Good evening, and thank you for standing by for the Sohu third quarter 2009 earnings conference call. At this time all participants are in a listen only mode. After management 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 meeting over to your host for today’s conference, Mr. Derek Mitchell, Sohu Investor Relations Representative from Ogilvy Financial, please proceed.

Thank you and thank you all for joining Sohu.com to discuss our third quarter 2009 results. On the call today are Chairman and Chief Executive Officer, Dr. Charles Zhang, 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 prepared remarks, I would like to read you this 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; the current global financial and credit markets crisis and its potential impact on the Chinese economy, the slower growth in the Chinese economy experienced during the later half of 2008, and the first nine months of 2009, which could continue through the remainder of 2009, the uncertain regulatory landscape in the People’s Republic of China, fluctuation in Sohu’s quarterly operating results, EPS dilution resulting from ChangYou’s initial public offering, Sohu’s historical and possible future losses, and its reliance on online advertising sales, online games and wireless services. Most wireless revenues are collected from a few mobile network operators for its revenues. Further information regarding these and other risks is included in Sohu’s annual report on Form 10-K for the year ended December 31, 2008 and other filings with the Securities and Exchange Commission. Now let me turn the call over to Dr. Charles Zhang, Chairman and CEO. Charles, please proceed.

Thank you, Derek. Hello everyone and welcome to the call. Today I’m pleased to report that the third quarter of 2009 was another solid quarter for the Sohu group. During the third quarter we achieved record total revenues of $136.6 million, US dollars, in line with our third quarter guidance and the translating into growth of 13% year-on-year. This result was a testament to the solid execution of our business strategies during a challenging macro economic environment. Brand (inaudible) revenue increased 11% quarter-on-quarter to $48.5 million in line with our guidance, and down slightly year-on-year. Our brand advertising business over the first nine months of 2009 have been quite strong and recorded a revenue growth of 5.6% year-on-year despite heavy advertising spending pertaining to the Beijing 2008 Olympic Games and unfavorable economic environment in 2009. Our online game business posted record high revenues of $68.7 million, also in line with our guidance and translating into growth of 3% quarter-on-quarter and 26% year-on-year. For comparison purpose before deducing the share of net income pertaining to the non-controlling interesting in ChangYou, non-GAAP net income was $51.6 million in line with our guidance, up 5% quarter-on-quarter and 21% year-on-year. After the deducing the share of net income pertaining to the non controlling interest in ChangYou non-GAAP net income was $37.4 million or $0.96 per fully diluted share in line with our guidance. Our achievements can be attributed to continued growth in Sohu’s two core businesses, our portal business and online game business. A strong growth momentum and innovative products have positioned us as a leading Internet company in China. Fortune magazine recently labeled Sohu the third fastest growing US listed company based on our financial performance over the past three years. During this period we achieved an annual growth rate of 78%, total…

Thank you. Hello, everybody. I will walk you through our financials for the third quarter. One, revenues; starting with top-line results, total revenues were $136.6 million, representing an increase of 7% sequentially, an increase of 13% year on year. Grant advertising revenues totalled $48.5 million, representing a sequential increase of 11% and a year on year decrease of 2%. Online game revenues for the third quarter grew to $68.7 million as previously guided, an increase of 3% sequentially and 26% year on year. Revenues from the game operations increased 3% sequentially and 29% year on year to $66.9 million. This increase was mainly due to the increased popularity of our flagship game, TLBB. We would also like to note that we have removed from TLBB, all features related to the random drawings of virtual items in early July. Overseas licensing revenues were $1.8 million, an increase of 9% sequentially and a decline of 33% year on year. The sequential increase was mainly due to increased momentum of TLBB in countries such as (inaudible) and Malaysia. Recently we have also licensed TLBB to a game operator in Thailand. We will continue to license our games to selective countries to expand our global footprint. Wireless revenues were $16.8 million, a quarter-on-quarter increase of 12% and a year on year increase of 16%. The increase in wireless revenues was mainly achieved by the company's promoting its products through a greater number of channels. Most of the remaining figures I'll be discussing will be non-GAAP. Share based compensation expenses are charged to the quarter's cost of revenue and operating expenses. Total share based compensation expense for the third quarter was $4.5 million. We believe excluding the share-based compensation expense from a non-GAAP financial measure of net income makes a more meaningful comparison of Sohu's…

(Operator's Instructions) Your first question comes from the line of Catherine Long (ph) with Citigroup.

Hi. Thank you for taking my question and good evening. My question is, as we approach the peak season of next year's advertising budget negotiations, how are you targeting your investments to what you would expect to be the fastest growing advertising categories for your business — something which I think is something that you have already alluded to in your prepared remarks with reference to the auto industry.

We'll surely be making pathways in the auto industry as we have always done and you can see it from this year's results, but I will maybe let Charles talk about our video strategy.

Well, I think the auto industry advertisers tend to do TV commercials, so they like those TV commercials. So it is perfect just to use those TV commercials to advertise on Sohu Video TV Channel. So in the fourth quarter we'll buy more content, we'll fight piracy harder, and we'll make sure that — and also you can see the bandwidth increase and we'll expect higher traffic and more auto and other kind of advertisers to advertise on our TV channel.

So we actually believe that if you're talking about the industry, we believe auto will still be very strong, but in terms of the mode of advertising, we believe video will be a strong growth point for us where we will be making significant investments.

And can I ask, in addition to auto, are there any other industries which you think you already have the early indications that they will be increasing their advertising spend materially next year and for which you are already preparing in terms of your content or maybe your branding strategy?

I think right now it's too early to say because it's only in October. If you remember, every year we only gave out our annual guidance in April or May. So right now we can't really see what are the early indications, but we would expect that for industries that continue to switch from offline to online such as autos and FMCGs will be our big growth drivers.

And the health industry.

Okay. Thank you very much.

Your next question comes from the line of Dick Wei with JP Morgan.

Hi, thanks for taking my questions. I have a question regarding the cost side of things. I think we mentioned about this brand market thing — expenses is coming down in the fourth quarter, but I was looking at the guidance, the margin is not really picking up. I wonder, besides the additional $2 million of video-related cost, what are the additional costs that we expect to see and how is it going to trend maybe into next year or longer term? Thanks.

Other than the Browse Sohu, Know the World — like what I have said before, we will be making substantial investments in the video side. Others the margin trended down mostly because our revenue trended down. So I don't see any special items where there are any special costs or expense items that would lead to the fall in margin.

And this around $2 million of video expenses that will be constantly ongoing, additional expenses not a one time expense, right?

Hopefully it will actually be trending up because with the increased viewership in the video, we will expect that that will continue to add more bandwidth cost. But on the other hand, like what we said earlier on, because we expect video advertisements to be picking up next year as well, we do expect that the margin, if we do a good execution, margins could stabilize.

Great. Thanks a lot.

Your next question comes from the line of Eddie Leung with Banc of America-Merrill Lynch.

Good evening, everyone. I have a couple of questions regarding your advertising business. The first one is regarding competitions on the real estate assessment. Given some of the competitors seem to have a pretty aggressive expansion planned, can you comment on the competitive landscape you face in the real estate advertisers' segment, and what are your tactics to face the competition? Thanks.

Well, on the content side during the start of the quarter we integrated the real estate focus (inaudible) site well with the overall Sohu platform because the real estate industry, the housing, and property — all these things are closely related to the Chinese economy and are becoming a public topic on the mainstream discussion so it is really a very important part of the Sohu portal. So the integration of content is the focus with the Sohu portal and that's our strength. So instead of splitting the real estate portal to be a separate entity, to actually integrate. At the same time we have integrated sales efforts with our advertising sales force and the real estate, so the integration is basically on the content side and on the sales time side and I think the (inaudible) has already passed the bottom in (inaudible) and then really coming up. So we would expect the performance would be better, but then it would really depend on the macroeconomic situation.

I see. Thanks, Charles. The same question is on the number of brand advertisers. Could you share with us the change in brand advertisers during the quarter?

Hold on one second, I'm digging that up. We have now about 780 advertisers as compared to 680 in the quarter before.

Got that. Thank you, Carol. Thank you, guys.

Your next question comes from the line of Jenny Wu with Morgan Stanley.

Hi, everyone. Thank you for taking my question. First one is on the brand advertising, and basically what is the revenue contributions from your video products? And I have a followup.

It is still — it was zero a quarter ago and is still a couple of million dollars right now, but we're seeing a pretty nice trend from here.

Okay, sure. And (inaudible), your real asset initiative, so I remember last time you mentioned after the new team got on board, Sohu's (inaudible) advertising has returned back to normal levels in 2Q. So the question is, after so many efforts, what is the revenue contributions from this sector — how much —

What's the sector you're asking, Jenny? Say that again.

About the revenue contributions from your assets, and specifically did you see some growth in Q on Q and year on year?

We are actually, after the team reorganization, in terms of percentage, we are actually seeing a stabilization in the maintenance level of the real estate revenue. In terms of the year-on-year growth, actually we're seeing a down year or down three quarters for the first three quarters combined in the mid-teens level, but we actually expect a up quarter for Q4 on a year on year basis, but for the whole year we are seeing things trending down.

Okay, sure. And so now regarding your pricing, and I mentioned to you last time you were increasing the price in October, so how much you increase in practice now?

Key channels we increased by about 35% and then if you're talking about, on average, again, it is low teens.

Okay. Thank you very much. That's all my questions.

Your next question comes from the line of Ming Zhao with Susquehanna Financial Group.

Hello. Thank you for taking my question. Good evening, everyone. I just want to ask you about 4Q advertising guidance. It's implying a down quarter sequentially. Usually, except last year, Q4 advertising revenue would be up quarter over quarter so I just want to get a color on why this year you are seeing something different?

I don't think there's any particular reason. One of the reasons why we're seeing a weaker — as Charles mentioned on this call, a weaker Q4 than people have expected or as some of as previously expected, is because of online games and real estate weaker than what we thought. And the reasons have already been outlined in Charles' script.

Okay. Maybe another way to ask the trend here, could you tell us what is the monthly trend in the third quarter in July, August, and September months, which month is strongest and which one is weakest?

I think it's pretty evenly distributed. We don't see any particular trends because of what I said in the earlier calls, I mean, Q3 is the peak season for doing all these marketing programs so it's pretty evenly distributed.

And also the contract we signed quarter to quarter, or two quarters ago, is a big contract so the allocation is really very even.

Okay, good. Thank you.

Your next question comes from the line of Kathy Chen with Goldman Sachs.

Hi, thanks for taking my question. Just a couple of questions on the cost side; it looks like G&A spend was higher during the quarter, could you just give us some color on whether we should expect these additional costs in the quarter to continue going forward. And then on the sales and marketing side, I got the color on the brand marketing side, but is there any indication yet on whether you will continue the brand marketing spend next year? Thanks.

Let me answer your second question first. I think as far as our strategy is, I think in terms of percentage of sales, we'd probably be looking at a stabilized percentage for next year, and then for G&A it would probably be trending down a bit in the fourth quarter by about $1 million.

Okay. And then sales and marketing as a percentage of sales has stabilized this year, was that meaning stabilized versus this year or past years?

Yeah, compared to this year.

So, but this year includes the brand campaign spend.

Yeah. So we'll continue with that.

Okay. Got it, thank you.

Your next question comes from the line of Gene Munster with Piper Jaffray.

Hey, good evening. Could you talk about the news platform in terms of number of journalists that you've had and how that's been trending? And second, this is just to confirm, 2010 the branded add growth should be up over 2009 so the tough comp this year, but just want to make sure that everyone's on the same page with that? Thanks.

In terms of head count, we probably have about at house and editors in total combined, all of our channels and the like. And in terms of next year, I don’t' think anybody is looking at a down year for next year, especially as next year will be an event-rich year with World Cup, Expo, and the Asian Games to be held in Guangzhou.

Okay. And the thousand journalists, what was that, let's say, six months ago?

Maybe 900.

Okay, great. Thank you.

Your next question comes from the line of Jeffrey Lindsay with Sanford C. Bernstein.

Hello, good evening. Can I ask two questions? First, how's TLBB or any of your future games been impacted by the Ministry of Culture requirements around things like game violence and content? Will we see any delays or any modifications or additional expense because of this?

Actually, in the TLBB we have already removed all the random drawing items since early July of this year. As we mentioned in the earlier call, that actually those revenues only account for less than 1% of our total online gaming revenue, so that's number one. Number two is we will continue to follow all the required regulations of the regulators and we don't expect delays of our games because of that.

Okay. And could I ask also, for your mobile value added services, the margins were down. And are there any additional charges that you're incurring or is this just a difference in the structure of the business this quarter?

Well, because we've done more channel marketing, especially through TVs, so margin has compressed a bit. Other than that there is no other reason.

Great. Thank you.

Your next question comes from the line of Wendy Wong with RBS.

Hi. I just have one question regarding online advertising. I just wonder, your guidance which implies 3%-8% sequential decline, is it just because Sohu has more exposure to the online game advertising than your competitors or is it because we are actually seeing kind of double dip of the online advertising demand in China?

You are talking about the sequential decline, right?

Yes. Because based on —

It could — what we have just mentioned, as we outlined in Charles' script, we are seeing weakness from the real estate vertical as well as the online gaming vertical so it is primarily coming from these two verticals.

Okay. So based on your recent talk with advertisers, are you seeing a continuing upward change of the demand coming back and confidence gradually building up around the advertisers’ side, or are you seeing they are still cautious about their monthly dollar spending?

We are actually seeing pretty "normal" advertisers' behavior in Q3 other than these two verticals that we have just mentioned.

Thank you.

Your last question comes from the line of Wallace Cheung with Credit Suisse.

Hi. A very quick question regarding (inaudible). I think the main reasons behind —

We can't hear you, Wallace.

Sorry about that. Okay, let me repeat the question again. It is regarding the sponsor search revenue. There are two strong quarters growth sequentially, any specific reasons behind any reasons related to the Sogo Pinyin? Thank you.

Yeah. I think the sponsor search still have a small number on the revenue side, but it's doing well now. It's a combined effort of a better Sohu brand because of the Sogo Pinyin and also increased traffic and also a better commercial system that monitors — provides a better mesh of the queries with the advertisers so it's really a combined effort. So it is a small number, but of strong growth, and we also expect the Q4 strong growth and the 2010, but it's something that probably is working a little bit now.

Is there any plan to have a new strategy on the wireless search side?

Well, yes. We are looking at that, but we believe that wireless search is no different from PC-based search, it is just an extension. So we need to make sure because the WAP search is really — WAP is really not an independent separate category. There are only a limited number of WAP sites so for wireless search it is really about web search so we need to first make sure that Sohu PC-based web search a success, or at least catch up, and have a slice of the pie. And then wireless search is definitely a natural extension. And also we're also looking at the Sogo Pinyin merchant and we hope that we'll be able to repeat the success of Sogo Pinyin on the PC platform and repeat that success with mobile phones.

Thank you very much.

We are now approaching the end of the conference call. I will now turn the call over to Sohu's Investor Relations Representative from Ogilvie Financial, Mr. Derek Mitchell of Ogilvy Financial for closing remarks. Please proceed.

Thank you, everyone, for joining today's call. If you have any followup questions, please do not hesitate to contact Sohu. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day, everyone.