Ladies and gentlemen, welcome to the Sohu fourth quarter and full year 2008 earnings conference call on the 9th of February 2009. Throughout today’s 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 will now hand the conference over to Brandi Piacente, Investor Relations. Please go ahead.

Thank you for joining Sohu.com to discuss our fourth quarter and full year 2008 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; Vice President of Online Games, 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 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 market crisis and its potential impact on the Chinese economy, the slower growth the Chinese economy experienced during the latter half of 2008, which could continue into 2009; uncertain regulatory landscape in the People’s Republic of China, fluctuations in quarterly operating results, and the company’s reliance on online advertising services, online game services, and wireless value added services. Most wireless revenues are collected from a few mobile network operators 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, and thank you for joining us today. We are pleased to report another strong quarter of financial results. The fourth quarter of 2008 marks our sixth consecutive quarter of record total revenues and record net income. This is particularly impressive as it follows Sohu’s outstanding third quarter 2008 results which reflect the company's many achievements surrounding the Beijing 2008 Olympics. For the fourth quarter of 2008, our total revenues grew by 1% quarter on quarter and 86% year-on-year to US$121.6 million. Brand advertising revenues seasonally decreased by 9% quarter on quarter but increased 40% year-on-year to $45 million. Online game revenues reached $58.4 million, an increase of 7% quarter on quarter, and 144% year-on-year. Non-GAAP net income was $59 million, or US$1.5 per fully diluted share, up 38% quarter on quarter and 249% year-on-year. Excluding one-time income tax adjustments totaling $6 million, our non-GAAP net income would have been $53 million, representing a 24% quarter on quarter growth. Our Co-President And Chief Financial Officer, Ms. Carol Yu will discuss the tax adjustments in more detail later on in this call. For full year 2008, total revenues were US$429.1 million, representing an increase of 127% from $188.9 million in 2007. Brand advertising revenues grew 51% year-on-year to $169.3 million, significantly exceeding the high end of our guidance of 45% growth. Online game revenues increased to $201.8 million, which was almost five times of our 2007 game revenues. Non-GAAP fully diluted earnings per share totaled $4.29, compared with $1.12 in 2007. Non-GAAP operating margins for the full year 2008 was 41% compared with 22% in 2007. Non-GAAP net income increased to 39% for 2008 compared with 23% in 2007. During the fourth quarter of 2008, the company repurchased 501686 shares of its common stock under the $150…

Thank you, Charles. We are pleased to report another strong quarter of brand advertising revenues representing 40% year-on-year growth to US$45 million. Full-year brand advertising revenues were US$159.3 million, up 51% year-on-year. Advertisers were extremely satisfied with Sohu’s outstanding performance during the Olympic Games and their spending patterns continued in the fourth quarter due to Sohu's position as one of the strongest online advertising platforms in China. Things at our portal business remained healthy during the fourth quarter despite global economic weakness. The year-on-year increase in brand advertising revenues was powered by the continuation of the fundamental trends in online spending, including the continued shift of advertising budgets from offline to online and the overall effectiveness of advertisers marketing campaigns on Sohu’s platforms. Sohu recognized as the cost effective portal for launching marketing campaigns and there is a large and growing awareness that advertisers choose Sohu in order to maximize results from their online programs. The top three industries in brand advertising during the fourth quarter 2008 were automobiles, online games and real estate. These three industries accounted for over 50% of the total brand advertising revenues, up from over 40% in the third quarter. Many advertisers automobiles, online games and real estate ramped up their new product launch and marketing campaigns in the fourth quarter, after avoiding the crowded advertising marketing space during the Olympic Games. The fastest advertising growth in the fourth quarter came from online games with year on year growth over 55% due to strong demand in the industry across China. We are negotiating with advertisers for their 2009 budget allocations to Sohu. It is too early to comment on expected brand advertising revenues growth for full year 2009. However, we can provide additional visibility into some of the key business drivers. First, we believe automobiles…

Thank you, Belinda, and hello everyone. I will now provide a review of the financial results for the fourth quarter of 2008. One, revenues. Starting with the top line results, total revenues reached a record of 121.6 million, representing an increase of 1% sequentially and 86% year-on-year. Advertising, total advertising revenues reached 46.6 million, representing a sequential decline of 9% and a year-on-year increase of 38%. Brand advertising revenues totaled $45 million representing a sequential decline of 9% and a year-on-year increase of 40%. Sponsor search revenues were 1.6 million, representing a sequential decline of 6% and a year on year increase of 6%. Non advertising revenues, non advertising revenues totaled 74.9 million, representing an increase of 8% sequentially and 137% year-on-year. Online games revenue totaled 58.4 million, an increase of 7% quarter on quarter and 2.4% times that of fourth quarter of 2007 due to continued strong performance from TLBB and the successful revitalization of Blade Online. For the fourth quarter, revenues from TLBB in Mainland China increased by 7% quarter on quarter to 51.5 million while overseas revenues were 2 million, bringing TLBB's total revenues to 53.5 million. Revenues from Blade Online grew 35% quarter on quarter to 4.9 million. Wireless revenues were 14.8 million, a quarter on quarter increase of 2% and twice that of fourth quarter 2007. As a result of tighter regulatory environment, we expect wireless revenues for the first quarter of 2009 to decrease by roughly $1.5 million to $1.8 million. Two, gross margin. Under SFAS 123R, share based compensation expenses were tied to the quarter’s cost of revenues and operating expenses. Total share based compensation expenses for the fourth quarter were 2.4 million. We believe excluding the share based compensation expense from a non-GAAP financial measure of net income makes a more meaningful…

Thank you. (Operator instructions). The first question comes from Jason Brueschke from Citigroup. Please state your question. Jason Brueschke – Citigroup: Great. Thank you. Good evening everyone, and congratulations on really a fantastic year. Carol and Belinda, the first question I have is on brand advertising and then I have one on the games. When I look at the guidance that you have given and I hear the prepared remarks, there seems to be a number of moving parts and I wonder if you could comment on, on the one hand, Q1 is seasonally the weakest quarter for advertising. But at the same time a year ago, you did not have as much Olympic related advertising, and yet as the year progressed in 2008, you had more and more Olympic advertising, and thus it seems like to me the comp, in terms of your year over growth, could get more challenging as 2009 goes on. At the same time, Belinda mentioned that orders, and I think especially real estate advertising likely will be back end loaded, that may be offsetting some of the Olympic effect. And I guess the question is the year-on-year growth that you have got in Q1, is that going to be – do think that’s going to be one of the strongest quarters of the year, is it going to be – or shall I say – it’s going to be one of the weaker quarters and we expect the year over growth to actually accelerate as the year goes on? That's the first question.

Jason, we're not giving our full-year guidance yet. I will just let Belinda take that question, but we're not giving out full-year guidance yet. Wait until we finish signing up our annual framework contract, when we do our Q1 call. Jason Brueschke – Citigroup: Okay, fair enough.

Jason, as Carol explained, we are in the process of negotiating with the advertisers on the annual framework, so it is still too early to comment on the full year revenue growth. But talking about the first quarter revenue, I think because of the economic weakness, some companies will be cautious about the marketing budget spending for 2009. So this also reflects in first quarter. So especially those companies in real estate, automobile, PC, housing apparatus, online games. However, I think what with our make efforts is that we will try to lead them to a bigger portion of their marketing budget online based on the bigger user base, based on the better user efficiency and cost effectiveness.

Shift to online. Jason Brueschke – Citigroup: Okay, thanks.

Also at the same time, the company's FMCG and pharmaceutical will be less affected by the economic slowdown. So we – they will invest more budget online. Jason Brueschke – Citigroup: Understood. I appreciate that. Let me – just a quick question on the online games business, specifically with TLBB. You’ve indicated that you have – because you guys have done enhancements to the free to play aspects of the game and in the prepared remarks you indicated that some of the marginal or the low-paying players have now opted for free. When we think about the various metrics, it looks like you have increased the total number of players, which my guess is it bodes well for the future, and that the average revenue per paying customer has gone up nicely sequentially, but the total number of playing customers actually was flat, and I assume that because the total number has kind of – well some of them have shifted to free to play. And the two questions I have within this are, should we expect the APA to actually increase going forward as a result of this free enhancement? And then secondly, can you tell is, right now as of Q4, did you have any material revenue concentration within the APA? The average you said is 193 RMB and my question is, is the mean materially higher or is there any type of 80-20 rule going on within the APA? Thanks.

The question on APA is like what Charles explained in his script that the APA was flattish in Q4 because we introduced– we made some of the previous paying items to be free. But as we continue to make the game more sticky, and introduce new items instead, we actually saw APA going up if we compare the month of January to the month of December. So that was in the remarks as well. And your question regarding – we're actually also seeing the month-to-month outlook going down, which we see as getting very healthy. Regarding your concentration of high-paying customers, we actually saw a lowering of the of spending by higher paying customers and the lower paying customers actually spending more. So we're actually seeing the structure becoming more and more healthy. I think we should be now be much – we are doing better than the 20-80 rule. Jason Brueschke – Citigroup: Great, thanks. That's exactly what I was looking for and congratulations again.

Thank you.

The next question comes from Dick Wei from J.P. Morgan. Please state your question. Dick Wei – J.P. Morgan: Hi. Congrats on the good quarter and thanks for taking my question. First question again on advertising, I guess you guys didn’t give out guidance for 2009, but is it possible to give more color on the current situation of brand advertising? For example the dollar amount of the framework contract signed versus last year, just the – is the advertisers attitude become more constructive after Chinese New Year, and what type of kind of rate cut increases do you expect for 2009? That would be great.

Belinda is frowning because she said – she felt she has entered that. But I actually asked her before the call started. I think to us it is more business as usual. The progress and everything that we have been seeing this year is very similar to previous years. We are not seeing major delays in terms of advertisers committing their budgets, because they need to do the businesses themselves as well. But for some of the industries, we actually expect more backend loaded such as real estate as we previously explained. Dick Wei – J.P. Morgan: Right, great. And then the second question I have is in terms of the cost side, Do you know what kind of margin trends for game advertising you expect to see for the rest of the year, and also I guess any cost saving in terms of the G&A and your other operating line when you compare – when you look at 2009 versus 2008?

Our strategy for this year is despite the fact that a lot of people think that it is a very tough year, we continue to see our business continue to grow well, and we do expect to use this as an opportunity to capture more market share. So we will continue to re-invest back into the business but we do expect operating margin to stay very much at the same level as 2008. Dick Wei – J.P. Morgan: Okay, great. Thanks a lot.

The next question comes from Eddie Leung from Merrill Lynch. Please state your question. Eddie Leung – Merrill Lynch: Good evening everyone. I have a couple of questions, the first one is regarding the advertising business as well, if you guys do not have the full year visibility at this moment, perhaps could you talk about the requirements from advertisers this year versus previous years, do we see their focus changing from certain aspects? That's my first question.

What kind of aspects do you mean? Eddie Leung – Merrill Lynch: Perhaps for example, do they become more cost conscious, do they have a requirement of more flexibility in terms of putting in the orders like shorter notice periods, perhaps on the format of different advertisements, various displays – versus displays versus search, et cetera?

Yes, I think the advertiser always gives this kind of requirements to our team. So it is as I mentioned earlier some industry – some companies in some industry category like automobile, real estate, PC, housing comparators and even online games, we will focus – because we have limited budgets, so we will focus more on the cost efficiency and the user effectiveness. So based on that, our team e will work more diligently on the events marketing and effective marketing, even wealth [ph] marketing. Eddie Leung – Merrill Lynch: Got that. And how about… yes, go ahead.

There are different – more forms of media platforms, not only just the text based 1.0 media, but also the blogs, the message boards, and the video and also the opinion – information process online. So basically provide more forms that when a more cost effective conscious advertisers to spend money, they just try to experiment with all these new forms, try to increase their effectiveness. And also, this will also, especially for Sohu, because Sohu is such as diversified company in terms of products, so we have many innovations in different – in many areas and that's why it's always lot of new experiments with these forms.

Yeah, in at least in Charles comment in the year 2009 I think a lot of companies will focus – will be more sales driven, so will focus more – will make more efforts on the offline and online interactive marketing campaigns help them to drive more sales. Eddie Leung – Merrill Lynch: That is very, very helpful. And my last question is on the perhaps could you guys give us the full year capital expenditure for 2008 and if there is any plans for 2009?

I don't have it off-hand. I will send it by mail. But we do have – I think the CapEx for this year and last year will be very similar. Eddie Leung – Merrill Lynch: Got it. Thank you.

The next question comes from Paul Keung from Oppenheimer. Please state your question. Paul Keung – Oppenheimer: Yes, hi. Good evening. Couple of questions, the first one has to do with the rate card discount, I was wondering if we look at the rate card discounts that you were looking at in the fourth quarter and average in 2008, how the trend has changed in 2009 again, and particularly what is embedded in your first quarter outlook? And second on the Tian Long Ba Bu, I was confused by the commentary because you're suggesting that the lower paying accounts are paying more, the APA numbers are flat, but then your PCU numbers and the user numbers are growing, and historically more often than not, games that showed those trends tend to pretty strong sequential revenue growth. You are guiding to somewhat flattish outlook, so I was curious what – is it just a function of being conservative, or is there something else I am missing in those operating trends with TLBB?

Regarding the rate card, I think we will remain the present price by this quarter's end, and we plan to adjust the pricing early April. That means we will increase the price of some card advertising resources in a limited level, and will decrease the price of advertising resources which are not so fully occupied.

And going to the question of games revenue guidance, I mean as we keep explaining, Chinese New Year is the lowest season for game players. They all go back home and join other forms of entertainment with their family and so on, so we're conservative, but it is also reasonable for us to guide flat. Thank you Paul. Paul Keung – Oppenheimer: And if you don't mind, one last question. The last question is more a strategic one for you guys, you might have been asked so many times, but I have been talking to some of the advertisers, some of your customers following the Sina-Focus merger announcements, and one of the things that Sina has talked about openly is they have about 300 customers to Focus much larger customer base and one thing they want is the synergy there just to take on, possibly take on some market share by adding a much broader customer base from the Focus Networks, so I was curious how do you think about that competitively from where you sit in terms of looking at it from a business standpoint? Do you think that it could have an impact on market share long-term if they could do that appropriately and then how would you respond to something like that in the long term?

So far we don't see any impact on our business and we are confident in our advertising revenue growth based on Sohu’s more and more powerful media platform.

Yes, I think we need – we are focused on building really the best, most desirable Internet properties that whatever – any advertisers, they cannot miss, and it will give a much powerful platform.

And if I may just add, where we have an acquisition either of companies or of assets, we have heard about the world synergy, and we saw how that works within Focus Media. So after the acquisition or purchase by Sina, we have yet to see how that works, synergy works within Sina. Thank you. Paul Keung – Oppenheimer: Thank you.

The next question comes from Kathy Chen from Goldman Sachs. Please state your question. Kathy Chen – Goldman Sachs: Hi. Thanks the call. I had three questions. First can you talk about more about the wireless guys, potential you are seeing in terms of the guidance, the revenue for the down quarter on quarter, what exactly are you seeing in terms of the regulatory and business environment? The second question is on the game side, can you share any initial metrics from the technical testing for DMD and Immortal Faith? And the last question is on your cash balance, given the net cash of over 300 million, what is management's outlook in terms of potential cash usage? Are there any potential acquisitions that you're looking at?

I will take the first two. Regarding the wireless revenues, we actually said on the call last quarter that we were actually seeing more stable regulatory environment, and part of the reason why our wireless revenues have been growing is because of certain preload features into handsets. Unfortunately towards the end of 2008 and start of 2009, the operators and the authorities were kicking another round of new regulations requiring preload handset features to also need second confirmation. So that leads to an expected decrease in our revenues by about 1.5 million to $1.8 million. Second?

Acquisition, right? Cash level and…

Sorry, Kathy. What’s your second question? Kathy Chen – Goldman Sachs: Sorry, just any initial metrics you can share in the technical testing of Duke of Mountain Deer and Immortal Faith?

Duke of Mount Deer, my apologies. My games team insisted that everything on Duke of Mountain Deer has to remain very confidential for competitive reasons. So I'll turn it over to Charles to talk about acquisitions.

Well, I think the investments – the best investment is in Sohu itself because we have confidence over the management and our technology innovations. So first of all, we have this 150 million share buyback program, and also we have many new products like video online, the – so these card families and also – so we believe that – we do not believe the Internet acquisitions, especially for community website, the consolidation, the integration has great challenges. So we have great cash balance, but we will more use them to invest in our self, either by share buyback or technological innovation and the balance in CapEx. Kathy Chen – Goldman Sachs: Okay, thank you.

The next question comes from Ming Zhao from Susquehanna. Please state your question. Ming Zhao – Susquehanna: Okay. Thank you for taking my questions. A couple of small questions, so first of all, Belinda, can you tell us what is the percentage of FMCG in your advertising revenue and also how does that compare to the third quarter?

Ming, you are asking about fourth quarter, right? Ming Zhao – Susquehanna: Yes, Q4, yes.

In the fourth quarter, the FMCGs segment accounted for less than 10% of the total revenue. Ming Zhao – Susquehanna: And is that an improvement from the third quarter?

I think almost keep flat compared with the performance in the third quarter 2008.

So, no decrease, right, from…

Yes. Ming Zhao – Susquehanna: You mean percentage flat or the absolute dollar amount flat?

Percentage. Ming Zhao – Susquehanna: Okay, all right. The second question, is how is financial service industry doing in the revenue line?

Actually in the fourth quarter, the financial statement decreased. But as always, it’s not been a big factor for us. Ming Zhao – Susquehanna: Okay, all right. Understand. And Carol, what is the other revenue in your revenue lines, what business are those?

We have certain projects undertaken by, for example, Go2Map. Ming Zhao – Susquehanna: Go2Map, okay. But that business line has been pretty volatile?

Yes, because those are on project basis. (inaudible) but that has always been pretty small when compared to our whole pipe. Ming Zhao – Susquehanna: All right, okay. My next question is, Charles, we have seen some new features on SoGou Pinyin, people can use SoGou Pinyin to search, can you give us some color on the user behavior after you have launched that feature, can we see any meaningful change this year in the search business?

Well, thank you for your attention to that detail. It is important, but we only recently launched the SoGou Pinyin 4.0, and so the users probably definite but mostly people using SoGou Pinyin to input Chinese characters rather than doing search. So it is really a brand exposure that try to tell people that SoGou is not only about SoGou Pinyin method or desktop software but also about search. So that is important and we also have other some marketing programs for Sohu search, so it’s – so we should expect that SoGou search engine because of the vast desktop user base of the SoGou Pinyin and also we launched our new SoGou browser, also basically desktop publication, with the help of this software and also with SoGou, its own technology, superior technology, but we probably missed on the product side, but now we are improving on the product side. So I think we should expect some healthy good growth of search traffic during 2009, and that will mean translate into SoGou advertising, search advertising revenue in 2010, but basically traffic first and then revenue follows. But we never give up SoGou and we have high hope for SoGou search. And I think I hope that entering into 2010 and especially 2011, the search revenue will become probably after game advertising, brand advertising and wireless, and then the fourth pillar – fourth major income, I mean revenue engine for Sohu. Ming Zhao – Susquehanna: Okay, thank you very much.

I will now hand the conference over back to management. That's the last question we have time for. Please continue.

Thank you everyone for joining us today. Please let us know if you have further questions.

This concludes today's conference call. Thank you for participating.