SOHU.COM INC. (Exact Name of Registrant As Specified in Its Charter)
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Dear Shareholders: In the past year, the internet industry in China has continued to see a fast pace of growth and undergo a profound transformation. The PC to mobile migration is reshaping our industry. Hundreds of millions of people are increasingly using mobile devices to access and consume online content. As a pioneering company in the industry, we have worked hard to build our own capacity to respond to the changing habits of users. Our range of mobile applications, including Sohu News, Sohu Video, and the mobile version of Sogou Pinyin, the dominant software for Chinese language input, helped us maintain rapid user growth across our platform and a leading position in each of the segments we operate. In terms of financial performance, our key business lines achieved solid revenue growth which enabled us to make proactive investments in a variety of new initiatives, especially in mobile. Total revenues reached a new record at US$1.4 billion, up 31% year-over-year. For online video, revenues more than doubled from a year ago, primarily due to our strong content offering and enhanced sales efforts. Our search subsidiary, Sogou, formed a strategic partnership with Tencent. The deal made new Sogou a stronger contender in Chinese search market. And our online game subsidiary, Changyou, delivered another year of record revenues while investing aggressively in its game pipeline and platform initiatives as it looks to secure opportunities for long-term growth. Financial Highlights • Total revenues set a new record at US$1.4 billion, up 31% year-over-year. • Net brand advertising revenues were US$429 million, up 48% year-over-year. • Sogou revenues were US$216 million, up 65% year-over-year. • Online games revenues were US$669 million, up 17% year-over-year. Operating Highlights Sohu Video Sohu Video continued to focus on bolstering its content library in 2013. We broadcasted the record setting variety show “Voice of China” season 2, and released nearly 150 new domestic television dramas. We also maintained our position as the No 1. online destination for American dramas, with a broad coverage of award winning TV series, including House of Cards, Breaking Bad, and Modern Family. Furthermore, our original web comedy series, Diors Man, became a big hit and further boosted our confidence to produce other new shows that will appeal to online audiences. Driven by a strong portfolio of content, our user base and traffic continued to grow quickly. In December 2013, daily video views rose by nearly 60% from 12 months ago. In particular, mobile traffic saw much stronger growth, expanding over 550% and accounting for more than 40% of our total traffic by the end of the year. Benefiting from solid traffic growth and improved sales efforts, video advertising gained strong traction and surged 125% year-on-year. During the year, we effectively broadened our advertiser network, expanding the total number of advertisers and their average spending by over 90% and 40%, respectively, from 2012. Starting the second half of 2013, we began to sell ads on mobile and have received positive feedback from advertisers so far at early stage. We expect mobile advertising to ramp up significantly in 2014. Entering into 2014, the competition among major video platforms for hot content remains intense. At the same time, we believe the industry outlook is still promising and video business is critical to Sohu Group, therefore we are determined to keep aggressive investments in the business. As of the date, we have secured a strong pipeline of licensed content, including top-rated domestic TV dramas, exclusive American shows, such as the new season of House or Cards, Saturday Night Live and The Ellen DeGeneres Show, and many popular Japanese animations. In addition, we plan to expand the spectrum of categories of Sohu Originals, including web series, talk shows, reality shows and others. Sogou In September 2013, Sogou received a strategic investment from Tencent. Tencent invested US$448 million in cash and merged its Soso businesses and certain other assets with Sogou. The deal helped Sogou strengthen its market position, enrich the product offerings and enhance the overall growth potential of the business. Immediately upon the transaction, Sogou had narrowed the gap with bigger rivals in PC search. More importantly, in mobile search, Sogou has expanded its market share meaningfully from only a negligible presence previously. Leveraging Tencent’s massive user base and vast online properties, Sogou can expand the penetration of its already widely recognized products, including search, browser and Pinyin. The mobile version of Sogou Pinyin, a top three mobile app in China, now has almost 200 million monthly active users, more than doubled from a year ago. Sogou and Tencent are also working closely on product integration. For example, Sogou has absorbed Soso’s sophisticated knowledge in vertical and mobile search areas. Such cooperation will help complement Sogou’s product roadmap. In 2013, Sogou saw continuous improvement in monetization of elevated traffic scale. The full year revenues reached US$216 million, an increase of 65% from the previous year. In the fourth quarter, the number of search advertisers increased by 45% and average revenue per customer increased by 22% year-on-year. Notably, in that quarter, mobile revenues reached around 10% of Sogou’s total revenues. For 2014, we look to deepen the integration of Sogou products with Tencent’s core platforms. At the same time, Sogou plans to launch several innovative products, in particular on the mobile front, to further broaden its user base. Changyou In 2013, Changyou continued to deliver solid financial growth supported by the extended popularity of its core MMO games and web games, such as TLBB, Wartune and DDTank, and the growth of online ad sales by 17173.com, a leading game information portal in China. To capture new market opportunities related to games in the mobile market, since the fourth quarter of last year, Changyou invested heavily in the development of its platform initiatives and the development and licensing of mobile games. It made steady progress in its platform initiative. By launching of a series of PC and mobile applications around 17173, Changyou has successfully established multiple gateways to the unified game platform it is building for gamers. We saw encouraging user growth as a result. In the fourth quarter of 2013, the average monthly active accounts of its platforms channels nearly doubled to 149 million from a year ago. Changyou also made headways with its mobile games, launching several new mobile games and carrying out effective marketing campaigns for them. In 2014, Changyou will be ramping up its investment in its platform initiative and in games and other applications, so as to capitalize on the fast growth of the mobile market globally. We believe these strategic investments will help Changyou develop new growth drivers for the future of its business. In summary, we are encouraged by the progress we achieved in 2013. We also understand the competition is ruthless and we must make even greater efforts to capture the opportunities in the rapidly evolving mobile internet era. In light of such situation, 2014 will be another year of investment. We plan to invest aggressively in areas that will enhance our long-term competitiveness, including in video, search and gaming. We believe the investment will bring value to our shareholders over time. I would like to thank our investors for your long-standing support. Sincerely, Charles Zhang Chairman and Chief Executive Officer UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) H ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2013 OR h TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ COMMISSION FILE NUMBER 0-30961 SOHU.COM INC. (Exact name of registrant as specified in its charter) Delaware 98-0204667 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) Level 18, Sohu.com Media Plaza Block 3, No. 2 Kexueyuan South Road, Haidian District Beijing 100190 People’s Republic of China (Address of principal executive offices) (011) 8610-6272-6666 (Registrant’s Telephone Number, Including Area Code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Common Stock, $0.001 Par Value SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes H No h Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes h No H Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes H No h Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes H No h Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.