0615cvr_r.indd 1 5/2/12 9:24 AM 0615cvr_r.indd 2 5/2/12 9:24 AM Dear Shareholders: In 2011, as China’s Internet population topped the 500 million mark, we were excited to see solid growth across our major business lines. For our online advertising business, our investment in online video and search paid off and brought us sizable growth in users, traffic and revenues. For our online games business, Changyou achieved healthy growth in its MMO game portfolio and diversified into other fast growing areas such as Web-based games. Among the year’s highlights, our online search subsidiary Sogou emerged as China’s No. 2 search engine as measured by traffic, according to CNZZ, a web analytics firm. Our online video business built a strong foothold in the industry by offering compelling licensed and in-house produced content. And with the acquisition of 7Road, Changyou quickly established a leading position in the fast-growing Web-based game segment. Changyou will also jump-start its platform-based strategy by leveraging the strength of our leading game information portal 17173.com. 2011 Financial Highlights We were pleased with our financial performance for 2011. Total revenues set a new record at US$852 million, up 39% from the previous year. Net brand advertising revenues were US$279 million, up 32% year over year. Sogou revenues were US$63 million, a substantial jump of 238% from a year ago, and our online games revenues were US$436 million, up 33% year over year. As of December 31, 2011, our Group’s cash balance was US$733 million, and cash flow from operations in 2011 was US$370 million. Our strong balance sheet and healthy cash flow will enable us to capture growth opportunities as they arise. Let me turn to some of the key developments across our business lines. Sogou In 2011, we were successful in our strategy of unleashing the combined strength of Sogou’s three core products — Sogou Pinyin, Sogou Browser and Sogou Search. Sogou delivered strong top-line growth, driven by continued solid traffic growth and improved monetization. Sogou’s success is built on its strong technological focus, and our constant efforts to improve product quality and develop new functionalities. In 2011, we further optimized the algorithm for Sogou’s search engine and revamped its advertising system, helping improve cost-per-click rates. We completed a major upgrade of the Sogou Browser to version 3 that enhanced overall performance by 20%-30%. And we also launched 3 new versions for Sogou Pinyin, the No.1 application for Chinese language-input, adding more personalized features. Internet users embraced these innovations. According to iResearch, in December 2011, Sogou Pinyin’s monthly unique users reached 309 million. Sogou Browser’s daily active users reached 33 million, up 83% from a year ago, and Sogou Search’s daily page views rose by 106% in 2011. Looking at 2012, we expect Sogou will maintain a fast pace of revenue growth. In the meantime, we are investing heavily in many areas, including expanding R&D teams for some long-term projects, developing a broader partner network and strengthening the infrastructure to improve our service quality. Sohu Video In 2011, Sohu Video’s content remained the envy of the industry. Based on CSM Media Research data, Sohu Video broadcasted 21 out of the 30 most-watched prime-time television dramas during the year. We enhanced our in-house production capability and introduced a series of popular made-for-Internet dramas and original programs. The combination of compelling content and aggressive marketing efforts helped place Sohu Video in the top tier of the market and draw a large and growing user base for our platform. According to iResearch, in December 2011, our monthly unique visitors reached 190 million, up 68% compared with a year ago. For 2012, given the fact that some of the TV dramas in our pipeline were acquired in the second half of 2011 when there was a sharp increase in content prices, we inevitably will face short-term cost pressures. Increasingly, however, we have seen signs that prices are stabilizing as major players have become more rational when bidding for new content. We’re aware that industry consolidation is taking place in China’s online video sector. For Sohu Video, we intend to be opportunistic when considering potential acquisitions if we come to opportunities that are in line with our strategic development needs. Strategically, we will continue to invest in securing premium content, producing original programs and enriching user-generated-content. Capitalizing on our unparalleled experience in the entertainment industry, we aim to create a leading comprehensive online video platform. Online Games In 2011, our online games business, Changyou, benefited from the ongoing popularity of its core MMO games in China and its expansion into lighter Web-based games through the acquisition of 7Road, one of the leading Web-based game companies in China. Changyou’s leading MMO game franchise, Tian Long Ba Bu, or TLBB, continued to gain popularity and new users with several successful releases of expansion packs and content upgrades. DDTank, the flagship Web-based game developed by 7Road, topped the ranking charts of Web-based games in China, and was well-received by game players in other Asian countries. In late 2011, Changyou kick-started a new initiative to roll out a platform-based strategy with the acquisition of 17173.com. 17173.com’s game portal business continues to perform well under Changyou’s management. Changyou has begun working on enhancing the existing user services and is planning new services and products for the sites’ different user communities. With investments in 17173 over the years to come, Changyou aims to grow 17173 into one of the most active online communities for gamers in China. Outlook In conclusion, we are pleased with what we achieved in 2011. For 2012, we’ll strive to serve our users and customers even better. In Sohu’s 16-year history, we have demonstrated our unique ability to build new businesses from the ground up. Our dedicated efforts already made our online games business highly competitive and profitable. Our search and video businesses are also on track to repeat such success. On behalf of everyone at Sohu, I would like to thank our shareholders for your support and commitment to our vision. Sincerely, Charles Zhang 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, 2011 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) Identification No.) Level 12, Sohu.com Internet Plaza No. 1 Unit Zhongguancun East Road, Haidian District Beijing 100084 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. h Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer H Accelerated filer h Non-accelerated filer h Smaller reporting company h Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes h No H The aggregate market value of common stock held by non-affiliates of the registrant, based upon the last sale price on June 30, 2011 as reported on the NASDAQ Global Select Market, was approximately $1,948 million. As of January 31, 2012, there were 38,088,327 shares of the registrant’s common stock outstanding.