Eric Yuan - Director, IR Charles Zhang - Chairman & CEO Carol Yu - President & CFO Xiaojian Hong - COO

Zhao Ming - 86Research Eddie Leung - Merrill Lynch Alicia Yap - Barclays Capital Fei Fang - Goldman Sachs George Meng - Morgan Stanley Chi Tsang - HSBC Natalie Wu - CICC Wendy Huang - Standard Chartered

Thank you for joining Sohu's third quarter 2014 earnings conference call. (Operator Instructions). I'd now like to turn the conference over to your host for today's conference call, Mr. Eric Yuan, Investor Relations, Director of Sohu. Please go ahead, sir.

Thanks, operator. Thank you for joining us today to discuss Sohu's third quarter 2014 results. On the call are Chairman and Chief Executive Officer, Dr. Charles Zhang; President and CFO, Carol Yu. Also with us from Changyou are our Co-CEO, Dewen Chen; Acting CFO, Rucia Ren and our COO, Xiaojian Hong; Xiaochuan Wang; Vice President of Sohu and COO of Sohu Video, Ye Deng. Before management begins their prepared remarks, I'd like to remind you of the company's 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 statement. For more information about the potential risks and uncertainties, please refer to the company's filings with Securities and Exchange Commission including its registration statement and most recent Annual Report on Form 10-K. With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed.

Thank you and thanks everyone for joining our call. We had a solid quarter and our financial performance was largely in-line with our expectations. Some of our key business lines continue to show strong momentum. Sohu video attained a healthy growth in users driven by an impressive 40% sequential increase in mobile traffic. Sohu quarterly revenue exceeded a $100 million for the first time and was up 86% year-over-year. In September, Sogou's mobile keyboard became the number one (indiscernible) APP only iOS China App scores [ph]. Once Apple finally allowed third party input method software work on the iOS 8 system. By telling well user engagement in it's PC MMO games remain resilient but more exciting is that we launched a couple of mobile games showing initial success. In particular, TLBB 3D which was launched last Wednesday was reported to become the most popular mobile game iPhone in China. This marks Changyou's solid start in the mobile game space. Mean time China will continue to invest in it's platform initiatives which every monthly active users total 475 million in the third quarter up 178% from a year ago. Before I give more details of our key businesses, let me share with you our financial results for the third quarter 2014. Total revenues $430 million up 17% year-over-year and 8% quarter-over-quarter. Advertising revenue, 149 million up 19% year-over-year and 12% quarter-over-quarter. Sohu revenue was a $106 million up 86% year-over-year and 17% quarter-over-quarter. Online game revenues a 150 million down 7% year-over-year and 2% quarter-over-quarter. Non-GAAP net loss attributable to Sohu.com, Inc $23 million or $0.61 fully diluted share. Now I will go through some of our key businesses. First upon our media business, for Sohu News we’re exploring new ways to aggregate content and aim to generate more appealing articles for our users. For some channels we’re partnering with professional individuals to create media, to write article for us rather relying in-house editors to pick and write content. We’re making progress in mobile monetization with mobile ad revenues increasing about 30% from prior quarter. Our online video in the third quarter even though we did not have some of the most popular TV variety shows we attained solid growth as our vast portfolio of content gave users a compelling reason to keep coming back for our site. We also achieved over 40% year-over-year growth in ad revenues which is a satisfying result considering we have a relatively difficult base of comparison for 2013 for The Voice of China of that quarter last year. For the first three quarters of 2014 our content spending was behind some of our competitors. The intelligent picks help us maintain a strong content library. For example, Sohu Video offered 80% of the Top 30 domestic TV dramas that were broadcast in 2014. For premium American content for which Sohu video is best known they continue to expand our library. During the four seasons, we exclusively broadcast highly anticipated series like the (indiscernible) and the Znation [ph]. We also introduced the iconic U.S. animation series The Simpsons. Our in-house product produce content who have already built a franchise from well-known brands such as the hit comedy series (indiscernible) existing solid foundation we made another pioneering move by producing the long format 40 minute per episode web drama in August, Back in Time, a series adapted from a famous online fiction novel ranked the number one on Web Drama Search Index. It also gained a very positive review by critics, they accumulated video views of the 16 episode series hit 500 million mark, a level comparable to those popular traditional TV dramas broadcast on our platform. We also look at how to diversify our content stores by stepping up our efforts PGC, Professionally Generated Content. Beyond content in 2014 Sohu focused on effort to enhance to enhance operational efficiency to refine technology for both our PC and mobile device service developed a stronger distribution channels and the relentlessly grew our mobile application penetration. These actions collectively help us achieve impressive operating metrics. For September Sohu Video's aggregated traffic was more than doubled when compared at the beginning of 2014. Mobile traffic growth was even more robust. Now in terms of video views more than 60% of the traffic is from mobile. In summary despite heated competition we still firmly believe that online video is a very promising business as is already becomes indispensable to 100s and millions of online users in China. Next we move to Sogou, we’re pleased that in the third quarter Sogou continued to gain strong traction. It's mobile team and search expanded market presence and it's brand has strengthened us through a series of effective marketing campaigns. Xiaochuan will update you with more details after my remarks. Lastly for Changyou, in the third quarter our user engagement in our core PC MMORPG games were resilient. We had a 29 million aggregate average monthly active accounts, an increase of 21% quarter-over-quarter. In August we launched a new expansion pack for our flagship game TLBB in which we have reduced the level of difficulty to induce stronger user engagement, the tactics helped attract more low spending players and hence will effectively extend the life span and he sustainability of TLBB. So now let's move ahead to short term impact on revenues, this will bring higher revenue contribution over the long run. For mobile games we’re excited that we’re now seeing initial successes for some of our new games. When we officially launched, TLBB 3D on October 29th on iOS and Android application store. This TAU [ph] surpassed 1 million on the first day and became the most popular mobile game on iPhone in China. Lastly about Changyou's platform initiatives, we continue to make progress on that front. In the third quarter we have a total 275 million average monthly active users for various platforms, up 170% year-over-year. Off that about 84 million are from mobile. Before I wrap up my remarks, as Chairman of Changyou I would like to thank Wang Tao for his extraordinary contribution leading Changyou to become one of the most premium online game company in China. Wang Tao has played a vital role in creating the legendary Tian Long Ba Bu and other popular games which gained remarkable success. In his continued capacity as member of Changyou Board, Wang Tao will continue to serve Changyou with his industry insights and inspirations. And now I will pass the call over to Xiaojian Hong for an overview of our Sogou business.

Thanks Charles. Hello everybody. In the third quarter new product launch and aggressive marketing initiative help further enhance Sogou's brand recognition in the industry. Our overall user base continued to expand especially in mobile. We were able to continuously grow users for Sogou Mobile Pinyin on it's current over 200 million MAU base. As such Sogou maintained it's solid number two position in mobile and number three position in PC while it's competiveness in mobile were strengthened meaningfully. In September, as efforts iOS 8 started to support third party input method, the long awaited Sogou Pinyin was rolled out on the same day when the new system was released. Our product immediately captured this rare chance leveraging a well-established brand as such user experience and innovative features. It's a multiple popular input options with outstanding accuracy and speed. According to our data on September 17, when Sogou Pinyin was launched in Apple's App Store in China it once became the number one download of free APP and remained on that place for the next two weeks. As of to-date it is still one of the most popular APPs in the store, throwing other third-party input APPs far behind. The fact that it Sogou Pinyin's undisputable leadership in the market. As such part of our initiative to enhance Sohu brand we signed a Korean TV Star (indiscernible) who is very popular among Chinese youths at the representative of Sogou Search. We meet him at campaigns on multiple media including TV, online video, outdoors board and WeChat. This brought warm public attention. Our cooperation with Tencent is also progressing well. In the second quarter users already confined the content inside WeChat's official accounts via Sogou Search since then we have consistently refined the function to improve the user experience. For example our service can Twitter popular content and make recommendation to users. We also improved the subscription and sharing functions. As we consistently improved the search quality by adding differentiated services, Sogou's aggregated search traffic especially on mobile continued to grow, compare with the prior quarter, mobile search traffic grew by nearly 20%. Financially for the third quarter Sogou revenues for the first time exceeded $100 million mark reaching $106 million up 86% year-on-year. Aggregate paid clicks and cost per click continue to see robust growth while mobile monetization further improved. Mobile search revenue increased 40% sequentially despite a large ramp-up in marketing expenses for branding purpose Sogou achieved operating income of approximately $6 million on a non-GAAP basis. This suggests Sogou may profit for three quarters in a row. For the fourth quarter we expect Sogou revenue to be $118 million to $123 million and full year revenues to be $385 million to $390 million, an increase of 78% to 80% from 2013. I will now like to turn the call over to Eric who will walk you through Group's financial results.

I will walk you through the financials on behalf of Carol. First let me go through key financial metrics for each of major business lines. For brand ad business revenues for the third quarter total brand ad revenues were $149 million up 19% year-over-year and 12% quarter-over-quarter. One, by different platforms for the third quarter ad revenues for Sohu.com including online video were a $106 million up 23% year-over-year with online video ad revenues up 41% year-over-year. Ad revenues for Focus.cn our real-estate channel were $27 million, up 16% year-over-year off this about 40% were from e-commerce business. Ad revenues for 17173 were $17 million, up 2% year-over-year and specifically about mobile monetization. For third quarter for Sohu.com excluding online video, mobile ad revenues from Sohu News app and Sohu WAP portal reached 20% of total ad revenues. For online video mobile ad revenues reached 21% off the total ad revenues. Two, by sector across all platforms, the top three sectors were auto-mobile. FMCG, fast moving consumer goods and real asset, each contributing about 21% of the total brand ad revenues. Cost of revenues, for the third quarter non-GAAP cost of revenues for the brand ad business was $83 million up 31% year-over-year and 1% quarter-over-quarter. For the third quarter content cost was $39 million up 44% year-over-year and down 4% quarter-over-quarter. The majority of the content cost is related with our online video business. Bandwidth cost was $23 million up 24% year-over-year and 9% quarter-over-quarter, the increase is mainly reflective of mobile traffic growth for the video business. Operating expenses, for the third quarter non-GAAP operating expenses were $83 million up 4% year-over-year and down 6% quarter-over-quarter. The year-over-year increase was primarily due to increasing compensation expenses. For Sogou total reveues were $106 million up 86% year-over-year and 17% quarter-over-quarter of those search related revenues were $98 million up 88% year-over-year and 16$ quarter-over-quarter. Non-GAAP operating income was $5.8 million compared with operating income of $8.8 million in previous quarter and operating loss of $1.1 million in third quarter of 2013. Changyou for third quarter total revenues including 17173 or a $181 million down 1% year-over-year and up 2% quarter-over-quarter. The non-GAAP cost of revenues and operating expenses were $183 million up 81% year-over-year and down 1% quarter-over-quarter. The year-over-year increase was mainly due to higher advertising cost with the promotion of software applications for mobile devices and an increase in salary and benefits expense. The non-GAAP operating loss was $2 million just compared with non-GAAP operating loss of $6.6 million last quarter, the previous quarter and a non-GAAP operating profit of 82 million in the same period of 2013. Now let me provide our outlook for the fourth quarter of 2014. We’re expecting total revenues to be between $442 million and $462 million. Brand ad revenues to be between $145 million and a $150 million, this implies a sequential decrease of 3% to a sequential increase of 1% and annual increase of 18% to 22%. Sohu revenues to be between $118 million and a $123 million, this implies a sequential increase off 11% to 16% and an annual growth of 68% to 75%. Online game revenues to be between $150 million and $165 million, this implies a sequential increase of 3% to 10% and an annual decrease of 4% to 10%. Guidance on non-GAAP net income, non-GAAP fully diluted earnings per share and a share base compensation expenses for the fourth quarter of 2014 will not be provided at this time. There are uncertainties as to expected cost and expenses associated with mobile games launched. Expected to be launched and currently in development. Now I will turn over the call to Carol to make her concluding remarks.

Thanks Eric. In summary I'm pleased that we have made solid progress in this quarter business wise. Notably our range of mobile services and products like video, search and games all gained strong traction as our user expanded quickly. Overtime we expect that our monetization in mobile will substantially ramp up a lot the development of the entire mobile internet market. With my new additional responsibilities at Changyou I will endeavor to bring long term value to both Sohu and Changyou shareholders. This concludes our prepared remarks. Thank you for joining the call today.

Operator, we would now like to open the call to questions?

(Operator Instructions). Your first question comes from the line of Zhao Ming from 86Research. Please ask your question. Zhao Ming - 86Research: I have two questions, the first one is related to the non-Changyou sales and marketing expenses. For the third quarter item, the non-Changyou sales and marketing expenses grew by around $30 million sequentially. This is actually the biggest sequential jump this year. Could you please elaborate spending pattern for the quarter and how do they project this going forward? This is my first question and second one is about Sogou, what is the current mobile contribution to Sogou in terms of traffic and revenue? Thank you very much.

Sorry your first question about our S&M expenses related to the non-Changyou part right? Zhao Ming - 86Research: Yes, correct.

Regarding the marketing expenses, the bulk of it will be coming from the increased, a bulk of it is coming from Sogou which for most we have is search app and mobile, it's search friendly, hiring celebrities as our -- to do the promotion as well as the launch on the iOS platform of mobile input method. So I will turn the question over to Xiaojian to answer the part on the Sogou side.

So we have experienced strong growth in mobile traffic and at a moment that mobile traffic has grown by 20% Q-over-Q and in terms of the percentage of traffic is still below PC. Zhao Ming - 86Research: If I may follow-up with the first question Carol, you mentioned that during the quarter the sales and marketing expense for the non-Changyou business was mainly because of promotions of Sohu's mobile apps. So does it mean that this item will decline sequentially in fourth quarter?

I think it will be at least stabilized at the current level.

(Operator Instructions). Next question comes from the line of Eddie Leung from Merrill Lynch. Please ask your question. Eddie Leung - Merrill Lynch: Just a question on your strategy, it seems like some of your competitors have been investing in online finance areas just wondering what management thought on this business? Thanks.

We’re investigating this still and we do have an investment and venture part of that [ph] providing P2P grow along.

Thank you. Your next question comes from the line of Alicia Yap from Barclays Capital. Please ask your question. Alicia Yap - Barclays Capital: My question is regarding that there were a number of news reporter such as that Sohu had acquired 56.com video site from Renren. So could you comment on that? Thank you.

Yes we did. Alicia Yap - Barclays Capital: And then can you share on some of the amount and how would you actually bring this to the next level and integrate with your video business?

We’re not disclosing the amount, the size of the deal. It's (indiscernible) one of the leading UGC and the PGC site in China and so it will be integrate with our UGC and PGC part of Sohu video and help us to develop in this direction.

Thank you. Your next question is from the line of Fei Fang from Goldman Sachs. Please ask your question. Fei Fang - Goldman Sachs: My question is for Xiaojian regarding Sogou. Can you talk a little bit about the source of your mobile traffic? Have you acquired traffic from any partners or have you primarily direct traffic from organic properties and also on mobile, what's the current cost per click relative to PC?

So regarding the source of mobile traffic, at the moment we don’t have third party mobile traffic, majority of the mobile traffic is from Tencent coming from the Q2 browser and also from our own search APP. With regards to the question regarding CPC, mobile CPC is on-par with -- sorry mobile RPM is 40% and CPC is on-par.

Thank you. Your next question is from the line of Jiong Shao from Macquarie. Jiong Shao - Macquarie: I’ve a question on your video business. Could you talk about your thoughts on potentially getting paying users for your content, is there any number you can share with us, how many paying users you now have and what are some of the initiatives if you’ve in the way or in the pipeline for you to continue to drive the growth of the paying user base. Thank you.

So we’re developing those system and we will have a launch of our subscription paid video services soon. And so right now our user base of paid service will be very small and it will be basically will be the paid for no add-on hiding, no commercial. If you paid a monthly fee you will not be bothered by commercials. So this is one reason for people to pay and also we will have movies for people to pay to watch. This is the two future services that we believe that users will pay. Jiong Shao - Macquarie: Can I have a quick follow-up? Do you have a target in two years like percentage of users you’re hoping to get onto the subscription base?

We believe that since the I call it a World War II on piracy basically eliminated the P2P pirated viewing of movies. We believe that the paid services for movies -- the opportunity we’re really it's coming and so we take this paid service as one of our central strategy. So I don’t have a concrete number yet but it's very important for us.

Thank you. The next question comes from the line of George Meng from Morgan Stanley. Please ask your question. George Meng - Morgan Stanley: My question is related to Sogou, so first of all can you share with us the number of search advertisers and also ARPU for this quarter and also the top advertising categories just for search and to be particular can you share with us the percentage of healthcare and medical services contribution from that bigger factor and just I want to clarify that you said that mobile RPM is 40% of PC, whereas the mobile traffic is still less than PC but did you arrive at the 15% mobile contribution. If mobile is already 40%, RPM I think the contribution should be higher.

The number of such advertiser is 50,000 to 60,000 and in terms of revenue for advertisers about $1500 per advertiser. This represents a 18% increase Q-on-Q. In terms of the key categories, Top 5 revenue sectors, this is in-line with our competitors. In terms of the healthcare percentage this is slightly lower than our competitors. The question with regards to the wireless traffic, game wireless traffic is lesser than PC, wireless RPM is about 40%. So in that sense it's catching up at in-line with -- they are generating the trend.

Thank you. Your next question comes from the line of (indiscernible). Please ask your question.

Just a couple of questions, first of all on your guidance, historically you guys have given a very good precise guidance over the years and yet this quarter you kind of left out the bottom line guidance. I guess just kind of wondering, where the uncertainty comes from and what it has been quarter than in the quarter's past? Thanks guys.

The primary reason is because with Xiaojian's initiatives in new mobile games and the lack of track record we feel that at the current stage of having a very substantial games being only in a fixed phase of operation. We feel that it will be more conservative and responsible to the investing community that we should not be able to giving out proper guidance at this moment. We will resume giving our guidance next quarter or if we have more of visibility further down into this quarter we will also share that with the investing community. Thanks.

Thank you. The next question comes from the line of Chi Tsang from HSBC. Please ask your question. Chi Tsang - HSBC: I had couple of other questions on video, I was wondering if you could comment on the competitive landscape in the video market today and also what your content strategy might be and your budget growth for 2015 for content. Thanks a lot.

Chi, could you please the first part of your question? Chi Tsang - HSBC: Yes I'm wondering that (indiscernible) plus Alibaba is getting more aggressive on content. Obviously Tencent is getting more aggressive on content. I was wondering if you can comment on the overall competitive landscape for the video business and then also comment on your budget for next year for content cost? Thank you.

Well as we demonstrated in the past few quarters we have been able to achieve robust traffic growth with the least content spending compared with our competitors. So, I think the, we will continue this way of competing basically by spending less but continue to have the pre-size factory picks of the really good content and make sure that the good TV dramas and American shows and the key areas and also to continue our track record of in-house produced content that proved to be cost effective. So, this is our -- and also to increase -- basically have it integrated management style basically to make sure that good content really get good marketing and also good product and the technology that serves the content and so these are basically the overall strategy. Chi Tsang - HSBC: What do you think the content budget might be growing next year?

Well definitely it's right but well it's depends on the market condition. It's change quarter-over-quarter so it will increase but still will continue to spend less than our competitors but well not sacrificing our traffic growth. So that’s our goal, that’s how to use the least cost and generate the maximum growth.

Thank you. Your next question comes from the line of Natalie Wu from CICC. Please ask your question. Natalie Wu - CICC: Just wondering about acquisitions of 56.com, does the transaction also include Sohu.com and will there be any plans to integrate? Sohu videos current content and user account with 56.com in order to achieve more synergy and will Sohu increase content budget for UGC content upon this acquisition? It will be great if you can share with us your sales production, content budget in the next year? Just a rough feeling will be okay, thanks.

First all of the (indiscernible) acquisition actually exclude the (indiscernible) because at Sohu Video we haven't developed any type of service like (indiscernible). So it's not included in the deal. So it's yes I think there is lot of synergies with Sohu Video and the 56.com. Sohu Video is PGC and 56.com. In terms of budget there is for this PGC content there is actually not much content cost, it's more of integration of the infrastructure, the bandwidth and the share some of the content in terms of the user traffic and so it's -- that’s my comment about 56.com.

Thank you. Your next question comes from the line of Wendy Huang from Standard Chartered. Please ask your question. Wendy Huang - Standard Chartered: Brand advertising gross margin since expanded nicely this quarter, how sustainable it is and how should we think about the future margin chain? Thank you.

Which margin did you talk about here? Wendy Huang - Standard Chartered: Brand advertising.

It's very difficult to predict a gross margin trend in light of the volatile price changes for content, video content. If we look at by business line, I think on the Sohu video side, it will be relatively stable if not trending down a bit and for the other cost such as bandwidth and alike it will also be pretty stable but uncertainty will be surrounding the biggest item being the content cost for video. So I think it's very difficult to give you any -- I don’t have a crystal ball so I don’t really know.

Thank you. Your next question comes from the line of (indiscernible).

First of all a quick follow-up on the acquisition of 56.com. As Charles just mentioned the UGC website, does that incur too much content cost? So it fair to say the financial -- or the margin profit of 56.com is better than Sohu's organic video business? And to my second question is couple of Chinese media reported, the authority has introduced stricter regulation versus TV dramas. So just wonder how will that impact your content acquisition strategy? Going forward as American TV Drama used to be the most featured content on Sohu video website. Thank you.

Yes, about 56.com if we’re able to achieve a full monetization to the full extent the margin will definitely be better than the traditional TV drama content broadcasting. So we’re first of all we need to develop these PGC traffic to scale and then we need to have a very effective monetization basically to place TV commercial advertising effectively among preload of this shorter clips. So it is, the margin will definitely is better. So now our goal is due to developed traffic. And then your question about the regulations, I think it's not clear yet. So, I think it will be effective, the new regulation will be effective next year. So it's not clear or in terms of the percentage of episodes it does not affect us much because it's the 30% mark is similar to what we’re having. Regarding other effects we do not know yet. We will see how it will affect our traffic. But still the overall -- I mean of course American TV shows and American content are really -- we have a good brand name on this and the high end of users, the traffic, but in terms of overall traffic percentage our brand is still -- of our traffic is still coming from the viewing of the domestic TV dramas and variety shows and also our in-house produced content. So we will see.

Thank you. Your next question is from the line of Thomas Chong from Citi. Please ask your question. Thomas Chong - Citi: I’ve a quick question about search competitive landscape. Can management give us some color about the competitive landscape for PC and movie search in 2015 and how would it be different compared to this year? Thanks.

There is two points to be made, the mobile search market will continue to grow and in terms of that it will depend on product enhancement and channel development. Just to add to that point, Sogou is the only player with both PC and significant PC and wireless -- search market share and in that sense the PC monetization is important within the realm of PC and wireless is obviously important growth area. The next point with regards to product differentiation with the collaboration with Tencent we’re able offer to differentiated product offering with regards to WeChat search.

Thank you ladies and gentlemen that does conclude the conference for today. Thank you for participating. You may all disconnect.