

The total picture is not clear yet. We are still in the process of negotiating the rebate plan with the agencies, including Focus Media, which accounts for about 30% of our total revenue. But we will -- we will -- our strengthening our direct sales team strengthens the power of our direct sales team and influences clients directly. And then secondly, we are also control our rebate costs under careful calculation.

Okay, so 90% of your revenue is still generated by the agency sales and Focus Media agencies accounted for 30% -- does this mean that Focus Media agencies, they actually will impact 27% of your total advertising revenue?

They accounted for 30% of our total revenue on the channel side -- yeah, 27%, yes. You are correct.

So they are the number one agency for you?

After the consolidation, they will be the number one.

Okay, thanks. That’s great. Thank you.

Thank you. Our next question comes from Alicia Yapp from Citigroup. Please go ahead.

I have two questions regarding the online games. First of all, can you tell us, have you seen any impact from the recent snow storm? Specifically, any up-take or slow down in terms of the daily user traffic? And I have one more follow-up.

So for the whole, it’s 5% down -- I mean, some negative impact but overall, it’s not much impact. It’s already recovered, right? Because recently -- yeah, overall it’s not --

Okay.

Because the Spring Festival, people are -- a lot of people are spending a longer time on the road than last year, so no time to go to Internet cafes and head home to play games, but it’s temporary.

Have you seen any power outages that actually impact the café business?

On an overall basis, I think you can read it like this -- up to today, we have taken into consideration one, the negative impact brought by the snow storm, if any; and second is the negative impact that may be brought about through the Chinese New Year. We have been very closely monitoring the situation and yet we still give out the guidance that we give out today. So all these factors negative have already been taken into the Q1 impact, the Q1 guidance, which we think we’re still looking to do 5% to 10% growth quarter on quarter.

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

Congratulations on the quarter first, and Happy New Year. So the question is regarding -- you know, the question nobody asked but I guess that’s the only question left for me is regarding the wireless business. So Q4, you didn’t do much marketing for that and that doesn’t have a lot of cost but the revenue increased. So I just wonder what’s going to happen in 2008. What’s your take on that?

(Translation Not Provided)

Okay, the question is -- Q4, Tian Long Ba Bu grew rapidly, so what is Mr. Wang’s view on 2008? (Translation Not Provided)

Tian, can I just ask you to translate your questions in English after Chinese please? Thank you.

Okay. The last question was about the new game, Lù Dǐng Jì, I was asking about when -- Q408, is that the beta testing or commercial launch?

Great, and can we have the answer translated into English, please?

Okay, the answer is Q4 is going to be beta testing.

Great. Thank you.

Okay, so the last question will be Carol, it’s for you -- the tax rate, effective tax rate, what is going to happen in 2009?

Fifteen-percent.

Fifteen-percent, okay. Thank you. That’s all my questions.

Thank you. Our next question comes from the line of C. Ming Zhao with Susquehanna Financial Group.

Thank you. Congratulations. What a year for you guys in 2007. Happy Chinese New Year. My first question is about your advertising -- you have mentioned several categories that are booking triple-digit growth. I think you booked 46% year-over-year growth on the brand advertising, so there was some sector that have dragged the growth. Is this real estate? And a related question is from your operations, do you really see any slowdown in the macro-economy due to the tight monetary environment?

What’s your first question, Ming? I didn’t get it.

My first question is has real estate growth decelerated?

Okay, so first question is real estate, second question is macro-economy, right?

Yeah, do you feel any slowdown in the economy at all?

I did, to answer your second question.

How big of an impact is that on your business?

So Gong Yu’s answer for real estate is that in 2008, real estate advertising will be a little bit better than 2007 because Gong Yu is also in charge of focus.cn, which is a real estate portal.

Okay, and --

And for the macro-economy, I think we are still pretty -- I think the government, what they are trying to do is to make sure that things just didn’t get out of hand, instead of trying to crack down and turn it into something, a real slowdown. They just want to make sure that GDP growth is pretty much growing as planned.

And also, as Q4 demonstrated, that the online game and fast-moving consumer goods companies are spending more, so in 2008 we believe these two sectors will continue and especially consumer good companies will not be much affected by the overall economy, as people are going to continue to consume and spend.

Just to clarify, is advertising from real estate, has that sector decreased or just growth eased in the fourth quarter?

Yeah, it increased in the fourth quarter.

I see. My next question is about the games. When we look at the growth in the game business, one big driver is obviously the monetization level. It’s up pretty decently quarter over quarter and I just want to get a sense about what level the monetization you feel, sort of a more sustainable level in the future. At the current stage, are we at 25% of that or 50% of that or 75% of that? Can you comment on that?

Our target for a sustainable level on a long-term basis is about RMB170 ARPU -- 170.

So it’s lower than the fourth quarter level, is that the case?

No, the fourth quarter is 147.

147 is the fourth quarter and what is your sustainable level?

170.

170, okay. Okay, that’s good. And last question, just to clarify -- many people were asking this question about the branding investment. Is this $2.5 million, does that include anything that’s related to your spending on CCTV advertisement?

Yes.

So that’s already included?

Yes.

Okay, great. All right. Thank you.

This concludes our question-and-answer session. I would now like to turn the call back over to Brandi Piacente for any closing remarks.

We very much appreciate everyone’s participation in today’s call. Please feel free to contact us with any additional questions that you may have and thank you.

Ladies and gentlemen, this concludes the Sohu fourth quarter 2007 earnings conference call. If you’d like to listen to a replay of today’s conference, please dial 303-590-3000 or 800-405-2236 and enter passcode 11107529. ACT would like to thank you for your participation. You may now disconnect.